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As filed with the Securities and Exchange Commission on March 5, 1996
Registration Nos. 33-37426
and 811-6194
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
--
Post-Effective Amendment No. 8 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Post-Effective Amendment No. 8 [X]
(Check appropriate box or boxes)
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THE CHACONIA INCOME & GROWTH FUND, INC.
(Exact Name of Registrant as Specified in Charter)
c/o American Data Services, Inc.
24 West Carver Street, Huntington, New York 11743
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, including Area Code: 516-385-9580
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The Corporation Trust Company
32 South Street
Baltimore, MD 21202
(Name and Address of Agent for Service)
Copies to:
Ulice Payne, Jr., Esq.
Reinhart, Boerner, Van Deuren, Norris & Rieselbach, s.c.
1000 North Water Street, Suite 2100, Milwaukee, WI 53202
414-298-8233
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Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the registration statement.
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It is proposed that this filing will become effective on March 5, 1996 pursuant
to paragraph (b) of Rule 485.
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Pursuant to Rule 24f-2(a)(1) under the Investment Company Act
of 1940, registrant hereby elects to register an indefinite number of shares of
its Securities under The Securities Act of 1933. Registrant will file a Rule
24(f)-2 Notice within six months of the fiscal year ended December 31.
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THE CHACONIA INCOME & GROWTH FUND, INC.
Prospectus March 5, 1996
TABLE OF CONTENTS
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Page
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Cross-Reference Sheet 3
Cover Sheet 5
Summary of Fund Expenses 6
Prospectus Summary 8
Investment Objective and Policies 9
Basic Investment Techniques 10
Certain Investment Strategies and Special Risk Considerations 13
Management 14
How to Purchase Shares 16
Distribution Plan and Service Fees 17
How to Redeem Shares 17
Retirement Plans 18
Dividends, Distributions and Taxes 19
General Information 20
</TABLE>
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No dealer, salesman or other person has been authorized to give any information
or to make any representation other than those contained in this Prospectus,
and if given or made, such information or representation may not be relied upon
as being authorized by the Fund, the Advisor, certain registered broker-dealers
("selected broker-dealers") or any affiliate thereof. This Prospectus does not
constitute an offer to sell or a solicitation of any offer to buy in any state
to any person to whom it is unlawful to make such offer in such state.
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THE CHACONIA INCOME & GROWTH FUND, INC.
Cross-Reference Sheet
(as required by Rule 495)
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Form N-1A Item
Part A
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Prospectus Caption
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1 Cover Page Cover Page
2 Synopsis Summary of Fund Expenses;
Prospectus Summary
3 Condensed Financial Information Not Applicable
4 General Description of Registrant Investment Objective and Policies;
The Fund and Its Management;
Cover Page; Investment
Restrictions; Prospectus Summary
5 Management of the Fund Management; Back Cover; Investment
Objective and Policies
6 Capital Stock and Other Securities Dividends, Distributions and
Taxes; General Information
7 Purchase of Securities Being Offered How to Purchase Shares
8 Redemption or Repurchase How to Redeem Shares
9 Pending Legal Proceedings Legal Proceedings
</TABLE>
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Part B
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Statement of Additional Information Caption
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10 Cover Page Cover Page
11 Table of Contents Cover Page
12 General Information and History Management
13 Investment Objectives and Policies Investment Objectives and
Policies; Investment
Restrictions; Portfolio
Transactions and Brokerage
14 Management of the Fund Management
15 Control Persons and Principal Holders
of Securities Directors and Officers
16 Investment Advisory and Other Services Management
17 Brokerage Allocation and Other
Practices Portfolio Transactions and
Brokerage
18 Capital Stock and Other Securities Prospectus-General Information
19 Purchase, Redemption and Pricing of
Securities Being Offered How to Purchase Shares; How to
Redeem Shares
20 Tax Status Dividends, Distributions and
Taxes
21 Underwriters Not applicable
22 Calculation of Performance Data Not applicable
23 Financial Statements Financial Statements
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3
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Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
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DATED MARCH 5, 1996
THE CHACONIA INCOME & GROWTH FUND, INC.
c/o American Data Services, Inc.
24 West Carver Street
Huntington, NY 11743
The Chaconia Income & Growth Fund, Inc. (the "Fund") is an
open-end, nondiversified management investment company which seeks high current
income and capital appreciation. It seeks to meet its objective by investing
the Fund's assets in: U.S. Government securities including U.S. Treasury
obligations and obligations issued or guaranteed by U.S. Government agencies or
instrumentalities, investment grade corporate bonds, investment grade foreign
government bonds, equity securities of U.S., Canadian, British and Trinidad and
Tobago companies, the First and Second Unit Schemes (the "Schemes") of the
Trinidad and Tobago Unit Trust Corporation, certificates of deposit and money
market funds. The minimum initial investment is $250. Subsequent investments
will be a minimum of $100. (See "How to Purchase Shares"). For further
information, contact the Fund at the address or telephone number shown above.
There can be no assurance that the Fund's investment objective will be
achieved.
INVESCO CAPITAL MGMT. INC. (the "Investment Manager") serves
as Investment Manager to the Fund. The Investment Manager receives a
management fee from the Fund and may be reimbursed by the Fund for certain
distribution expenses in connection with a Rule 12b-1 distribution plan.
This prospectus concisely sets forth information a prospective
investor should know about the Fund before investing. A Statement of
Additional Information about the Fund and an Annual Report to Shareholders of
the Fund has been filed with the Securities and Exchange Commission and is
available upon request and without charge by calling or writing the Fund at the
above address or by contacting certain registered broker-dealers ("selected
broker-dealers"). The "Statement of Additional Information" is dated March 5,
1996 and is incorporated by reference into this Prospectus in its entirety.
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Investors are advised to read this Prospectus and retain it
for future reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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SUMMARY OF FUND EXPENSES
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Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) None
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price) None
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, as applicable) None
Redemption Fees (as a percentage of
amount redeemed) None
Exchange Fee None
Annual Fund Operating Expenses
(as a percentage of average net assets):
Management Fees(a) (variable--as a
percentage of average daily net assets) 0.67%
12b-1 Fees 0.50%
Service Fees(b) 0.01%
Other Expenses 1.19%
Total Fund Operating Expenses(a)(b) 2.37%
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(a)The management fee will vary depending upon the Fund's average
daily net assets and will be the greater of $50,000 or 0.75% of 1% on the first
$10 million, 0.50% of 1% on the next $10 million and 0.25% of 1% over $20
million of the Fund's average daily net assets. Total Fund operating expenses
will vary depending upon the management fee.
(b) The service fees are payments made by the Fund to registered
broker-dealers for personal service and/or the maintenance of shareholder
accounts.
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Example
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1 year 5 years 10 years
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You would pay the following expenses
on a $1,000 investment, assuming
(i) 5% annual return and
(ii) redemption at the end of
each time period: $25 $131 $279
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The purpose of this table is to assist the investor in
understanding the various costs and expenses of an investment in the Fund. The
example should not be considered a representation of past or future expenses;
actual expenses may be greater or less than those shown.
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FINANCIAL HIGHLIGHTS
The following Financial Highlights for a share of beneficial interest
outstanding throughout the period shown has been audited by Coopers & Lybrand,
L.L.P., independent accountants, whose report on the financial statements which
incorporate this information appears in the Fund's annual report, as filed with
the Securities and Exchange Commission on March 4, 1996. This table should
be read in conjunction with the financial statements and notes thereto which
are contained in such annual report.
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1995 1994 1993(1)
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Per share operating performance:
Net asset value, beginning of period $9.94 $10.20 $10.00
Income from investment operations:
Net investment income 0.24 0.13 0.03
Net realized and unrealized gain (loss) on 2.47 (0.13) 0.21
investments
Total from investment operations 2.71 .00 0.24
Less distributions:
Dividend from net investment income (0.23) (0.13) (0.04)
Distribution in excess of net investment 0.00(2) 0.00(2) 0.00(2)
income and realized gains
Distribution from realized gains (0.28) (0.13) 0.00(2)
Total distributions (0.51) (0.26) (0.04)
Net asset value, end of period $12.13 $9.94 $10.20
Total return based on net asset value per share(3) 27.16% 0% 2.40%
Ratios/supplemental data:
Net assets, end of period $17,809,000 $12,315,000 $12,105,000
Ratios to average net assets:
Expenses 2.37% 2.87% 2.73%(4)
Net investment income 2.09% 1.25% 0.53%(4)
Portfolio turnover rate 26.23% 40.13% .55%
</TABLE>
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1 For the period May 11, 1993 (commencement of operations) through
December 31, 1993 (audited).
2 Less than $.01 per share.
3 Not annualized, excluding sales charge.
4 Annualized.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus:
THE FUND: The Fund is a Maryland corporation, incorporated on
October 24, 1990, and registered as a open-ended, nondiversified, management
investment company under the Investment Company Act of 1940 ("1940 Act").
INVESTMENT OBJECTIVE: The Fund's investment objective is to
seek high current income and capital appreciation. It seeks to meet its
objective by investing the Fund's assets in: U.S. Government securities
including U.S. Treasury obligations and obligations issued or guaranteed by
U.S. Government agencies or instrumentalities, investment grade corporate
bonds, investment grade foreign government bonds, equity securities of U.S.,
Canadian, British and Trinidad and Tobago companies, American Depository
Receipts ("ADRs"), the Schemes of the Trinidad and Tobago Unit Trust
Corporation, certificates of deposit and money market funds. Under normal
market conditions, the Fund will maintain a level of at least 25% of its total
assets invested in debt securities and at least 25% of its total assets
invested in equity securities. For purposes of this investment policy, equity
securities are defined as: common stocks, preferred stocks, warrants, stock
rights, convertible bonds and convertible debentures.
There is no assurance that the Fund will achieve its
investment objective. The investment objective of the Fund and its investment
restrictions described in the Statement of Additional Information are
fundamental and may not be changed without stockholder approval. Its other
investment policies may be changed by the Board of Directors without
stockholder approval.
INVESTMENT RISKS: All investments, including mutual funds,
have risks and no investment is suitable for all investors. The Fund may
invest in both large and small companies. Investment in small companies
involve greater risk than is customarily associated with more established
companies. The Fund may invest in short, medium or long term interest bearing
obligations which have the risk of principal fluctuation due to changing
interest rates and the ability of the issuer to repay the obligation at
maturity. The Fund may invest in securities of companies and governments of
foreign nations that involve certain risks which are in addition to the usual
risks inherent in U.S. investments.
MANAGEMENT AND FEES: The Investment Manager is compensated
for its services and its related expenses at an annual rate of the greater of
$50,000 or 0.75 of 1% on first $10 million, 0.50 of 1% on next $10 million and
0.25% of 1% over $20 million of the Fund's average daily net assets. The
Investment Manager may receive 12b-1 fees as reimbursement for certain
distribution expenses.
HOW TO PURCHASE SHARES: Shares of the Fund may be purchased
through selected broker-dealers and from American Data Services, Inc., Transfer
Agent for the Fund ("Transfer Agent"), at the public offering price per share
next determined after receipt of an order by either a registered broker-dealer
or the Fund's Transfer Agent, in proper form with accompanying check or other
bank wire payment arrangements satisfactory to the Fund. The minimum initial
investment is $250. Subsequent investments will be a minimum of $100.
Investments through an Individual Retirement Account or other retirement plans,
however, have different requirements. See "Retirement Plans."
HOW TO SELL SHARES: Shares of the Fund may be redeemed
through selected broker-dealers and the Transfer Agent by the stockholder at
any time at the net asset value per share next determined after the redemption
request is received by either a registered broker-dealer or the Transfer Agent
in proper form. See "How to Redeem Shares."
DIVIDENDS AND REINVESTMENT: Each dividend and capital gains
distribution, if any, declared by the Fund on its outstanding shares will,
unless a stockholder elects otherwise, be paid on the payment date in
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additional shares of the Fund having an aggregate net asset value as of the
ex-dividend date of such dividend or distribution equal to the cash amount of
such distribution. An election may be changed by notifying the Fund in writing
at any time prior to the record date for a particular dividend or distribution.
There are no sales or other charges in connection with the reinvestment of
dividends and capital gains distributions. There is no fixed dividend rate,
and there can be no assurance that the Fund will pay any dividends or realize
any capital gains. However, the Fund currently intends to pay dividends and
capital gains distributions, if any, on an annual basis. See "Dividends,
Distributions and Taxes."
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek high current
income and capital appreciation. It seeks to meet its objective by investing
the Fund's assets in: U.S. Government securities including U.S. Treasury
obligations and obligations issued or guaranteed by U.S. Government agencies
or instrumentalities, investment grade corporate bonds, investment grade
foreign government bonds, equity securities of U.S., Canadian, British and
Trinidad and Tobago companies, ADRs, the Schemes of the Trinidad and Tobago
Unit Trust Corporation, certificates of deposit and money market funds. There
can be no assurance that the Fund will be able to achieve its objective.
The Fund intends to invest in the Schemes of the Trinidad and
Tobago Unit Trust Corporation only if the Fund determines that there are no
adverse restrictions to realizing an investment in the Schemes of the Trinidad
and Tobago Unit Trust Corporation and the Investment Manager believes the
potential rewards from the Schemes of the Trinidad and Tobago Unit Trust
Corporation are greater than the other investments described above.
The Fund's investment policy will emphasize debt instruments
to achieve the Fund's current income objective. Under normal market
conditions, the Fund will maintain a level of at least 25% of its total assets
invested in debt securities and at least 25% of its total assets invested in
equity securities. The investment in equity securities versus debt securities
will depend upon the Investment Manager's evaluation of the relative merits and
risks of equity securities versus bonds.
The attractiveness of nongovernment instruments will be judged
based upon their potential return enhancement and creditworthiness. Potential
return is determined by observing the existing yield spread differential within
a historical context and purchasing such instruments only when the differential
is at levels which are above a long-term mean. Within the investment credit
spectrum, to ensure protection of principal, additional credit analysis will be
undertaken in employing the Investment Manager's proprietary analytical
techniques and data bases to further reduce the risk.
In determining the maturity of the debt securities the Fund
invests in, the Investment Manager will focus on whether the level of real
yield, after taking into account inflation, is adequate to compensate for the
greater volatility and risks associated with debt securities having a greater
maturity. Generally, the longer the maturity of a debt security, the greater
its price volatility. Conversely, the shorter the maturity, the lower its
price volatility. During a typical credit cycle, the average duration implied
by this discipline will likely average 5 years within a range of 2.5 to 8
years.
In determining what equity securities the Fund will invest in,
the Investment Manager will focus on the actual earnings, return on equity and
dividend history of the company. The Investment Manager will seek to invest in
equity securities of companies whose shares are undervalued based on the
current price relative to the long-term record of the company. For purposes of
this investment policy, equity securities are defined as: U.S. and foreign
common stocks, ADRs, warrants, convertible bonds, convertible debentures,
preferred stock and stock rights. No more than 5% of the Fund's net assets may
be used to purchase warrants or stock rights. For purposes of this investment
policy, a warrant is defined as a certificate giving the holder the right to
purchase securities at a stipulated price within a specified time limit or
perpetually. Sometimes a warrant is offered with securities as an inducement
to buy. The prices of warrants do not necessarily correlate with the prices of
the underlying securities. The Fund may not purchase options on equity
securities. Debt securities are
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defined as: U.S. and foreign nonconvertible company bonds, U.S. and foreign
government securities and commercial paper.
The Fund intends to invest in a variety of securities, with
differing issuers, maturities and interest rates. If the Investment Manager
believes that stocks in general are overvalued, or that interest rates may rise
substantially, or that the general economic environment may be deteriorating,
the Investment Manager may assume a temporary defensive position and may invest
up to 100% of the Fund's assets in high quality commercial paper and short-term
U.S. Government securities such as Treasury Bills and Treasury Notes. The Fund
intends to operate as a "regulated investment company" under Subchapter M of
the Internal Revenue Code. See "Dividends, Distributions and Taxes." The
average U.S. dollar weighted duration of the Fund's portfolio is not expected
to exceed ten years.
The Fund does not expect to trade in securities for short-term
gain. It is anticipated that the annual portfolio turnover rate will not
exceed 100%. The portfolio turnover rate is calculated by dividing the lesser
of sales or purchases of portfolio securities by the average monthly value of
the Fund's portfolio securities. For purposes of this calculation, portfolio
securities exclude debt securities having a maturity at the date of purchase of
one year or less.
Subject to its investment policy of normally investing at
least 25% of its total assets in U.S. Government securities, investment grade
corporate bonds and investment grade foreign government bonds, the Fund is
permitted to invest in (1) U.S. dollar denominated debt securities, similar in
nature to those described above, regardless of the domicile of the issuers and
(2) income producing equity securities of companies domiciled in the United
States (some of which may be denominated other than in U.S. dollars). Some of
these securities are issued in the Eurodollar market by multinational banks and
companies which may have operations in Trinidad and Tobago.
The Fund may not borrow money except for (1) short-term
credits from banks as may be necessary for the clearance of portfolio
transactions, and (2) borrowings from banks for temporary or emergency
purposes, including the meeting of redemption requests, which would otherwise
require the untimely disposition of its portfolio securities. Borrowing for
any purpose including redemptions may not, in the aggregate, exceed 5% of total
assets after giving effect to the borrowing and borrowing for purposes other
than meeting redemptions may not exceed 5% of the value of the Fund's total
assets after giving effect to the borrowing. The Investment Manager of the
Fund will not purchase securities when borrowings exceed 5% of total assets.
The Fund may mortgage, pledge or hypothecate assets to secure such borrowings.
BASIC INVESTMENT TECHNIQUES
Securities Subject to Reorganization
The Fund may invest in both debt and equity securities for
which a tender or exchange offer has been made or announced and in securities
of companies for which a merger, consolidation, liquidation or reorganization
proposal has been announced if, in the judgment of the Investment Manager,
there is a reasonable prospect of capital appreciation significantly greater
than the brokerage and other transaction expenses involved.
In general, securities which are the subject of such an offer
or proposal sell at a premium to their historic market price immediately prior
to the announcement of the offer or may also discount what the stated or
appraised value of the security would be if the contemplated transaction were
approved or consummated. Such investments may be advantageous when the
discount significantly overstates the risk of the contingencies involved;
significantly undervalues the securities, assets or cash to be received by
stockholders of the prospective portfolio company as a result of the
contemplated transaction; or fails adequately to recognize the possibility that
the offer or proposal may be replaced or superseded by an offer or proposal of
greater value. The evaluation of such consistencies requires unusually broad
knowledge and experience on the part of the Investment Manager which must
appraise not only the value of the issuer and its component businesses, as well
as the assets or securities to be received as a result of the contemplated
transaction but also the financial resources and business
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motivation of the offeror and the dynamics and business climate when the offer
or proposal is in process. In making these investments, the Fund will not
violate any of its investment restrictions including the requirement that: (a)
as to 75% of its total assets, it will not invest more than 5% of its total
assets in the securities of any one issuer, and (b) it will not invest 25% or
more of its total assets in any one industry. Since such investments are
ordinarily short-term in nature, they will tend to increase the turnover ratio
of the Fund, thereby increasing its brokerage and other transaction expenses,
as well as make it more difficult for the Fund to meet the test for favorable
tax treatment as a "Regulated Investment Company" under Subchapter M of the
Internal Revenue Code of 1986 (the "Code") (see "Dividends, Distributions and
Taxes"). The Investment Manager intends to select investments of the type
described which, in its view, have a reasonable prospect of capital
appreciation which is significant in relation to both risk involved and the
potential of available alternative investments, as well as to monitor the
effect of such investments on the tax qualifications test of the Code.
The Fund may not invest more than 15% of its net assets in (1)
securities which are restricted or for which market quotations are not readily
available; (2) fixed time deposits subject to withdrawal penalties (other than
overnight deposits); (3) repurchase agreements having a maturity of more than
seven days; and (4) other illiquid securities. The Fund will also treat
non-U.S. Government interest-only or principal-only securities as illiquid
securities so long as the staff of the SEC maintains its position that such
securities are illiquid.
Nonconvertible Debt Securities
Under normal market conditions, the Fund will invest at least
25% of its assets in nonconvertible debt securities. For purposes of this
investment policy, nonconvertible debt securities are defined as: (1) Rated
corporate bonds, as well as variable amount master demand notes; (2) Government
securities which include securities of, or guaranteed by, the U.S. Government,
its agencies or instrumentalities; (3) Commercial paper which include
commercial paper of companies rated A-1 or A-2 by Standard & Poor's Corporation
("S&P") or rated P-1 or P-2 by Moody's Investors Service, Inc. ("Moody's").
Fixed income securities rated, at the time of investment, less than BBB by S&P
or Baa by Moody's or which are unrated but of comparable quality as determined
by the Investment Manager, are not investment grade. These securities are
viewed by the rating agencies as being predominantly speculative in nature.
They may be characterized by substantial risk concerning payments of interest
and principal, sensitivity to economic conditions and changes in interest
rates, as well as by market price volatility and/or relative lack of secondary
market trading, among other risks. The Fund will not invest any of its assets
in noninvestment grade debt securities.
Although fixed income securities rated BBB by S&P or Baa by
Moody's, at the time of investment, are investment grade, these securities are
subject to risks such as market price volatility, creditworthiness, relative
liquidity of secondary trading market and other speculative characteristics of
lower-rated securities which could have an adverse effect on the net asset
value of the Fund. These securities are subject to certain risks with respect
to the issuing entity and to greater market fluctuations than certain
lower-yielding, higher-rated, investment grade fixed income securities. The
Fund will liquidate any fixed income securities held in its portfolio whose
rating is downgraded below BBB by S&P or Baa by Moody's. The net asset value
of the Fund could be adversely affected by such liquidation transactions.
The market values of fixed income securities generally fall
when interest rates rise and, conversely, rise when interest rates fall.
U.S. Government Securities
The U.S. Government Securities in which the Fund may invest
include direct obligations of the U.S. Treasury, such as Treasury bills, notes
and bonds, and obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, including securities that are supported by the full faith
and credit of the United States, such as Government National Mortgage
Association ("GNMA") certificates, securities that are supported
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by the right of the issuer to borrow from the U.S. Treasury, such as securities
of the Federal Home Loan Banks, and securities supported solely by the
creditworthiness of the issuer, such as Federal National Mortgage Association
("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC") securities.
The Fund may invest in mortgage-backed securities issued or
guaranteed by GNMA, FNMA or FHLMC and representing undivided ownership
interests in pools of mortgages. The mortgages backing these securities
include, among others, conventional 30-year fixed-rate mortgages, 15-year
fixed-rate mortgages, graduated payment mortgages and adjustable rate
mortgages. The U.S. Government or the issuing agency guarantees the payment of
the interest on and principal of these securities. The guarantees do not
extend to the securities' yield or value, however, which are likely to vary
inversely with fluctuations in interest rates, and, the guarantees do not
extend to the yield or value of the Fund's shares. These securities are in
most cases "pass-through" instruments, through which the holders receive a
share of all interest and principal payments from the mortgages underlying the
securities, net of certain fees. The principal amounts of such underlying
mortgages generally may be prepaid in whole or in part by the mortgagees at any
time without penalty and the prepayment characteristics of the underlying
mortgages may vary. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
When the mortgage obligations are prepaid, the Fund will reinvest the prepaid
amounts in other income producing securities, the yields of which will reflect
interest rates prevailing at the time. Accelerated prepayments adversely
affect yields for pass-through securities purchased at a premium and may
involve additional risk of loss of principal because the premium may not have
been fully amortized at the time the obligation is repaid. The opposite is
true for pass-through securities purchased at a discount.
In addition to GNMA, FNMA or FHLMC certificates through which
the holder receives a share of all interest and principal payments from the
mortgages underlying the certificate, the Fund may also invest in mortgage
pass-through securities issued by the U.S. Government or its agencies and
instrumentalities, commonly referred to as mortgage-backed security strips or
MBS strips. MBS strips are usually structured with two classes that receive
different proportions of the interest and principal distributions on a pool of
mortgage assets. A common type of stripped mortgage security will have one
class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and
the remainder of the principal. In the most extreme case, one class will
receive all of the interest (the interest-only or "IO" class), while the other
class will receive all of the principal (the principal-only or "PO" class).
The yields to maturity on IOs and POs are sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets, and
principal payments may have a material effect on yield to maturity. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Fund may not fully recoup its initial investments in IOs.
Conversely, if the underlying mortgage assets experience less than anticipated
prepayments of principal, the yield on POs could be materially adversely
affected.
The Schemes of the Trinidad and Tobago Unit Trust Corporation
The Unit Trust Corporation was created by the Unit Trust
Corporation of Trinidad and Tobago Act, 1981 (Republic of Trinidad and Tobago
Act No. 26 of 1981). The Unit Trust Corporation's main office is located in
the City of Port-of-Spain, Trinidad. The affairs of the Unit Trust Corporation
are managed by a board of directors.
The Schemes of the Trinidad and Tobago Unit Trust Corporation
are investment companies as defined under the 1940 Act and their respective
investments are at all times identified separate from the investments of the
Unit Trust Corporation itself. Accounts of each of the Schemes of the Trinidad
and Tobago Unit Trust Corporation are prepared separately from those of the
Unit Trust Corporation. When an investor purchases units from the Unit Trust
Corporation, he is purchasing units issued from the Schemes of the Trinidad and
Tobago Unit Trust Corporation. The transaction is administered by the Unit
Trust Corporation on behalf of the Schemes of the Trinidad and Tobago Unit
Trust Corporation.
The assets of the Schemes of the Trinidad and Tobago Unit
Trust Corporation are predominantly invested in equity securities of Trinidad
and Tobago corporations, and in fixed income securities of those
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corporations, as well as in Trinidad and Tobago government securities. As of
June 30, 1995, the Schemes of the Trinidad and Tobago Unit Trust Corporation
had an aggregate of $194,792,838 (U.S. dollars) under management and
approximately 110,000 unitholders.
The financial records of the Unit Trust Corporation are
examined and audited by the Auditor General of Trinidad and Tobago. The
financial statements and records of the Unit Trust Corporation are prepared in
accordance with the Trinidad and Tobago Accounting Standards and are reported
in Trinidad and Tobago dollars.
The 1940 Act limits the extent to which the Fund may purchase
equity securities of the Schemes of the Trinidad and Tobago Unit Trust
Corporation or any other investment companies. No more than 10% of the Fund's
total assets may be used to purchase any securities of investment companies.
The Fund will not purchase more than 3% of the total outstanding voting stock
of an investment company nor purchase securities of an investment company
having an aggregate value in excess of 5% of the value of the total assets of
the investment company. The Fund will pay an investment management fee when it
invests in the Schemes of the Trinidad and Tobago Unit Trust Corporation.
As of December 31, 1995, the Unit Trust Corporation
beneficially owned 6.232% of the outstanding voting stock of the Fund.
CERTAIN INVESTMENT STRATEGIES AND SPECIAL RISK CONSIDERATIONS
All investments, including those in mutual funds, have risks.
No investment is suitable for all investors. The Fund is designed for long
term investors who can accept the fluctuations in portfolio value and other
risks associated with the primary objective of seeking current income and
capital appreciation through investment in securities. There can be no
assurance that the Fund will achieve its objective.
The Fund will not make significant investments in securities
of any one issuer to reduce risk. Although risk cannot be eliminated, this
strategy reduces the impact of any single investment. The Fund may invest in
both large and small companies. Investments in small companies involve greater
risk than is customarily associated with more established companies. Smaller
companies often have limited product lines, markets, management personnel,
research and/or financial resources. The securities of small companies, which
may be thinly capitalized, may have more limited marketability and be subject
to more abrupt or erratic market movements than securities of larger companies
or the market averages in general.
Any investment by the Fund in short, medium or long term
interest bearing obligations has the risk of principal fluctuation due to
changing interest rates and the ability of the issuer to repay the obligation
at maturity. Fixed income instrument prices are inversely related to interest
rate movements, but proportional to the maturity of the instruments. That is,
long-term instrument prices rise or fall more than short-term instruments for a
given change in interest rates. Certain risk factors are also associated with
other investment practices of the Fund (none of which is expected to involve
more than 25% of the Fund's net assets), including investing in debt securities
and investing in foreign securities. Although the Fund does not purchase
securities with a view of rapid turnover, there are no limitations on the
length of time portfolio securities must be held. The Fund's portfolio
turnover rate is not expected to exceed 100%. A portfolio turnover exceeding
100% generally results in increased transaction expenses and the realization of
capital gains and losses.
There are certain risks involved in investing in securities of
companies and governments of foreign nations that are in addition to the usual
risks inherent in U.S. investments. These risks include those resulting from
fluctuations in currency exchange rates, devaluation of currencies, future
adverse political and economic developments and the possible imposition of
currency exchange blockages or from other foreign governmental laws or
restrictions. Changes in foreign currency exchange rates may affect the value
of the Fund's assets, the value of dividends and interest earned, gains and
losses realized on the sale of securities and net investment income and gains
to be distributed to shareholders by the Fund. In addition, many of the
securities held by the Fund will not be registered with, nor the issuers
thereof be subject to reporting requirements of, the
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Securities and Exchange Commission (the "SEC"). Accordingly, there may be less
publicly available information about the securities and about the foreign
company or government issuing them than is available about a U.S. company or
U.S. Government entity. Foreign issuers are not subject to uniform financial
reporting standards, practices and requirements comparable to those applicable
to U.S. issuers. Furthermore, with respect to some foreign countries, there is
the possibility of expropriation, nationalization or confiscatory taxation,
limitations on the removal of funds or other assets of the Fund, including the
withholding of dividends, political or social instability or domestic
developments that could affect U.S. investments in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of
inflation, capital investment, resource self-sufficiency and balance of
payments positions. The Fund may invest in securities of foreign governments
(or agencies or instrumentalities thereof) and many, if not all, of the
foregoing considerations apply to such investments as well. Finally,
securities of some foreign companies are less liquid and their prices are more
volatile than securities of comparable U.S. companies, and certain foreign
countries are known to experience long delays between the trade and settlement
dates of securities purchased or sold.
Foreign securities may be subject to foreign government taxes
that would reduce the net return on such securities and the Fund may be
affected unfavorably by exchange control regulations. Investment in foreign
securities will also result in higher expenses due to the cost of converting
foreign currency into U.S. dollars, the payment of fixed brokerage commissions
on foreign exchanges and the expense of maintaining securities with foreign
custodians.
MANAGEMENT
Board of Directors
The overall management of the business and affairs of the Fund
is vested with its Board of Directors. The board approves all significant
agreements between the Fund and persons or companies furnishing services to it,
including the Fund's agreement with its Investment Manager, its Custodian, its
Transfer Agent, selected broker-dealers and its Administrator. The day-to-day
operations of the Fund are delegated to its officers, subject to the investment
objectives and policies of the Fund and to general supervision by the Board of
Directors.
The Board of Directors is presently comprised of five members,
three of whom reside outside the United States. Directors Rolston Nelson, E.
Henry Sealy and Clarry Benn are citizens and residents of the Republic of
Trinidad and Tobago. These nonresident persons also serve as executive
officers of the Fund.
The Maryland General Corporation Law subjects all directors
and officers of the Fund to fiduciary duties for the lawful management of the
Fund's organization and operation, including federal and state securities laws.
Investors of the Fund may not be able to effect service of process within the
United States upon the Fund's nonresident directors and officers for the
enforcement of civil liabilities under federal and state securities laws. The
Fund has appointed an agent for service of process in the states where the Fund
has registered its securities for offer and sale.
The United States and the Republic of Trinidad and Tobago are
not parties to a convention governing the mutual recognition and enforcement of
foreign money judgments. Investors of the Fund may not be able to enforce a
United States or Trinidad and Tobago court judgment against nonresident
directors and officers of the Fund.
The Investment Manager
The Investment Manager is subject to the control of the Fund's
Board of Directors. The Investment Manager was incorporated as a registered
investment advisor in 1971. In November 1985, the Investment Manager entered
into a limited partnership with Britannia Arrow Holdings, PLC, a major U.K.
financial services company, to pursue global investment business. The
Investment Manager was the general
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<PAGE> 15
partner. In December 1988, the two firms completed a merger, creating the
global investment organization of INVESCO, with offices worldwide.
The Investment Manager manages over $35 billion in retirement
fund assets for over 300 institutional clients located throughout the U.S., the
U.K. and Japan. The Investment Manager's clients include corporate pension and
profit sharing plans, public funds, jointly-trusteed funds, endowment and
foundation accounts. The Investment Manager has provided investment advisory
services to registered investment companies.
The Investment Manager is authorized to consider sales of
shares of the Fund as a factor in the selection of brokers to execute brokerage
and principal transactions, subject to the requirements of "best execution,"
i.e., prompt and efficient execution at the most favorable securities price.
Under the Investment Management Agreement, between the Fund
and the Investment Manager, the Fund pays the Investment Manager a fee,
computed daily, and payable monthly, at the annual rate of the greater of
$50,000 or 0.75% of 1% on first $10 million, 0.50% of 1% on next $10 million
and 0.25% of 1% over $20 million of the Fund's average daily net assets. The
minimum management fee of $50,000 or 0.75% of 1% on the first $10 million is
higher than most investment companies are charged. The management fee charged
on average daily net assets in excess of $10 million is not higher than most
investment companies are charged. The Fund and the Investment Manager believe
the fee is appropriate considering the investment objective of the Fund.
Administrator
American Data Services, Inc. (the "Administrator"), located at
24 West Carver Street, Huntington, New York 11743, serves pursuant to an
agreement with the Fund (the "Administrative Services Agreement"). Pursuant to
the Administrative Services Agreement, subject to the overall authority of the
Fund's Board of Directors in accordance with Maryland law, the Administrator
will assist in the Fund's administration and operation, including, but not
limited to, the preparation of statistical and research data, data processing
services, preparation of management reports for performance and compliance, as
well as prepare and maintain the Fund's operating expense budget.
Fund Operating Expenses
In addition to the management fee payable to the Investment
Manager, the Fund is responsible for its operating expenses, including: (i)
interest and taxes; (ii) brokerage commissions; (iii) insurance premiums; (iv)
compensation and expenses of, directors other than those affiliated with the
Investment Manager; (v) legal and audit expenses; (vi) fees and expenses of the
Custodian, shareholder service or Transfer Agent; (vii) fees and expenses for
registration or qualification of the Fund and its shares under federal or state
securities laws; (viii) expenses of preparing, printing and mailing reports and
notices and proxy material to stockholders; (ix) other expenses incidental to
holding any stockholder meetings; (x) dues or assessments of or contributions
to the Investment Company Institute or any successor; (xi) Rule 12b-1 fees paid
by the Fund in connection with the Distribution Plan; (xii) service fees paid
by the Fund in connection with the personal service and/or maintenance of
shareholder accounts; and (xiii) such nonrecurring expenses as may arise,
including litigation affecting the Fund and the legal obligations with respect
to which the Fund may have to indemnify its officers and directors.
See the Statement of Additional Information for more
information as to the Company's Board of Directors, Officers, the Investment
Manager and its operating expenses.
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HOW TO PURCHASE SHARES
Opening an Account
In order to invest in the Fund, an investor must first
complete and sign an account application. Shares of the Fund may be purchased
either by mail or by telephone through selected broker-dealers who have a sales
agreement with the Fund or through the Transfer Agent, at the offering price
next determined after receipt of an order by selected broker-dealers or the
Transfer Agent, in proper form. The offering price is the net asset value per
share of the Fund.
The Fund may from time to time pay a bonus or other incentive
to the selected dealers that employ a sales representative who sells a minimum
dollar amount of shares of the Fund. Such bonus or other incentives may take
the form of payment for travel expense including lodging, incurred in
connection with trips taken by qualifying registered representatives and
members of their families to places within or without the United States.
The minimum initial investment in the Fund is $250.
Subsequent investments are a minimum of $100.
The Fund reserves the right to reject any order.
Purchase orders may either be placed with selected
broker-dealers or submitted to the Transfer Agent, as follows:
Purchase Placed With Selected Broker-Dealers
Selected broker-dealers may place orders for shares of the
Fund on behalf of clients at the offering price next determined after receipt
of the client's order made by calling the Transfer Agent. If the order is
placed by a client with a selected dealer prior to 4 p.m. Eastern time on any
day the New York Stock Exchange is open for trading, and forwarded to the
Transfer Agent prior to 5 p.m. Eastern time on that day, it will be confirmed
to the selected dealer at the applicable offering price determined that day.
The selected broker-dealer is responsible for placing purchase orders promptly
with the Transfer Agent and for forwarding payment.
Purchase Placed With Transfer Agent
Investors may mail an application form, together with a check
payable to the Fund, directly to the Transfer Agent, at the following address:
American Data Services, Inc.
24 West Carver Street
Huntington, New York 11743
If the purchase being made is a subsequent investment, the
stockholder should send a stub from a confirmation previously received from the
Transfer Agent in lieu of the application form. If no such stub is available,
a brief letter giving the registration of the account, the name of the Fund and
the account number should accompany the check. In addition, the stockholder's
account number should be written on the check. Checks do not need to be
certified but are accepted subject to face value in United States dollars and
must be drawn on United States banks.
Shares of the Fund will be purchased for the account of the
investor by the Transfer Agent as agent for the investor's selected dealer at
the offering price next determined after receipt by the Transfer Agent of the
check together with the appropriate form or other identifying information.
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The Fund offers additional services to investors, including
plans for the systematic investment and withdrawal of money as well as
prototype retirement programs. Information about these services is also
available in the Statement of Additional Information or from selected
broker-dealers or the Transfer Agent.
Net Asset Value
The Fund's net asset value per share is determined on each day
that the New York Stock Exchange (the "Exchange") is open for trading, as of
the close of the Exchange, currently 4 p.m., Eastern time. The net asset value
per share is the value of the Fund's assets, less its liabilities, divided by
the number of shares of the Fund outstanding. The value of the Fund's
portfolio securities will be the market value of such securities. See the
Statement of Additional Information for further information.
DISTRIBUTION PLAN AND SERVICE FEES
The Board of Directors has adopted a Distribution Plan
applicable to the Fund under Section 12(b) of the 1940 Act and Rule 12b-1
thereunder.
Pursuant to the Plan, registered broker-dealers and others
("Qualified Recipients") that have rendered distribution assistance (whether
direct, administrative or both) and that enter into written agreements with the
Fund may receive fees at rates determined by the Fund's Board of Directors. In
addition, the Fund will purchase advertising, sales literature, other
promotional material and marketing services. The Fund will reimburse the
Investment Manager and Qualified Recipients for these expenditures, including
interest expenses and other overhead items, during a fiscal year of the Fund,
up to a limit of 0.50% of 1% on an annual basis of the Fund's average daily net
assets, subject to compliance with guidelines adopted from time to time by the
Board of Directors of the Fund.
No reimbursements under the Plan will be made for expenditures
or fees for fiscal years prior to the fiscal year in question or in
contemplation of future fees or expenditures. In addition to payments received
pursuant to the Plan, Qualified Recipients which are selected dealers will
receive a service fee in the amount of .25% of each shareholder account opened
with the Fund as a result of a sale made by them of Fund shares. The service
fee is paid by the Fund to the Qualified Recipient for the personal service
and/or maintenance of shareholder accounts; and the Qualified Recipient may
receive commissions on Fund portfolio transactions subject to the provisions of
the Management Agreement (see the Statement of Additional Information).
HOW TO REDEEM SHARES
The Fund will redeem for cash all of its full and fractional
shares at the net asset value per share next determined after receipt by the
Transfer Agent of a redemption request in proper form, as described below. A
stockholder wishing to redeem shares may do so at any time by writing to the
Fund in care of its Transfer Agent at 24 West Carver Street, Huntington, New
York 11743. The instructions should specify the name of the Fund, the number
of shares to be redeemed and be signed by all registered owners exactly as the
account is registered. The redemption request will not be accepted unless it
contains all required documents in proper form, as described below.
Proper Form
In addition to written instructions, if any shares being
redeemed are represented by stock certificates, the certificates must be
surrendered. The certificates must either be endorsed or accompanied by a
stock power signed by the registered owners, exactly as the certificates are
registered. The signatures on the certificates or stock powers, as well as the
signatures on any redemption request concerning shares not represented by
certificates, must conform to the requirements of the Transfer Agent.
Additional documents may be required from corporations or other organizations,
fiduciaries or anyone other than the stockholder of record. Any questions
concerning documents needed should be directed to the Transfer Agent.
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<PAGE> 18
Payments
Payment for shares tendered will be made within seven days
after receipt by the Transfer Agent of instructions, certificates, if any, and
other documents, all in proper form. Payment may be delayed under unusual
circumstances, as specified in the 1940 Act or as determined by the SEC.
Payment may also be delayed for any shares purchased by check until the Fund
has determined that the purchase check will be honored, which may take up to 15
calendar days.
Redemption in Kind
If the Fund's Board of Directors determines that it would be
detrimental to the best interests of the remaining stockholders of the Fund to
make payment wholly or partly in cash, the redemption value may be paid in
whole or in part by a distribution in kind of securities from the portfolio of
the Fund, in lieu of cash, in conformity with applicable rules of the SEC. The
Fund, however, has elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which it is obligated to redeem shares of the Fund solely in cash
up to the lesser of $250,000 or one percent of the net asset value of the Fund
during any 90-day period for any one stockholder. Should redemptions by any
stockholder exceed such limitation, the Fund will have the option of redeeming
the excess in cash or in kind. If shares are redeemed in kind, the redeeming
stockholder would incur brokerage costs in converting the assets into cash.
Reinvestment Privilege
A stockholder who has redeemed all or part of his or her
shares of the Fund may reinvest all or part of the redemption proceeds in
shares of the Fund at the net asset value next computed after receipt of the
reinvestment order if such reinvestment is effected within 30 days after the
redemption. The privilege may be exercised only once by a stockholder.
However, a stockholder has not used up this one-time privilege if the sole
purpose of a prior redemption was to invest the proceeds at net asset value in
a qualified retirement plan. If the stockholder has realized a gain on the
redemption, the transaction is taxable and reinvestment will not alter any
capital gains tax payable. If there has been a loss on the redemption, some or
all of the loss may not be allowed as a tax deduction depending on the amount
reinvested.
Redemption of Small Accounts
The Fund's Board of Directors may, in order to reduce the
expenses of the Fund, redeem all of the shares of any stockholder (other than a
qualified retirement plan) whose account has declined to a net asset value of
less than $100, as a result of a transfer or redemption, at the net asset value
determined as of the close of business on the business day preceding the
sending of notice of such redemption. Stockholders will be given 60 days'
prior written notice in which to purchase sufficient shares to avoid such
redemption.
RETIREMENT PLANS
The Fund intends to make available a form of Individual
Retirement Account ("IRA") for investment in Fund shares which would be
obtainable from selected broker-dealers or the Transfer Agent. The Fund does
not presently make a form of IRA available. The minimum investment required to
open an IRA for investment in shares of the Fund would be $1,000 for an
individual except that both the individual and his or her spouse would be able
to establish separate IRAs. Investors should consult their own tax advisors
about the establishment of retirement plans.
Fund shares may also be a suitable investment for other types
of qualified pension or profit sharing plans which are employer- sponsored,
including deferred compensation or salary reduction plans known as 401(k) plans
which give participants the right to defer portions of their compensation for
investment on a tax deferred basis until distributions are made from the plans.
The minimum initial investment for an individual under such plans is $50 and a
$50 minimum for additional investments.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
Each dividend and capital gains distribution, if any, declared
by the Fund on its outstanding shares will, unless the stockholder elects
otherwise, be paid on the payment date fixed by the Fund's Board of Directors
in additional shares of the Fund having an aggregate net asset value as to the
ex-dividend date of such dividend or distribution equal to the cash amount of
such distribution. An election to receive dividends and distributions may be
changed by notifying the Fund in writing at any time prior to the record date
for a particular dividend or distribution. There are no sales or other charges
in connection with the reinvestment of dividends and capital gains
distributions. There is no fixed dividend rate, and there can be no assurance
that the Fund will pay any dividends or realize any capital gains. However,
the Fund currently intends to pay dividends and capital gains distributions, if
any, on an annual basis.
Taxes
The Fund intends to qualify for tax treatment as a "regulated
investment company" under Subchapter M of the Internal Revenue Code (the
"Code") in order to be relieved of federal income tax on that part of its net
investment income and realized capital gains which it pays out to its
stockholders. To qualify as a regulated investment company and to avoid
payment of taxes at the fund level, the Fund will distribute substantially all
of the net ordinary income and net capital gains to its stockholders as
described above.
The Fund must meet the Code's diversification requirement
that, at the end of each calendar quarter, no more than 25% of the Fund's
assets may be invested in securities of a single issuer (other than Government
Securities or the securities of other regulated investment companies) and at
least 50% of the assets of the Fund must be invested in cash, cash items,
receivables, U.S. Government Securities, securities of other regulated
investment companies and other securities provided that, with respect to such
other securities, the Fund does not (i) invest more than 5% of its assets in
any one issuer; or (ii) own more than 10% of the outstanding voting securities
of such issuer. The Fund (i) must also derive at least 90% of its annual gross
income from certain specified sources and (ii) may not derive 30% or more of
its annual gross income from the disposition of securities (or foreign currency
positions not directly related to the Fund's principal business of investing in
securities) held for less than three months. The U.S. Treasury Department is
authorized to promulgate regulations under which certain foreign currency gains
realized by the Fund may no longer be regarded as qualifying income under the
90% requirement.
All distributions, other than long-term capital gain
distributions and exempt-interest dividends, are taxable to the Fund
stockholders as ordinary income. Distributions of long-term capital gains, if
designated as such by the Fund, are taxable as such, regardless of how long the
stockholder has owned shares in the Fund. If a stockholder disposes of shares
at a loss before having held the shares for longer than six months, such loss
will be treated as a long-term capital loss to the extent a stockholder
previously received a long-term capital gains dividend on the shares. Fund
distributions are taxable whether distributed to stockholders in cash or
additional shares. However, many tax-exempt entities may not be subject to tax
on Fund distributions.
The Code generally requires the Fund to distribute, prior to
December 31 in each year without regard to its fiscal year end, 98% of its
ordinary income for that year and 98% of the capital gain net income, if any,
realized during the one-year period ending on October 31 in that year.
Distributions declared and payable to stockholders of record in October,
November or December and paid in January will be treated for federal income tax
purposes as if received by the stockholder in December. To the extent that the
distribution requirement for a calendar year is not met, a 4% nondeductible
excise tax on the undistributed amount would be assessed against the Fund.
In addition to the 98% distribution test described above
necessary to avoid excise taxation, a second distribution test applies. To
qualify for the preferential tax treatment under Subchapter M of the Code, the
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Fund must distribute annually the sum of 90% of its investment company taxable
income (i.e., its taxable ordinary income and net short-term capital gain) and
90% of its net tax-exempt interest.
The Fund's investments in foreign currency denominated debt
obligations and hedging activities will likely produce a difference between its
book income and its taxable income. This difference may cause a portion of the
Fund's income distributions to constitute a return of capital for tax purposes
or require the Fund's income distributions to constitute a return of capital
for tax purposes or require the fund to make distributions exceeding book
income to qualify as a regulated investment company.
Current federal tax law requires the holder of a security
issued with "original issue discount" (including a zero coupon U.S. Treasury
security) to accrue as income each year a portion of the discount at which the
security was purchased, even though the holder receives no interest payment in
cash on the security during the year. A security has "original issue discount"
if its face amount at maturity exceeds its issue price by more than a de
minimis amount. Accordingly, the Fund may be required to pay out as an income
distribution each year an amount which is greater than the total amount of cash
interest the Fund actually received. Such distributions may be made from the
cash assets of the Fund or by liquidation of its portfolio securities, if
necessary. The Fund may realize gains or losses from such liquidations. If
the Fund realizes net capital gains from such transactions, its shareholders
may receive a larger capital gain distribution, if any, than they would in the
absence of such transactions.
The Transfer Agent will send stockholders and the Internal
Revenue Service an annual statement detailing federal tax information,
including information about dividends and distributions (both taxable and
tax-exempt) paid to stockholders during the preceding year. This statement
should be kept as a permanent record. A fee may be charged for any duplicate
information requested.
Before investing in the Fund, individuals are advised to check
the consequences of local and state tax laws, and the consequences for any
retirement plan offering tax benefits.
GENERAL INFORMATION
Description of Shares, Voting Rights and Liabilities
The Fund is a Maryland corporation, incorporated on October
24, 1990, and registered as an open-ended, nondiversified, management
investment company under the 1940 Act. The authorized capital stock consists
of 2,000,000 shares of common stock having a par value of ($.01) per share.
The Fund's Board of Directors is authorized to divide the unissued shares into
one or more classes of common stock (which may be referred to as portfolios,
funds or series), each class representing a separate, additional Fund
portfolio, and to fix the number of shares in any such class.
Shares of all classes will have identical voting rights,
except where by law, certain matters must be approved by a majority of the
shares of the affected class. Each share of any class of shares when issued
has equal dividend, liquidation and voting rights within the class for which it
was issued and each fractional share has those rights in proportion to the
percentage that the fractional share represents of a whole share. Shares will
be voted in the aggregate.
There are no conversion or preemptive rights in connection
with any shares of the Fund. All shares, when issued in accordance with the
terms of the offering, will be fully paid and nonassessable. Shares will be
redeemed at net asset value, at the option of the stockholder.
The Fund sends semiannual and annual reports to all of its
stockholders which include a list of portfolio securities and the Fund's
financial statements which shall be audited annually.
The shares of the Fund have noncumulative voting rights which
means that the holders of more than 50% of the shares can elect 100% of the
directors if the holders choose to do so, and, in that event, the
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holders of the remaining shares will not be able to elect any person or persons
to the Board of Directors. Unless specifically requested in writing to the
Transfer Agent by an investor who is a stockholder of record, the Fund does not
issue certificates evidencing Fund shares.
The Corporation will hold an annual stockholder meeting each
year. Special meetings of the stockholders will be held for the consideration
of proposals requiring stockholder approval by law, such as changing
fundamental policies or upon the written request of 25% of the Fund's
outstanding shares. The directors will promptly call a meeting of stockholders
to consider the removal of a director or directors when requested to do so by
the holders of not less than 10% of the outstanding shares and that
stockholders will receive communication assistance in connection with calling
such a meeting. At any meeting of stockholders duly called and at which a
quorum is present, the stockholders may, by the affirmative vote of the holders
of at least two-thirds of the votes entitled to be cast thereon, remove any
director or directors from office, with or without cause, and may elect a
successor or successors to fill any resulting vacancies for the unexpired term
of the removed director.
The Fund's organizing documents have been filed with the SEC
as exhibits to the Fund's registration statement and can be found at the SEC,
at the Fund's principal office or at the offices of the Fund's legal counsel.
Stockholder Approval
Other than elections of directors, which is by plurality, any
matter for which stockholder approval is required by Maryland General
Corporation Law and the 1940 Act, requires the affirmative vote of at least a
"majority" (as defined by the 1940 Act) of the outstanding voting securities of
the Fund at a meeting called for the purpose of considering such approval. A
majority of the Fund's outstanding securities is the lesser of (1) 67% of the
shares represented at a meeting at which more than 50% of the outstanding
shares are present in person or by proxy or (2) more than 50% of the
outstanding shares.
Legal Proceedings
There are currently no pending material legal proceedings
against the Fund or the Unit Trust Corporation.
Performance Information
The Fund may furnish data about its investment performance in
advertisements, sales literature and reports to stockholders. "Total return"
represents the annual percentage change in value of $1,000 invested at the
maximum public offering price for the one and five year periods and the life of
the Fund through the most recent calendar quarter, assuming reinvestment of all
dividends and distributions. Quotations of "yield" will be based on the
investment income per share earned during the particular 30-day period, less
expenses accrued during the period, with the remainder being divided by the
maximum offering price per share on the last day of the period. The Fund may
also furnish total return and yield calculations for other periods and/or based
on investments at various sales charge levels or net asset values. Any
performance data which is based on the Fund's net asset value per share would
be reduced if a sales charge were taken into account.
Custodian
Citibank, N.A. is the custodian for the Fund's cash and
securities.
Independent Accountants
Coopers & Lybrand, L.L.P. has been appointed independent
accountants for the Fund.
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Information for Stockholders
All stockholder inquiries regarding administrative procedures
including the purchase and redemption of shares should be directed to the
Transfer Agent. For assistance, call 516-385-9580.
This Prospectus omits certain information contained in the
Registration Statement filed with the SEC. Copies of the Registration
Statement, including items omitted herein, may be obtained from the Commission
by paying the charges prescribed under its rules and regulations. The
Statement of Additional Information included in such Registration Statement and
the Annual Report to Shareholders of the Fund may be obtained without charge
from the Fund or selected broker-dealers.
22
<PAGE> 23
DATED MARCH 5, 1996
THE CHACONIA INCOME & GROWTH FUND, INC.
Statement of Additional Information
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 (the "SEC"). These
securities may not be sold nor many any offers to buy be accepted prior to the
time the registration becomes effective.
This Statement of Additional Information is not a prospectus,
and it should be read in conjunction with the Prospectus of The Chaconia Income
& Growth Fund, Inc. (the "Fund"). A copy of the Prospectus may be obtained
from the Fund c/o American Data Services, Inc., 24 West Carver Street,
Huntington, New York 11743.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Cross-Reference
to Page in the
Page Prospectus
---- ---------------
<S> <C> <C>
Investment Objective and Policies 23 9
Basic Investment Techniques 25 10
U.S. Government Securities 27 11
Certain Investment Strategies and Special
Risk Considerations 28 13
Investment Restrictions 29 -
Management 30 14
Portfolio Transactions and Brokerage 33 -
Purchase and Redemption of Shares 34 16 & 17
Dividends, Distributions and Taxes 35 19
Investment Performance Information 37 -
General Information 38 20
Financial Statements 39 -
Appendix-Description of Ratings 40 -
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek high current
income and capital appreciation. It seeks to meet its objective by investing
the Fund's assets in: U.S. Government securities including U.S.
23
<PAGE> 24
Treasury obligations and obligations issued or guaranteed by U.S. Government
agencies or instrumentalities, investment grade corporate bonds, investment
grade foreign government bonds, equity securities of U.S., Canadian, British
and Trinidad and Tobago companies, American Depository Receipts ("ADRs"), the
First and Second Unit Schemes (the "Schemes") of the Trinidad and Tobago Unit
Trust Corporation, certificates of deposit and money market funds. There can
be no assurance that the Fund will be able to achieve its objective.
The Fund intends to invest in the Schemes of the Trinidad and
Tobago Unit Trust Corporation only if the Fund determines that there are no
adverse restrictions to realizing an investment in the Schemes of the Trinidad
and Tobago Unit Trust Corporation and the Investment Manager believes the
potential rewards from the Schemes of the Trinidad and Tobago Unit Trust
Corporation are greater than the other investments described above.
The Fund's investment policy will emphasize debt instruments
to achieve the Fund's current income objective. The Fund will maintain a level
of at least 25% of its total assets invested in debt securities and at least
25% of its total assets invested in equity securities. The investment in
equity securities versus bonds will depend upon the Investment Manager's
evaluation of the relative merits and risks of equity securities versus bonds.
The attractiveness of nongovernment instruments will be judged
based upon their potential return enhancement and creditworthiness. Potential
return is determined by observing the existing yield spread differential within
a historical context and purchasing such instruments only when the differential
is at levels which are above a long-term mean. Within the investment credit
spectrum, to ensure protection of principal, additional credit analysis will be
undertaken in employing the Investment Manager's proprietary analytical
techniques and data bases to further reduce the risk.
In determining the maturity of the debt securities the Fund
invests in, the Investment Manager will focus on whether the level of real
yield, after taking into account inflation, is adequate to compensate for the
greater volatility and risks associated with debt securities having a greater
maturity. Generally, the longer the maturity of a debt security, the greater
its price volatility. Conversely, the shorter the maturity, the lower its
price volatility. During a typical credit cycle, the average duration implied
by this discipline will likely average 5 years within a range of 2.5 to 8
years.
In determining what equity securities the Fund will invest in,
the Investment Manager will focus on the price trend of the company's shares to
determine the volatility of the price trend and how it relates to the earnings,
return on equity and dividend history of the company. The Investment Manager
will seek to invest in equity securities of companies whose shares are
undervalued based on the inherent or long-term record of the company. For
purposes of this investment policy, equity securities are defined as: U.S. and
foreign common stocks, ADRs, warrants, convertible bonds, convertible
debentures, preferred stock and stock rights. No more than 5% of the Fund's
net assets may be used to purchase stock rights. The Fund may not purchase
options on equity securities. Debt securities are defined as: U.S. and
foreign nonconvertible company bonds, U.S. and foreign government securities
and commercial paper.
The Fund intends to invest in a variety of securities, with
differing issuers, maturities and interest rates. If the Investment Manager
believes that stocks in general are overvalued, or that interest rates may rise
substantially, or that the general economic environment may be deteriorating,
the Investment Manager may assume a temporary defensive position and may invest
up to 100% of the Fund's assets in high quality commercial paper and short-term
U.S. Government securities such as Treasury Bills and Treasury Notes. The Fund
intends to operate as a "regulated investment company" under Subchapter M of
the Internal Revenue Code. See "Dividends, Distributions and Taxes." The
average U.S. dollar weighted duration of the Fund's portfolio is not expected
to exceed ten years.
The Fund does not expect to trade in securities for short-term
gain. It is anticipated that the annual portfolio turnover rate will not
exceed 100%. The portfolio turnover rate is calculated by dividing the
24
<PAGE> 25
lesser of sales or purchases of portfolio securities by the average monthly
value of the Fund's portfolio securities. For purposes of this calculation,
portfolio securities exclude debt securities having a maturity at the date of
purchase of one year or less.
Subject to its investment policy of normally investing at
least 25% of its assets in U.S. Government securities, investment grade
corporate bonds and investment grade foreign government bonds, the Fund is
permitted to invest in (1) U.S. dollar denominated debt securities, similar in
nature to those described above, regardless of the domicile of the issuers and
(2) income producing equity securities of companies domiciled in the United
States (some of which may be denominated other than in U.S. dollars). Some of
these securities are issued in the Eurodollar market by multinational banks and
companies which may have operations in Trinidad and Tobago.
BASIC INVESTMENT TECHNIQUES
Securities Subject to Reorganization
The Fund may invest in both debt and equity securities for
which a tender or exchange offer has been made or announced and in securities
of companies for which a merger, consolidation, liquidation or reorganization
proposal has been announced if, in the judgment of INVESCO CAPITAL MGMT., INC.
(the "Investment Manager"), there is a reasonable prospect of capital
appreciation significantly greater than the brokerage and other transaction
expenses involved.
In general, securities which are the subject of such an offer
or proposal sell at a premium to their historic market price immediately prior
to the announcement of the offer or may also discount what the stated or
appraised value of the security would be if the contemplated transaction were
approved or consummated. Such investments may be advantageous when the
discount significantly overstates the risk of the contingencies involved;
significantly undervalues the securities, assets or cash to be received by
stockholders of the prospective portfolio company as a result of the
contemplated transaction; or fails adequately to recognize the possibility that
the offer or proposal may be replaced or superseded by an offer or proposal of
greater value. The evaluation of such consistencies requires unusually broad
knowledge and experience on the part of the Investment Manager which must
appraise not only the value of the issuer and its component businesses, as well
as the assets or securities to be received as a result of the contemplated
transaction but also the financial resources and business motivation of the
offeror and the dynamics and business climate when the offer or proposal is in
process. In making these investments, the Fund will not violate any of its
investment restrictions including the requirement that: (a) as to 75% of its
total assets, it will not invest more than 5% of its total assets in the
securities of any one issuer, and (b) it will not invest more than 25% of its
total assets in any one industry. Since such investments are ordinarily
short-term in nature, they will tend to increase the turnover ratio of the
Fund, thereby increasing its brokerage and other transaction expenses, as well
as make it more difficult for the Fund to meet the test for favorable tax
treatment as a "Regulated Investment Company" under Subchapter M of the
Internal Revenue Code of 1986 (the "Code") (see "Dividends, Distributions and
Taxes"). The Investment Manager intends to select investments of the type
described which, in its view, have a reasonable prospect of capital
appreciation which is significant in relation to both risk involved and the
potential of available alternative investments, as well as to monitor the
effect of such investments on the tax qualifications test of the Code.
Nonconvertible Debt Securities
Under normal market conditions, the Fund will invest at least
25% of its assets in nonconvertible debt securities. For purposes of this
investment policy, nonconvertible debt securities are defined as: (1) Rated
corporate bonds, as well as variable amount master demand notes; unrated bonds
are more speculative in nature than rated bonds; (2) Government securities
which include securities of, or guaranteed by, the U.S. Government, its
agencies or instrumentalities; and (3) Commercial paper which include
commercial paper of companies rated A-1 or A-2 by Standard & Poor's Corporation
("S&P") or rated P-1 or P-2 by Moody's Investors Service, Inc. ("Moody's").
Fixed income securities rated, at the time of investment, less than BBB by S&P
or Baa by Moody's or which are unrated
25
<PAGE> 26
but of comparable quality as determined by the Investment Manager, are not
investment grade and are viewed by the rating agencies as being predominantly
speculative in character and are characterized by substantial risk concerning
payments of interest and principal, sensitivity to economic conditions and
changes in interest rates, as well as by market price volatility and/or
relative lack of secondary market trading, among other risks. The Fund will
not invest any of its assets in noninvestment grade debt securities.
The market values of fixed income securities generally fall
when interest rates rise and, conversely, rise when interest rates fall.
If the Investment Manager believes that stocks in general are
overvalued, or that interest rates may rise substantially, or that the general
economic environment may be deteriorating, the Investment Manager may assume a
temporary defensive position and may invest up to 100% of the Fund's assets in
high quality commercial paper and short term U.S. Government securities such as
Treasury Bills and Treasury Notes.
Warrants and Rights
The Fund may invest up to 5% of its net assets in warrants or
rights (other than those acquired in units or attached to other securities)
which entitle the holder to buy equity securities at a specific price during or
at the end of a specific period of time. The Fund will not invest more than 2%
of its total assets in warrants or rights which are not listed on the New York
or American Stock Exchange. For purposes of this investment policy, a warrant
is defined as a certificate giving the holder the right to purchase securities
at a stipulated price within a specific time limit or perpetually. Sometimes a
warrant is offered with securities as an inducement to buy. The prices of
warrants do not necessarily correlate with the prices of the underlying
securities.
When Issued, Delayed Delivery Securities and Forward Commitments
The Fund may enter into forward commitments for the purchase
or sale of securities, including on a "when issued" or "delayed delivery" basis
in excess of customary settlement periods for the type of security involved.
In some cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring, i.e., a when, as and if issued security.
When such transactions are negotiated, the price is fixed at the time of the
commitment, with payment and delivery taking place in the future, generally a
month or more after the date of the commitment. While the Fund will only enter
into a forward commitment with the intention of actually acquiring the
security, the Fund may sell the security before the settlement date if it is
deemed advisable.
Borrowing
The Fund may not borrow money except for (1) short-term
credits from banks as may be necessary for the clearance of portfolio
transactions, and (2) borrowings from banks for temporary or emergency
purposes, including the meeting of redemption requests, which would otherwise
require the untimely disposition of its portfolio securities. Borrowing for
any purpose including redemptions may not, in the aggregate, exceed 5% of total
assets after giving effect to the borrowing and borrowing for purposes other
than meeting redemptions may not exceed 5% of the value of the Fund's total
assets after giving effect to the borrowing. The Investment Manager of the
Fund will not purchase securities when borrowings exceed 5% of total assets.
The Fund may mortgage, pledge or hypothecate assets to secure such borrowings.
26
<PAGE> 27
Loans of Portfolio Securities
To increase income, the Fund may lend its portfolio securities
to securities broker-dealers or financial institutions if (1) the loan is
collateralized in accordance with applicable regulatory requirements (2) the
loan is subject to termination by the Fund at any time, (3) the Fund receives
reasonable interest or fee payments on the loan, (4) the Fund is able to
exercise all voting rights with respect to the loaned securities and (5) the
loan will not cause the value of all loaned securities to exceed 33% of the
value of the Fund's assets.
U.S. GOVERNMENT SECURITIES
The U.S. Government securities in which the Fund may invest
include direct obligations of the U.S. Treasury, such as Treasury bills, notes
and bonds, and obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, including securities that are supported by the full faith
and credit of the United States, such as Government National Mortgage
Association ("GNMA") certificates, securities that are supported by the right
of the issuer to borrow from the U.S. Treasury, such as securities of the
Federal Home Loan Banks, and securities supported solely by the
creditworthiness of the issuer, such as Federal National Mortgage Association
("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC") securities.
The Fund may invest in mortgage-backed securities issued or
guaranteed by GNMA, FNMA or FHLMC and representing undivided ownership
interests in pools of mortgages. The mortgages backing these securities
include, among others, conventional 30-year fixed-rate mortgages, 15-year
fixed-rate mortgages, graduated payment mortgages and adjustable rate
mortgages. The U.S. Government or the issuing agency guarantees the payment of
the interest on and principal of these securities. The guarantees do not
extend to the securities' yield or value, however, which are likely to vary
inversely with fluctuations in interest rates, and, the guarantees do not
extend to the yield or value of the Fund's shares. These securities are in
most cases "pass-through" instruments, through which the holders receive a
share of all interest and principal payments from the mortgages underlying the
securities, net of certain fees. The principal amounts of such underlying
mortgages generally may be prepaid in whole or in part by the mortgagees at any
time without penalty and the prepayment characteristics of the underlying
mortgages may vary. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
When the mortgage obligations are prepaid, the Fund will reinvest the prepaid
amounts in other income producing securities, the yields of which will reflect
interest rates prevailing at the time. Accelerated prepayments adversely
affect yields for pass-through securities purchased at a premium and may
involve additional risk of loss of principal because the premium may not have
been fully amortized at the time the obligation is repaid. The opposite is
true for pass-through securities purchased at a discount.
The Schemes of the Trinidad and Tobago Unit Trust Corporation
The Unit Trust Corporation was created by the Unit Trust
Corporation of Trinidad and Tobago Act, 1981 (Republic of Trinidad and Tobago
Act No. 26 of 1981). The Unit Trust Corporation's main office is located in
the City of Port-of-Spain, Trinidad. The affairs of the Unit Trust Corporation
are managed by a board of directors.
The Schemes of the Trinidad and Tobago Unit Trust Corporation
are investment companies as defined under the 1940 Act and their respective
investments are at all times identified separate from the investments of the
Unit Trust Corporation itself. Accounts of each of the Schemes of the Trinidad
and Tobago Unit Trust Corporation are prepared separately from those of the
Unit Trust Corporation. When an investor purchases units from the Unit Trust
Corporation, he is purchasing units issued from the Schemes of the Trinidad and
Tobago Unit Trust Corporation. The transaction is administered by the Unit
Trust Corporation on behalf of the Schemes of the Trinidad and Tobago Unit
Trust Corporation.
The assets of the Schemes of the Trinidad and Tobago Unit
Trust Corporation are predominantly invested in equity securities of Trinidad
and Tobago corporations, and in fixed income securities of those corporations,
as well as in Trinidad and Tobago government securities. As of June 30, 1995,
the Schemes of the
27
<PAGE> 28
Trinidad and Tobago Unit Trust Corporation had an aggregate of $194,792,838
(U.S. dollars) under management and approximately 110,000 unitholders.
The financial records of the Unit Trust Corporation are
examined and audited by the Auditor General of Trinidad and Tobago. The
financial statements and records of the Unit Trust Corporation are prepared in
accordance with the Trinidad and Tobago Accounting Standards and are reported
in Trinidad and Tobago dollars.
The 1940 Act limits the extent to which the Fund may purchase
equity securities of the Schemes of the Trinidad and Tobago Unit Trust
Corporation or any other investment companies. No more than 10% of the Fund's
total assets may be used to purchase any securities of investment companies.
The Fund will not purchase more than 3% of the total outstanding voting stock
of an investment company nor purchase securities of an investment company
having an aggregate value in excess of 5% of the value of the total assets of
the investment company.
As of December 31, 1995, the Unit Trust Corporation
beneficially owned 6.232% of the outstanding voting stock of the Fund.
CERTAIN INVESTMENT STRATEGIES AND SPECIAL RISK CONSIDERATIONS
All investments, including those in mutual funds, have risks.
No investment is suitable for all investors. The Fund is designed for long
term investors who can accept the fluctuations in portfolio value and other
risks associated with the primary objective of seeking current income and
capital appreciation through investment in securities. There can be no
assurance that the Fund will achieve its objective.
The Fund will not make significant investments in securities
of any one issuer to reduce risk. Although risk cannot be eliminated, this
strategy reduces the impact of any single investment. The Fund may invest in
both large and small companies. Investments in small companies involve greater
risk than is customarily associated with more established companies. Smaller
companies often have limited product lines, markets, management personnel,
research and/or financial resources. The securities of small companies, which
may be thinly capitalized, may have more limited marketability and be subject
to more abrupt or erratic market movements than securities of larger companies
or the market averages in general.
Any investment by the Fund in short, medium or long term
interest bearing obligations has the risk of principal fluctuation due to
changing interest rates and the ability of the issuer to repay the obligation
at maturity. Fixed income instrument prices are inversely related to interest
rate movements, but proportional to the maturity of the instruments. That is,
long-term instrument prices rise or fall more than short-term instruments for a
given change in interest rates. Certain risk factors are also associated with
other investment practices of the Fund (none of which is expected to involve
more than 25% of the Fund's net assets), including investing in debt securities
and investing in foreign securities. Although the Fund does not purchase
securities with a view of rapid turnover, there are no limitations on the
length of time portfolio securities must be held. The Fund's portfolio
turnover rate is not expected to exceed 100%. A portfolio turnover exceeding
100% generally results in increased transaction expenses and the realization of
capital gains and losses.
There are certain risks involved in investing in securities of
companies and governments of foreign nations that are in addition to the usual
risks inherent in U.S. investments. These risks include those resulting from
fluctuations in currency exchange rates, devaluation of currencies, future
adverse political and economic developments and the possible imposition of
currency exchange blockages or from other foreign governmental laws or
restrictions. Changes in foreign currency exchange rates may affect the value
of the Fund's assets, the value of dividends and interest earned, gains and
losses realized on the sale of securities and net investment income and gains
to be distributed to stockholders by the Fund. In addition, many of the
securities held by the Fund will not be registered with, nor the issuers
thereof be subject to reporting requirements of, the SEC. Accordingly, there
may be less publicly available information about the securities and about the
foreign company or government issuing them than is available about a U.S.
company or U.S. Government
28
<PAGE> 29
entity. Foreign issuers are not subject to uniform financial reporting
standards, practices and requirements comparable to those applicable to U.S.
issuers. Furthermore, with respect to some foreign countries, there is the
possibility of expropriation, nationalization or confiscatory taxation,
limitations on the removal of funds or other assets of the Fund, including the
withholding of dividends, political or social instability or domestic
developments that could affect U.S. investments in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of
inflation, capital investment, resource self-sufficiency and balance of
payments positions. The Fund may invest in securities of foreign governments
(or agencies or instrumentalities thereof) and many, if not all, of the
foregoing considerations apply to such investments as well. Finally,
securities of some foreign companies are less liquid and their prices are more
volatile than securities of comparable U.S. companies, and certain foreign
countries are known to experience long delays between the trade and settlement
dates of securities purchased or sold.
Foreign securities may be subject to foreign government taxes
that would reduce the net return on such securities and the Fund may be
affected unfavorably by exchange control regulations. Investment in foreign
securities will also result in higher expenses due to the cost of converting
foreign currency into U.S. dollars, the payment of fixed brokerage commissions
on foreign exchanges and the expense of maintaining securities with foreign
custodians.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions as fundamental
policies, which may not be changed without the favorable vote of the holders of
a "majority," as defined in the Investment Company Act of 1940 (the "1940
Act"), of the Fund's outstanding voting securities. Under the 1940 Act, the
vote of the holders of a majority of a Fund's outstanding voting securities
means the vote of the holders of the lesser of (i) 67% of the shares of the
Fund represented at a meeting at which the holders of more than 50% of its
outstanding shares are represented or (ii) more than 50% of the outstanding
shares.
The Fund may not:
1. Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of transactions.
2. Make short sales of securities or maintain a short
position and may not purchase or write options on securities, indices, foreign
currencies or futures.
3. Issue senior securities, borrow money or pledge its
assets, except that the Fund may borrow on an unsecured basis from banks for
temporary or emergency purposes or for the clearance of transactions in amounts
not exceeding 5% of its total assets (not including the amount borrowed) and
will not purchase securities while borrowings in excess of 5% of the value of
the Fund's total assets are outstanding.
4. Buy or sell commodities or commodity contracts
including futures contracts or buy or sell real estate or interests in real
estate (although it may purchase and sell securities which are secured by real
estate and securities of companies which invest or deal in real estate).
5. Make loans (except for purchases of publicly-traded
debt securities consistent with the Fund's investment policies).
6. Make investments for the purpose of exercising
control or management.
7. Act as underwriter (except to the extent the Fund may
be deemed to be an underwriter in connection with the sale of securities in the
Fund's investment portfolio), exclusive of Fund purchases of restricted
securities (i.e., securities that must be registered under the Securities Act
of 1933 before they may be offered or sold to the public) if such purchases at
the time thereof would not cause more than 15% of the value of the Fund's net
assets to be invested in all such restricted or illiquid assets.
29
<PAGE> 30
8. Invest 25% or more of its total assets at the time of
purchase in any securities of issuers in one industry. U.S. Government
securities are excluded from this restriction.
The Fund observes the following restrictions as a matter of
operating policy but not fundamental policy, pursuant to positions taken by
federal and state regulatory authorities:
The Fund may not:
9. Invest more than 15% of its net assets in (i)
securities which are restricted or for which market quotations are not readily
available; (ii) fixed time deposits subject to withdrawal penalties (other than
overnight deposits); and (iii) repurchase agreements having a maturity of more
than seven days.
10. Purchase any security if as a result the Fund would
then hold more than 10% of any class of securities of an issuer (taking all
common stock issues as a single class, all preferred stock issues as a single
class, and all debt issues as a single class) or more than 10% of the
outstanding voting securities of an issuer.
11. Invest in securities of any issuer if, to the
knowledge of the Fund, any officer or director of the Fund or of the Investment
Manager owns more than 1/2 of 1% of the outstanding securities of such issuer,
and such directors who own more than 1/2 of 1% own in the aggregate more than
5% of the outstanding securities of such issuer.
12. Invest more than 5% of the value of its net assets in
warrants (included, in that amount, but not to exceed 2% of the value of the
Fund's net assets, may be warrants which are not listed on the New York or
American Stock Exchange).
13. Invest in any security if as a result the Fund would
have more than 5% of its total assets invested in securities of companies which
together with any predecessor have been in continuous operation for fewer than
three years.
14. Invest in real estate limited partnerships, or oil,
gas and other mineral leases.
MANAGEMENT
Board of Directors
The overall management of the business and affairs of the Fund
is vested with its Board of Directors. The board approves all significant
agreements between the Fund and persons or companies furnishing services to it,
including the Fund's agreement with its Investment Manager, its Custodian, its
Transfer Agent, selected broker-dealers and its Administrator. The day-to-day
operations of the Fund are delegated to its officers, subject to the investment
objectives and policies of the Fund and to general supervision by the Board of
Directors.
The Board of Directors is presently comprised of five members,
three of whom reside outside the United States. Directors Rolston Nelson, E.
Henry Sealy and Clarry Benn are citizens and residents of the Republic of
Trinidad and Tobago. These nonresident persons also serve as executive
officers of the Fund.
The Maryland General Corporation Law subjects all directors
and officers of the Fund to fiduciary duties for the lawful management of the
Fund's organization and operation, including federal and state securities laws.
Investors of the Fund may not be able to effect service of process within the
United States upon the Fund's nonresident directors and officers for the
enforcement of civil liabilities under federal and state securities laws. The
Fund has appointed an agent for service of process in the states where the Fund
has registered its securities for offer and sale.
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<PAGE> 31
The United States and the Republic of Trinidad and Tobago are
not parties to a convention governing the mutual recognition and enforcement of
foreign money judgments. Investors of the Fund may not be able to enforce a
United States or Trinidad and Tobago court judgment against nonresident
directors and officers of the Fund.
The directors and officers of the Fund, their business
addresses and principal occupations during the past five years are as follows.
Directors deemed to be "interested persons" of the Fund for purposes of the
1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name and Address With Registrant During Last Five Years
- ---------------- ---------------- ----------------------
<S> <C> <C>
*Rolston Nelson Director Chairman of Trinidad
Trinidad and Tobago and Tobago Unit Trust
Unit Trust Corporation Corporation 1987-
74 Independence Square Present.
Port-of-Spain
Trinidad and Tobago, W.I.
*E. Henry Sealy Director, President Executive Director of
Trinidad and Tobago Chief Executive Officer Trinidad and Tobago
Unit Trust Corporation Unit Trust Corporation
74 Independence Square 1986-Present.
Port-of-Spain
Trinidad and Tobago, W.I.
*Clarry Benn Director and Secretary Executive Manager,
Trinidad and Tobago Investments and
Unit Trust Corporation Financial Trust
74 Independence Square Accounting, 8-92
Port-of-Spain to Present; Manager of
Trinidad and Tobago, W.I. Investments both with
Trinidad and Tobago
Unit Trust Corporation.
Renrick Nickie Vice President & Executive Manager,
Trinidad and Tobago Treasurer Marketing and Operations,
Unit Trust Corporation 8-92 to Present,
74 Independence Square Manager of Marketing,
Port-of-Spain both with the Trinidad
Trinidad and Tobago, W.I. and Tobago Unit Trust
Corporation.
John A. Cole Director Associate Professor of
School of Business & Finance, 8-89 to
Industry Present, Florida
Florida A&M A&M University;
University Executive VP, 9-84
Tallahassee, FL 32307 to Present,
Financial Research
Associates, Inc.
</TABLE>
31
<PAGE> 32
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name and Address With Registrant During Last Five Years
- ---------------- ---------------- ----------------------
<S> <C> <C>
Roosevelt Williams Director Assistant Professor
P.O. Box 1816 of Howard University,
1989 to Present; Teacher,
Hyattsville, MD 20788 Head of Modern Studies,
1980-1988 Comprehensive
School.
Ulice Payne, Jr. Assistant Secretary Attorney and Shareholder,
Reinhart, Boerner, Reinhart, Boerner,
Van Deuren, Norris & Van Deuren, Norris &
Rieselbach, s.c. Rieselbach, s.c.,
Milwaukee, WI 53202 February 1990 to Present;
Attorney and Shareholder,
Whyte & Hirschboeck,
December 1987 to
January 1990.
</TABLE>
The Fund pays directors who are not "interested persons" of
the Fund nor employees of the Investment Manager $500 per meeting of the board
attended by the director. Directors also are reimbursed for any expenses
incurred in attending meetings.
The Investment Manager and the Management Agreement
Subject to supervision by the Fund's Board of Directors,
investment management and administration services will be provided to the Fund
by INVESCO CAPITAL MGMT. Inc. (the "Investment Manager") pursuant to an
Investment Management Agreement dated October 29, 1992 ("Management Contract").
Under the Management Contract, the Investment Manager will provide a continuous
investment program for the Fund and make decisions and place orders to buy,
sell or hold particular securities and futures. The Investment Manager also
will supervise all matters relating to the operation of the Fund and will
obtain clerical staff, office space, equipment and services. As compensation
for its services, the Investment Manager will receive a monthly fee at an
annual rate of the greater of $50,000 or 0.75% of 1% on first $10 million,
0.50% of 1% on next $10 million and 0.25% of 1% over $20 million of the Fund's
average daily net assets. This fee is greater than that paid by most other
funds.
Under the Management Contract, the Investment Manager will not
be liable to the Fund for any error of judgment by the Investment Manager or
any loss sustained by the Fund except in the case of a breach of fiduciary duty
with respect to the receipt of compensation for services (in which case any
award of damages will be limited as provided in the 1940 Act) or of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
The Management Contract was approved by the Board of Directors
and by a majority of the directors who neither are interested persons of the
Fund nor have any direct or indirect financial interest in the Management
Contract or any agreement related thereto ("Independent Directors"), and by the
Fund's initial shareholder on September 25, 1992. The Management Contract will
remain in effect until terminated by either party. The Management Contract
shall be specifically approved at least annually (i) by a majority vote of the
Independent Directors cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by the Board of Directors or by vote of a
majority of the outstanding voting securities of the Fund. The Management
Contract will be submitted to the stockholders of the Fund for their approval
at the first meeting of stockholders following the offering of the Fund's
shares.
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<PAGE> 33
The Management Contract is terminable by vote of the Board of
Directors or by the holders of a majority of the outstanding voting securities
of the Fund at any time without penalty, on 60 days' written notice to the
Investment Manager. The Management Contract also may be terminated by the
Investment Manager on 60 days' written notice to the Fund. The Management
Contract terminates automatically upon its assignment (as defined in the 1940
Act).
Administrator
American Data Services, Inc. (the "Administrator") is located
at 24 West Carver Street, Huntington, New York 11743, and serves pursuant to an
agreement with the Fund (the "Administrative Services Agreement"). Pursuant to
the Administrative Services Agreement, subject to the overall authority of the
Fund's Board of Directors in accordance with Maryland law, the Administrator
will assist in the Fund's administration and operation, including, but not
limited to, the preparation of statistical and research data, data processing
services, preparation of management reports for performance and compliance, as
well as prepare and maintain the Fund's operating expense budget.
Fund Operating Expenses
In addition to the management fee payable to the Investment
Manager, the Fund is responsible for its operating expenses, including: (i)
interest and taxes; (ii) brokerage commissions; (iii) insurance premiums; (iv)
compensation and expenses of, directors other than those affiliated with the
Investment Manager; (v) legal and audit expenses; (vi) fees and expenses of the
Custodian, shareholder service or Transfer Agent; (vii) fees and expenses for
registration or qualification of the Fund and its shares under federal or state
securities laws; (viii) expenses of preparing, printing and mailing reports and
notices and proxy material to stockholders; (ix) other expenses incidental to
holding any stockholder meetings; (x) dues or assessments of or contributions
to the Investment Company Institute or any successor; (xi) Rule 12b-1 fees paid
by the Fund in connection with the Distribution Plan; (xii) service fees paid
by the Fund in connection with the personal service and/or maintenance of
shareholder accounts; and (xiii) such nonrecurring expenses as may arise,
including litigation affecting the Fund and the legal obligations with respect
to which the Fund may have to indemnify its officers and directors.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Management Contract states that in connection with its
duties to arrange for the purchase and the sale of securities and futures held
in the portfolio of the Fund by placing purchase and sale orders for the Fund,
the Investment Manager shall select such registered broker-dealers ("brokers")
as shall, in its judgment, achieve the policy of "best execution," i.e., prompt
and efficient execution at the most favorable securities price. In making such
selection, the Investment Manager is authorized in the Management Contract to
consider the reliability, integrity and financial condition of the brokers.
The Investment Manager also is authorized by the Management Contract to
consider whether the brokers provide brokerage and/or research services to the
Fund and/or other accounts of the Investment Manager.
The Management Contract states that the commissions paid to
brokers may be higher than other brokers would have charged if a good faith
determination is made by the Investment Manager that the commission is
reasonable in relation to the services provided, viewed in terms of either that
particular transaction on the Investment Manager's overall responsibilities as
to the accounts as to which it exercises investment discretion and that the
Investment Manager shall use its judgment in determining that the amount of
commissions paid are reasonable in relation to the value of brokerage and
research services provided and need not place or attempt to place a specific
dollar value on such services or on the portion of commission rates reflecting
such services. The Management Contract provides that to demonstrate that such
determinations were in good faith, and to show the overall reasonableness of
commissions paid, the Investment Manager shall be prepared to show that
commissions paid (i) were for purposes contemplated by the Management Contract;
(ii) were for products or services which provide lawful and appropriate
assistance to its decision making process; and (iii) were within a reasonable
range as compared to the rates charged by brokers to other institutional
investors as such rates may become known from available information. The
Investment Manager also is authorized to consider sales of shares
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<PAGE> 34
of the Fund and/or of any other investment companies for which the Investment
Manager acts as Investment Manager or advisor as a factor in the selection of
brokers to execute brokerage and principal transactions, subject to the
requirements of "best execution," as defined above.
The research services discussed above may be in written form
or through direct contact with individuals and may include information as to
particular companies and securities as well as market, economic or
institutional areas and, information assisting the Fund in the valuation of the
Fund's investments. The research which the Investment Manager receives for the
Fund's brokerage commissions, whether or not useful to the Fund, may be useful
to it in managing the accounts of its other advisory clients. Similarly, the
research received for the commissions of such accounts may be useful to the
Fund.
The debt securities which will be the principal component of
the Fund's portfolio are generally traded on a "net" basis with dealers acting
as principal for their own accounts without a stated commission although the
price of the security usually includes a profit to the dealer. Money market
instruments usually trade on a "net" basis as well. On occasion, certain money
market instruments may be purchased by the Fund directly from an issuer in
which case no commissions or discounts are paid. In underwritten offerings,
securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.
Brokerage commissions in Trinidad and Tobago, as in the U.S.,
are negotiable. Trinidad and Tobago brokers, which act as agent, and dealers,
which act as principal, are subject to government regulation if they deal with
public investors.
PURCHASE AND REDEMPTION OF SHARES
The procedures for purchasing shares of the Fund are
summarized in the prospectus under "How to Purchase Shares" and the procedures
for redemption of shares are summarized in the prospectus under "How to Redeem
Shares."
The Fund will redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value during any 90-day period for any one
stockholder. The Fund reserves the right to pay other redemptions, either
total or partial, by a distribution in kind of readily marketable securities
(instead of cash) from the Fund's portfolio. The securities distributed in
such a distribution would be valued at the same amount as that assigned to them
in calculating the net asset value for the shares being redeemed. If a
stockholder receives a distribution in kind, he or she should expect to incur
transaction costs when he or she converts the securities to cash.
Cancellation of purchase orders for Fund shares (as, for
example, when checks submitted to purchase shares are returned unpaid) cause a
loss to be incurred when the net asset value of the Fund shares on the date of
cancellation is less than the original date of purchase. The investor is
responsible for such loss and the Fund may reimburse itself or selected
broker-dealers for such loss by automatically redeeming shares from any account
registered in that stockholder's name, or by seeking other redress.
Determination of Net Asset Value
The net asset value of the Fund's shares will fluctuate and is
determined as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4 p.m. Eastern time) each business day. The Exchange
annually announces the days on which it will not be open for trading. The most
recent announcement indicates that it will not be, open on the following days:
New Years Day, Presidents Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. However, the Exchange may close
on days not included in that announcement.
The net asset value per share is computed by dividing the
value of the securities held by the Fund plus any cash or other assets
(including interest and dividends accrued but not yet received) minus all
liabilities (including accrued expenses) by the total number of Fund shares
outstanding at such time. The Fund
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<PAGE> 35
values its assets based on their current market value when market quotations
are readily available. If such value cannot be established, assets are valued
at fair value as determined in good faith by or under the direction of the
Board of Directors.
Securities for which market quotations are not readily
available are valued at fair market value as determined in good faith under
procedures established by the Fund's Board of Directors. Short-term debt
securities which mature in more than 60 days are valued at current market
quotations. Short-term debt securities which mature in 60 days or less are
valued at amortized cost if their term to maturity from the date of purchase
was 60 days or less, or by amortizing their value on the 61st day prior to
maturity, if their term to maturity from the date of purchase exceeded 60 days,
unless the Board of Directors determines that such valuation does not represent
fair value.
Following the calculation of security values in terms of
currency in which the market quotation used is expressed ("local currency"),
the valuing agent shall calculate these values in terms of United States
dollars on the basis of the conversion of the local currencies (if other than
U.S.) into United States dollars at the rates of exchange prevailing at the
value time as determined by the valuing agent. The value of other property
owned by the Fund shall be determined in a manner which, in the discretion of
the valuing agent of the Fund, most fairly reflects fair market value of the
property on such date.
Trading in securities on European securities exchanges and
over-the-counter markets is normally completed well before the close of
business on each business day in New York (i.e., a day on which the New York
Stock Exchange is open). In addition, European securities trading generally or
in a particular country or countries may not take place on all business days in
New York. Furthermore, trading takes place in various foreign markets on days
which are not business days in New York and on which the Fund's net asset value
is not calculated. The Fund calculates net asset value per share and,
therefore, effects sales, redemptions and repurchases of its shares, as of the
close of the New York Stock Exchange once on each day on which the New York
Stock Exchange is open. Such calculation does not take place contemporaneously
with the determination of the prices of the majority of the portfolio
securities used in such calculation. If events materially affecting the value
of such securities occur between the time when their price is determined and
the time when the Fund's net asset value is calculated, such securities will be
valued at fair value as determined in good faith by the Board of Directors.
DIVIDENDS, DISTRIBUTIONS AND TAXES
General
The Fund intends to qualify as a regulated investment company
under Subchapter M of the Code and generally intends to take all other action
required to insure that little or no federal income or excise taxes will be
payable by the Fund. If so qualified, the Fund will not be subject to federal
income tax on its net investment income and net short-term capital gains, if
any, realized during any fiscal year in which it distributes such income and
capital gains to its stockholders.
The Fund will determine either to distribute or to retain all
or part of any net long-term capital gains in any year for reinvestment. If
any such gains are retained, the Fund will be subject to a tax of 34% of such
amount. In that event, the Fund expects to designate the retained amount as
undistributed capital gains in a notice to its stockholders, each of whom (1)
will be required to include in income for tax purposes as long-term capital
gains, such stockholders' share of such undistributed amount; (2) will be
entitled to credit proportionate share of the tax paid by the Fund against
federal income tax liability and to claim the Fund to the extent the credit
exceeds such liability; and (3) will increase basis in shares of the Fund by an
amount equal to 66% of the amount of undistributed capital gains included in
such stockholder's gross income.
Under the Code, amounts not distributed on a timely basis in
accordance with certain distribution requirements are subject to a
nondeductible 4% excise tax. To avoid the tax, the Fund must distribute,
during each calendar year, an amount equal to, at the minimum, the sum of (1)
98% of its ordinary
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<PAGE> 36
income (not taking into account any capital gains or losses) for the calendar
year; (2) 98% of its capital gains in excess of its capital losses for the
12-month period ending on October 31 of the calendar year; and (3) all ordinary
income and net capital gains for previous years that were not previously
distributed. A distribution will be treated as paid during the calendar year
if it is paid during the calendar year or declared by the Fund in October,
November or December of the year, payable to stockholders of record on a date
during such month and paid by the Fund during January of the following year.
Any such distributions paid during January of the following year will be deemed
to be received on December 31 of the year the distributions are declared,
rather than when the distributions are received.
Gains or losses on the sales of securities by the Fund will be
long-term capital gains or losses if the securities have been held by the Fund
for more than 12 months. Gains or losses on the sale of securities held for 12
months or less will be short-term capital gains or losses.
The Fund's investments in foreign currency denominated debt
obligations and hedging activities will likely produce a difference between its
book income and its taxable income. This difference may cause a portion of the
Fund's income distributions to constitute a return of capital for tax purposes
or require the Fund's income distributions to constitute a return of capital
for tax purposes or require the fund to make distributions exceeding book
income to qualify as a regulated investment company.
Current federal tax law requires the holder of a security
issued with "original issue discount" (including a zero coupon U.S. Treasury
security) to accrue as income each year a portion of the discount at which the
security was purchased, even though the holder receives no interest payment in
cash on the security during the year. A security has "original issue discount"
if its face amount at maturity exceeds its issue price by more than a de
minimis amount. Accordingly, the Fund may be required to pay out as an income
distribution each year an amount which is greater than the total amount of cash
interest the Fund actually received. Such distributions may be made from the
cash assets of the Fund or by liquidation of its portfolio securities, if
necessary. The Fund may realize gains or losses from such liquidations. If
the Fund realizes net capital gains from such transactions, its shareholders
may receive a larger capital gain distribution, if any, than they would in the
absence of such transactions.
Taxation of Distributions
Distributions of investment company taxable income (which
includes taxable interest income and the excess of net short-term capital gains
over long-term capital losses) are taxable to a U.S. stockholder as ordinary
income, whether paid in cash or shares. Dividends paid by the Fund will
qualify for the 70% deduction for dividends received by corporations to the
extent the Fund's income consists of qualified dividends received from U.S.
corporations. Distributions of net capital gains (which consist of the excess
of long-term capital gains over net short-term capital losses), if any, are
taxable as long-term capital gains, whether paid in cash or in shares,
regardless of how long the stockholder has held the Fund's shares, and are not
eligible for the dividends received deduction. Stockholders receiving
distributions in the form of newly issued shares will have a basis in such
shares of the Fund equal to the fair market value of such shares on the
distribution date. If the net asset value of shares is reduced below a
stockholder's cost as a result of a distribution by the Fund of current or
accumulated earnings and profits, such distribution will be taxable even though
it represents a return of invested capital. The price of shares purchased at
this time may reflect the amount of the forthcoming distribution. Those
purchasing just prior to a distribution will receive a distribution which will
nevertheless be taxable to them.
Sales of Shares
Upon a sale or exchange of his or her shares, a stockholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the
shares have been held for more than one year. Any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of are replaced
within a period of 61 days beginning 30 days before and ending 30 days after
the shares are disposed of.
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In such case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized by a stockholder on
the sale of Fund shares held by the stockholder for six months or less will be
treated for tax purposes as a long-term capital loss to the extent of any
distributions of net capital gains received by the stockholder with respect to
such shares.
Backup Withholding
The Fund may be required to withhold federal income tax at the
rate of 31% of all taxable distributions payable to stockholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Backup withholding is not
an additional tax. Any amounts withheld may be credited against a
stockholder's federal income tax liability.
Foreign Withholding Taxes
Income received by the Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. It is impossible to determine the rate of
foreign tax in advance since the amount of the Fund's assets to be invested in
various countries is not known.
If more than 50% of the Fund's assets at year-end consist of
the debt and equity securities of foreign corporations, the Fund intends to
qualify for and make the election permitted under Section 853 of the Code, but
there can be no assurance that it will qualify. If the Fund makes such
elections, the stockholders may claim a credit or deduction on their income tax
returns for, and will be required to treat as part of the amount distributed to
them, their pro rata portion of qualified taxes that the Fund paid to foreign
countries (which taxes relate primarily to investment income). A stockholder's
ability to claim such a foreign tax credit will be subject to certain
limitations imposed by the Code, as a result of which stockholders may not get
full credit for the amount of foreign taxes so paid by the Fund. Stockholders
who do not itemize on their federal income tax returns may claim a credit (but
no deduction) for such foreign taxes. Stockholders are urged to consult their
attorneys or tax advisors regarding specific questions as to federal, state or
local taxes.
The Corporation reserves the right to offer investors a range
of investment opportunities by providing a choice of investments in various
portfolios and, consequently, the right to create and issue a number of
different series shares each of which relate to the assets of the separate
portfolios. In such case the shares of each series would participate equally
in the earnings, dividends and assets of a particular portfolio and would vote
separately to approve management agreements or changes in investment policies.
However, shares of all series would vote together in the election or selection
of directors, principal underwriters and accountants and on any proposed
material amendment to the Corporation's Certificate of Incorporation. For
federal tax purposes, each "fund" of a series is treated as a separate
corporation.
Upon liquidation of the Fund or any series, stockholders of
the affected series would be entitled to share pro rata in the net assets of
their respective series available for distribution to such stockholders.
INVESTMENT PERFORMANCE INFORMATION
The Fund may furnish data about its investment performance in
advertisements, sales literature and reports to stockholders. "Total return"
represents the annual percentage change in value of $1,000 invested at the
maximum public offering price for the one year period and the life of the Fund
through the most recent calendar quarter, assuming reinvestment of all
dividends and distributions. The Fund may also furnish total return
calculations for these and other periods based on investments at various sales
charge levels or net asset value.
Quotations of yield will be based on the investment income per
share earned during a particular 30-day (or one month) period, less expenses
accrued during the period ("net investment income") and will be
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<PAGE> 38
computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:
6
YIELD = 2[( a-b + 1) - 1]
-----
cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of reimbursements), c = the average daily number of shares
outstanding during the period that were entitled to receive dividends and d =
the maximum offering price per share on the last day of the period.
Quotations of total return will reflect only the performance
of a hypothetical investment in the Fund during the particular time period
shown. The Fund's total return and current yield may vary from time to time
depending on market conditions, the compositions of the Fund's portfolio and
operating expenses. These factors and possible differences in the methods used
in calculating yield should be considered when comparing the Fund's current
yield to yields published for other investment companies and other investment
vehicles. Total return and yield should also be considered relative to changes
in the value of the Fund's shares and the risks associated with the Fund's
investment objectives and policies. At any time in the future, total returns
and yields may be higher or lower than past total returns and yields and there
can be no assurance that any historical return or yield will continue.
In connection with communicating its yield or total return to
current or prospective stockholders, the Fund may also compare these figures to
the performance of other mutual funds tracked by mutual fund rating services or
to other unmanaged indexes which may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs.
Quotations of the Fund's total return will represent the
average annual compounded rate of return of a hypothetical investment in the
Fund over periods of one, five and ten years (up to the life of the Fund), and
are calculated pursuant to the following formula:
n
P (1 + T) = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years and ERV = the redeemable value at the end
of the period of a $1,000 payment made at the beginning of the period). All
total return figures will reflect the deduction of Fund expenses (net of
certain expenses reimbursed by the Advisor) on an annual basis and will assume
that all dividends and distributions are reinvested and will deduct the maximum
sales charge, if any is imposed.
GENERAL INFORMATION
The Fund, incorporated in the State of Maryland on October 24,
1990, is authorized to issue 2,000,000 shares of common stock, $.01 par value
(the "Common Stock"). Shares of the Fund, when issued, are fully transferable
and redeemable at the option of the holder. Shares are also redeemable at the
option of the Fund in certain circumstances as described in the Fund's
Prospectus under "How to Redeem Shares." All Fund shares are equal as to
earnings assets and voting privileges. There are no conversion, preemption or
other subscription rights. Under the Fund's Certificate of Incorporation, the
Board of Directors may authorize the creation of additional series of common
stock, with such preferences, privileges, limitations and voting and dividend
rights as the board may determine. Each share of the Fund outstanding is
entitled to share equally in dividends and other distributions and in the net
assets of the Fund on liquidation. Accordingly, in the event of liquidation,
each share of the Fund's common stock is entitled to its portion of all the
Fund's assets after all debts and expenses have been paid. The shares of the
Fund do not have cumulative voting rights for the election of directors.
The Corporation will hold an annual stockholder meeting each
year. Special meetings of the stockholders will be held for the consideration
of proposals requiring stockholder approval by law, such as changing
fundamental policies or upon the written request of 25% of the Fund's
outstanding shares. The
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directors will promptly call a meeting of stockholders to consider the removal
of a director or directors when requested to do so by the holders of not less
than 10% of the outstanding shares and that stockholders will receive
communication assistance in connection with calling such a meeting. At any
meeting of stockholders duly called and at which a quorum is present, the
stockholders may, by the affirmative vote of the holders of at least two-thirds
of the votes entitled to be cast thereon, remove any director or directors from
office, with or without cause, and may elect a successor or successors to fill
any resulting vacancies for the unexpired term of the removed director.
The Fund's organizing documents have been filed with the SEC
as exhibits to the Fund's registration statement and can be found at the SEC or
at the Fund's principal office or at the offices of the Fund's legal counsel.
Other than elections of directors, which is by plurality, any
matter for which stockholder approval is required by Maryland General
Corporation Law and the 1940 Act, requires the affirmative vote of at least a
"majority" (as defined by the 1940 Act) of the outstanding voting securities of
the Fund at a meeting called for the purpose of considering such approval. A
majority of the Fund's outstanding securities is the lesser of (1) 67% of the
shares represented at a meeting at which more than 50% of the outstanding
shares are present in person or by proxy or (2) more than 50% of the
outstanding shares.
FINANCIAL STATEMENTS
The Fund's audited financial statements were filed with the
SEC on March 4, 1996 as part of the Fund's annual report. The financial
statements contained in such annual report are incorporated by reference
herein.
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APPENDIX--DESCRIPTION OF RATINGS
APPENDIX A TO STATEMENT OF ADDITIONAL INFORMATION
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") CORPORATE BOND
RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or by
an exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Aa:
Bonds which are rated as Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which made the long-term risks appear somewhat larger than in Aaa
securities. A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future. Baa: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and, in fact, have speculative characteristics, as
well. Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. B: Bonds which are rated B
generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small. Caa: Bonds which are
rated Caa are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest. Ca: Bonds
which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or there may be marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's may apply numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its corporate bond
rating system. The modifier 1 indicates that the security ranks in higher end
of its generic rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S ("S&P'S") CORPORATE DEBT RATINGS
AAA: Debt rated AAA has the highest rating assigned by S&P's.
Capacity to pay interest and repay principal is extremely strong. AA: Debt
rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest rated issues only in small degree. A: Debt rated A
has a strong capacity to pay interest and repay principal although it is
somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories. BBB: Debt rated
BBB is regarded as having adequate capacity to pay interest and repay
principal. Whereas it normally exhibits protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than for debt in higher rated categories. BB, B, CCC, CC, C: Debt rated BBB,
B, CCC, CC and C is regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions. Cl: The rating
Cl is reserved for income bonds on which no interest is being paid. D: Debt
rated D is in payment default. The D rating category is used when interest
payments or principal payments are
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not made on the date due even if the applicable grace period has not expired,
unless S&P's believes that such payments will be made during such grace period.
The D rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
aaa: An issue which is rated aaa is considered to be a
top-quality preferred stock. This rating indicates good asset protection and
the least risk of dividend impairment within the universe of preferred stocks.
aa: An issue which is rated aa is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and
asset protection will remain relatively well maintained in the foreseeable
future. a: An issue which is rated a is considered to be an upper medium
grade preferred stock. While risks are judged to be somewhat greater than in
the aaa and aa classifications, earnings and asset protection are nevertheless
expected to be maintained at adequate levels. baa: An issue which is rated
baa is considered to be medium grade, neither highly protected nor poorly
secured. Earnings and asset protection appear adequate at present, but may be
questionable over great length of time. ba: An issue which is rated ba is
considered to have speculative elements and its future cannot be considered
well assured. Earnings and asset protection may be very moderate and not well
safeguarded during adverse periods. Uncertainty of position characterizes
preferred stocks in this class. b: An issue which is rated b generally lacks
the characteristics of a desirable investment. Assurance of dividend payments
and maintenance of other terms of the issue over any long period of time may be
small. caa: An issue which is rated caa is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate the
future status of payment. ca: An issue which is rated ca is speculative in a
high degree and is likely to be in arrears on dividends with the little
likelihood of eventual payment. c: This is the lowest rated class of
preferred or preference stock. Issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
Note: Moody's may apply numerical modifiers 1, 2 and 3 in
each rating classification from "aa" through "b" in its preferred stock rating
system. The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
DESCRIPTION OF S&P'S PREFERRED STOCK RATINGS
AAA: This is the highest rating that may be assigned by S&P's
to a preferred stock issue and indicates an extremely strong capacity to pay
the preferred stock obligations. AA: A preferred stock issue rated AA also
qualifies as a high-quality fixed income security. The capacity to pay
preferred stock obligations is very strong, although not as overwhelming as for
issues rated AAA. A: An issue rated A is backed by a sound capacity to pay
the preferred stock obligations, although it is somewhat more susceptible to
the adverse effect of changes in circumstances and economic conditions. BBB:
An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category. BB, B, CCC: Preferred stock
rated BB, B and CCC are regarded on balance as predominantly speculative with
respect to the issuer's capacity to pay preferred stock obligations. BB
indicates the lowest degree of speculation and CCC the highest degree of
speculation. While such issues will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. CC: The rating CC is reserved for a
preferred stock in arrears on dividends or sinking Equity Fund payments but
that is a non-paying issue with the issuer in default on debt instruments.
PLUS (+) OR MINUS (-): The ratings from "AA" to "B" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
41
<PAGE> 42
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
<TABLE>
<S> <C>
(a) Financial Statements. Included in Part A of the Registration Statement:
Table of Fees and Expenses
Financial Highlights
Included in Part B of the Registration Statement:
Audited financial statement dated
December 31, 1995
(b) Exhibits:
(1) Articles of Incorporation** and Articles of Amendment**
(2) By-Laws*
(3) Not Applicable
(4) Specimen Stock Certificate**
(5) Management Agreement**
(6) Distribution Agreement**
(7) Not Applicable
(8) Custodial Services Agreement**
(9) Fund Accounting Service Agreement, Shareholder
Servicing Agent Agreement, Administration Services
Agreement and Related Agreement**
(10) Opinion and Consent of Counsel
(11) Consent of Accountants**
(12) Not Applicable
(13) Subscription Agreement**
(14) IRA Disclosure Documents**
(15) Distribution Plan***
(16) Not Applicable
</TABLE>
*Filed previously by amendment and revised By-Laws filed by Post-Effective
Amendment.
**Filed previously by amendment.
***Filed previously by amendment and revised Distribution Plan filed by
Post-Effective Amendment.
Item 25. Persons Controlled by or under Common Control with Registrant.
See "Management" in Part A of this Registration Statement.
42
<PAGE> 43
Item 26. Number of Holders of Securities.
As of February 28, 1996, the approximate number of holders
was:
<TABLE>
<CAPTION>
(1) (2)
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Common 874
</TABLE>
Item 27. Indemnification.
The basic effect of the respective indemnification provisions
of the Registrant's Articles of Incorporation and By-Laws and section 2-418 of
the Maryland General Corporation Law is to indemnify each officer and director
of both the Registrant, the Investment Manager and selected broker-dealers, to
the full extent permitted under the General Laws of the State of Maryland,
except that such indemnity shall not protect any such person 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 his office.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant, Investment Manager and selected broker-dealers
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the 1940 Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, office or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person or the Investment Manager and selected
broker-dealers in connection with the shares being registered, the Registrant
will, unless, in the opinion of its counsel, the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the 1940 Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of Investment Advisor.
Reference is made to Part A of this Registration Statement and
to Form ADV filed under the Investment Advisers Act of 1940 by the Investment
Manager.
Item 29. Principal Underwriters.
The Fund has no principal underwriters and has adopted a
Distribution Plan pursuant to section 12 of the Investment Company Act of 1940
and Rule 12b-1 thereunder.
Item 30. Location of Accounts and Records.
The accounts, books and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the 1940 Act and the
rules promulgated thereunder are in the possession of Registrant and
Registrant's custodian, as follows: the documents required to be maintained by
paragraphs (4), (5), (6), (7), (10) and (11) of Rule 31a-1(b) will be
maintained by the Registrant, and all other records will be maintained by the
Custodian.
Item 31. Management Services.
The Registrant is not party to any management-related services
contract not discussed in Part A or Part B hereof.
43
<PAGE> 44
Item 32. Undertakings.
Registrant undertakes to provide its Annual
Report to Shareholders without charge to any recipient of its Prospectus who
requests the information.
Registrant undertakes to call a meeting of shareholders for
the purpose of voting upon the question of the removal of a director or
directors when requested in writing to do so by the holders of at least 10% of
the Registrant's outstanding shares and in connection with such meeting to
comply with the provisions of section 16(c) of the Investment Company Act of
1940 relating to shareholder communications.
44
<PAGE> 45
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Port-of-Spain Country of Trinidad and Tobago on
the _____ day of February, 1996.
The Chaconia Income & Growth Fund, Inc.
BY:
-------------------------------
E. Henry Sealy, President
On behalf of the Board of Directors pursuant
to Power of Attorney granted in Pre-Effective
Amendment #2
BY:
--------------------------------
E. Henry Sealy, Director
Board of Directors:
Rolston Nelson
E. Henry Sealy
Clarry Benn
John A. Cole
Roosevelt Williams
45
<PAGE> 46
Exhibit Index
Pursuant to Securities Act Rule 483
Exhibit 1 Articles of Incorporation and Articles of Amendment
Exhibit 2 By-Laws
Exhibit 4 Specimen Stock Certificate
Exhibit 5 Management Agreement
Exhibit 6 Distribution Agreement
Exhibit 8 Custodial Services Agreement
Exhibit 9 Fund Accounting Service Agreement, Shareholder Servicing Agent
Agreement, Administrative Services Agreement and Related Agreement
Exhibit 10 Opinion and Consent of Counsel
Exhibit 11 Consent of Accountants
Exhibit 13 Subscription Agreement
Exhibit 14 IRA Disclosure Documents
Exhibit 15 Distribution Plan
46
<PAGE> 47
The Chaconia Income & Growth Fund, Inc. (the "Fund") is
incorporating by reference Parts A, B and C of Pre-Effective Amendment No. 5 to
the Registration Statement of the Fund, file nos. 33-37426 and 811-6194, dated
March 19, 1993.
47
