SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
CRESTAR FINANCIAL CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
( ) $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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5) Total fee paid:
(X) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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4) Date Filed:
<PAGE>
AMERICA'S UTILITY FUND, INC.
901 EAST BYRD STREET
RICHMOND, VIRGINIA 23219
April 12, 1996
To Stockholders of America's Utility Fund, Inc.:
Enclosed are a Notice of Special Meeting of Stockholders,
Proxy Statement, and related proxy materials for the Special
Meeting of Stockholders of America's Utility Fund, Inc. to be held
on Thursday, May 2, 1996. At the meeting, you will be asked to
vote on a number of proposals, including among other things
changes to the Fund's investment objective to permit the Fund
greater flexibility in seeking to achieve current income and
moderate capital growth and certain changes to the Fund's
investment restrictions. You will also be asked to vote for the
election of Directors of the Fund and to ratify the selection of
the Fund's auditors.
Commonwealth Investment Counsel, Inc., the Fund's investment
adviser, has recommended the proposed changes in the Fund's
investment objective to the Board of Directors. Commonwealth
believes that the changes will permit the Fund to continue to seek
current income and moderate capital growth through greater
diversification in the types of investments available to it.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR EACH OF THE PROPOSALS.
PLEASE RETURN YOUR PROXY TODAY. If you have questions
regarding the proposals or need directions to the Special Meeting,
please call your financial representative or America's Utility
Fund, Inc. (800-487-3863) today. We appreciate your continued
trust and confidence and look forward to earning it well into the
future.
Sincerely,
David L. Heavenridge
Chairman and Chief Executive
Officer
<PAGE>
<PAGE>
AMERICA'S UTILITY FUND, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
May 2, 1996
To the Stockholders:
Notice is hereby given that a Special Meeting of Stockholders of America's
Utility Fund, Inc. (the "Fund") will be held at 9:30 a.m. (Eastern Daylight
time), on Thursday, May 2, 1996 in the River Room, at Two Rivers Country Club at
Governor's Land, 1400 Two Rivers Road, Williamsburg, Virginia for the following
purposes:
1. Electing Directors of the Fund;
2. Approving a change in the Fund's investment objective;
3. Approving a proposal to amend the Fund's fundamental investment
restrictions to permit the Fund to enter into repurchase agreements;
4. Approving a proposal to amend the Fund's fundamental investment
restrictions to permit the Fund to engage in foreign currency futures and
options transactions and forward contracts;
5. Ratifying the selection by the Board of Directors of independent
auditors; and
6. Considering any other matters that may properly come before the meeting.
Only holders of Common Stock of record at the close of business on March
20, 1996 are entitled to notice of, and to vote at, this meeting or any
adjournment thereof.
By order of the Board of Directors,
Henry C. Riely
SECRETARY
Richmond, Virginia
April 12, 1996
YOUR VOTE IS IMPORTANT.
PLEASE FILL IN, DATE, SIGN, AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE
MEETING. IN ORDER TO AVOID THE EXPENSE OF ADDITIONAL SOLICITATION, PLEASE MAIL
YOUR COMPLETED PROXY PROMPTLY.
<PAGE>
<PAGE>
AMERICA'S UTILITY FUND, INC.
901 EAST BYRD STREET
RICHMOND, VIRGINIA 23219
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 2, 1996
The enclosed proxy is solicited on behalf of the Board of Directors of
America's Utility Fund, Inc. (the "Fund") for use at the Special Meeting of
Stockholders of the Fund (the "Meeting"), to be held at 9:30 a.m. (Eastern
Daylight time) on Thursday, May 2, 1996 in the River Room, at Two Rivers Country
Club at Governor's Land, 1400 Two Rivers Road, Williamsburg, Virginia and at any
adjournment or adjournments thereof. These proxy materials are being mailed to
Stockholders beginning on or about April 12, 1996. A COPY OF THE ANNUAL REPORT
OF THE FUND, WHICH INCLUDES INFORMATION ABOUT THE FUND FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1995, MAY BE OBTAINED WITHOUT CHARGE BY CALLING THE FUND AT
1-800-487-3863.
If the accompanying form of proxy is executed properly and returned, shares
represented by it will be voted at the Meeting in accordance with the
instructions on the proxy. Shares of stockholders abstaining from voting will be
counted at the Meeting for purposes of determining a quorum, but will not be
voted. If no instructions are specified, shares will be voted FOR the election
of each nominee for Director and FOR the other Proposals set forth in the Notice
of Meeting. If any other matters are properly brought before the Meeting, the
persons named in the accompanying proxy will vote the shares represented by such
proxies on such matters in accordance with their best judgement. A proxy may be
revoked at any time prior to the time it is voted by written notice to the
Secretary of the Fund or by attendance at the Meeting.
The close of business on March 20, 1996 (the "Record Date") has been
established as the record date for determining the Stockholders entitled to
receive notice of, and to vote at, the Meeting. The number of shares of the Fund
issued and outstanding and entitled to vote as of the Record Date was
6,568,423.914 shares.
In the event that sufficient votes in favor of any of the Proposals set
forth in the Notice of the Meeting are not received by the time of the Meeting,
the persons named as proxies may propose one or more adjournments of the Meeting
for a period or periods of not more than 120 days from the Record Date in the
aggregate to permit further solicitation of proxies. Any such adjournment will
require the affirmative vote of a majority of the shares present in person or by
proxy at the session of the Meeting to be adjourned. The persons named as
proxies will vote in favor of such adjournment those proxies which they are
entitled to vote in favor of any Proposal for which further solicitation of
proxies is to be made. They will vote against any such adjournment all others,
except that they will not vote any proxies that abstained from voting on all
such Proposals. Votes cast by proxy or in person at the Meeting will be counted
by persons appointed by the Fund to act as election inspectors for the Meeting.
The costs of solicitation of proxies will be borne by the Fund.
Solicitation of proxies by personal interview, mail, telephone, and telegraph
may be made by officers and directors of the Fund (who will receive no
compensation therefor in addition to their regular salaries). The Fund has
retained Corporate Election Services, Inc. to assist in the tabulation of
proxies and to act as the inspector of elections at the Meeting.
<PAGE>
PROPOSAL 1. ELECTION OF DIRECTORS.
The Board of Directors of the Fund is recommending that stockholders elect
as Directors of the Fund the following nominees:
<TABLE>
<CAPTION>
FUND SHARES PRINCIPAL OCCUPATION
NAME, POSITION WITH BENEFICIALLY OWNED DURING PAST FIVE YEARS
FUND (IF ANY), AND AGE ON FEBRUARY 23, 1996* AND OTHER DIRECTORSHIPS
<S> <C> <C>
ARCH T. ALLEN, III 102 Director of the Fund since November 11, 1993.
Director, 56 Attorney at Law, Raleigh, North Carolina,
August 2, 1995 to date; Vice Chancellor for
Development and University Relations of the
University of North Carolina at Chapel Hill
from September 15, 1991 to August 2, 1995;
prior to September 15, 1991, partner with the
law firm of Moore & Van Allen.
ROBERT P. BLACK 1,689 Director of the Fund since May 18, 1993.
Director, 68 Retired, January 1, 1993; prior to that date,
President of the Federal Reserve Bank of
Richmond, Virginia. Director of Media General
Corporation, Rockingham Publishing Company and
Winchester Evening Star, Inc., and all of the
T. Rowe Price Fixed Income funds.
PETER W. BROWN 32,782 Director of the Fund since January 28, 1992.
Director, 53 Physician, Virginia Surgical Associates, P.C.;
Director of Bassett Furniture Industries, Inc.
CLIFFORD A. CUTCHINS, IV, 47 None Senior Vice-President, General Counsel, and
Secretary, James River Corporation.
DANIEL J. LUDEMAN, 39+ None Chairman and Chief Executive Officer of Mentor
Investment Group, Inc. since July 1991;
Managing Director, Wheat First Butcher Singer,
Inc.; Board of Directors, Wheat, First
Securities, Inc. and Mentor Income Fund, Inc.
and Chairman and Trustee of The Mentor Funds,
Cash Resource Trust, and Mentor Institutional
Trust.
LOUIS W. MOELCHERT, JR., 54 None Vice President of Business and Finance,
University of Richmond; Chairman, The Common
Fund; Trustee of The Mentor Funds, Cash
Resource Trust, and Mentor Institutional
Trust.
2
<PAGE>
<CAPTION>
FUND SHARES PRINCIPAL OCCUPATION
NAME, POSITION WITH BENEFICIALLY OWNED DURING PAST FIVE YEARS
FUND (IF ANY), AND AGE ON FEBRUARY 23, 1996* AND OTHER DIRECTORSHIPS
<S> <C> <C>
LINWOOD R. ROBERTSON+ 590 President and Chief Operating Officer of the
President and Chief Operating Fund since August 31, 1995. Senior Vice
Officer, 56 President-Finance, Treasurer and Corporate
Secretary of Dominion Resources, Inc. ("DRI");
from October 1, 1994 to January 1, 1995, Vice
President-Finance, Treasurer and Corporate
Secretary of DRI; prior to October 1, 1994,
Vice President-Finance and Treasurer of DRI;
from January 28, 1992 to May 17, 1994, Vice
President and Secretary of the Fund; Vice
President, Treasurer and Corporate Secretary
of AUF Service Company from January 31, 1992
to September 30, 1994.
</TABLE>
* The Directors and nominees as a group own less than 1% of the outstanding
shares of Common Stock of the Fund.
+ These individuals are deemed to be "interested persons" as that term is
defined in the Investment Company Act of 1940. Mr. Robertson is deemed to be
an interested person because he is the President and Chief Operating Officer
of the Fund and an executive officer of DRI, the parent of the Fund's
principal underwriter, Project America, Inc. Mr. Ludeman is deemed to be an
interested person because of positions he holds with certain affiliates of
Commonwealth Investment Counsel, Inc. ("Commonwealth"), the Fund's investment
adviser, including Chief Executive Officer and Director of Mentor Investment
Group, Inc. ("Mentor"), the parent of Commonwealth, and Managing Director of
Wheat First Butcher Singer, Inc., the parent of Mentor.
The Directors have fixed the number of Directors for election at this
meeting at seven. Messrs. Allen, Black, and Brown and Mr. David L. Heavenridge
currently serve as Directors of the Fund. Mr. Heavenridge, the Fund's Chairman
and Chief Executive Officer, will not stand for election at the Meeting. It is
expected that the Board of Directors will elect Mr. Robertson to succeed Mr.
Heavenridge as Chairman and Chief Executive Officer of the Fund. Each of the
nominees has consented to be a nominee and has agreed to serve as a Director if
elected. Nominees who are elected will serve until their successors are elected
and qualified. If any of the nominees is unavailable for election at the time of
the Meeting, which is not anticipated, proxies will be voted for such other
persons as the Directors may recommend.
The Fund's Board of Directors held six meetings in fiscal year 1995 and
each Director attended all of those meetings. The Fund does not have any audit,
nominating, or compensation committees. For the 1995 fiscal year, the following
Directors received compensation from the Fund in the following amounts:
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
DIRECTOR FROM THE FUND
<S> <C>
Arch T. Allen $ 13,250
Robert P. Black $ 13,250
Peter W. Brown $ 13,250
David L. Heavenridge 0
</TABLE>
3
<PAGE>
The Directors do not receive pension or retirement benefits from the Fund.
THE BOARD OF DIRECTORS OF THE FUND UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" EACH OF THE NOMINEES.
EXECUTIVE OFFICERS
Set forth below is information with respect to the current officers of the
Fund, including their age, their current position(s) with the Fund, the year
elected to such position(s), and principal occupations held by them for the past
five years. None of the officers receives compensation or other benefits from
the Fund. Each officer serves at the pleasure of the Board of Directors.
DAVID L. HEAVENRIDGE, 49 - Chairman and Chief Executive Officer since 1994;
President and Chief Executive Officer of Dominion Capital, Inc. ("DCI"), and
Senior Vice President of DRI from March 1, 1994 to date; Senior Vice President
and Controller of DRI from April 1, 1992 to March 1, 1994; Vice President and
Controller of DRI prior to April 1, 1992; Chairman of the Board and Chief
Executive Officer of the Fund and of AUF Service Company from September 30, 1994
to date.
LINWOOD R. ROBERTSON, 56 - President and Chief Operating Officer since
1995. See above for further information.
PAUL F. COSTELLO, 35 - Executive Vice President and Chief Administrative
Officer since 1995; Managing Director, Mentor Investment Group, Inc. and Wheat
First Butcher Singer; President, Mentor Income Fund, Inc., The Mentor Funds,
Mentor Institutional Trust, and Cash Resource Trust; Director, Mentor Perpetual
Advisors, L.L.C. and Mentor Trust Company; formerly, Director, President and
Chief Executive Officer, First Variable Life Insurance Company; President and
Chief Financial Officer, Variable Investors Series Trust; President and
Treasurer, Atlantic Capital & Research, Inc.; Vice President and Treasurer,
Variable Stock Portfolio, Inc., Monarch Investment Series Trust, and GEICO Tax
Advantage Series Trust; Vice President, Monarch Life Insurance Company, GEICO
Investment Services Company, Inc., Monarch Investment Services Company, Inc.,
and Springfield Life Insurance Company.
GLENNA G. BRYANT, 47 - Vice President-Administration since 1994; President
and Treasurer of Project America, Inc.; President and Chief Operating Officer of
AUF Service Company from August 31, 1995 to date; from August 10, 1992 to August
31, 1995, Vice President of Project America, Inc.; from March to August 1992,
self-employed; Vice President of Mariner Funds Services, Inc. prior to March
1992; from September 30, 1994 to August 31, 1995, Senior Vice President and
Treasurer of AUF Service Company.
JAMES L. TRUEHEART, 44 - Vice President, Chief Financial Officer and
Controller since 1994; Vice President and Controller of DRI since March 1, 1994;
Senior Vice President and Chief Financial Officer of DCI since March 1, 1996;
from November 1, 1994 to March 1, 1996, Vice President of DCI; from March 1 to
November 1, 1994, Vice President and Controller of DCI; prior to March 1, 1994,
Assistant Controller of DRI; Treasurer of the Fund from September 30, 1994 to
October 24, 1995.
TERRY L. PERKINS, 48 - Treasurer since 1995; Vice President, Mentor
Investment Group, Inc.; Treasurer, Cash Resource Trust, The Mentor Funds, Mentor
Institutional Trust, and Mentor Income Fund Inc.; formerly, Treasurer and
Comptroller, Ryland Capital Management, Inc.
HENRY C. RIELY, 40 - Secretary since 1994; Assistant Corporate Secretary of
DRI and Corporate Secretary of DCI; Secretary of AUF Service Company and Project
America, Inc. from October 1, 1994 to date.
4
<PAGE>
MICHAEL WADE, 29 - Assistant Treasurer since 1995; Associate Vice
President, Mentor Investment Group, Inc. since April 1994; Assistant Treasurer,
Cash Resource Trust, Mentor Income Fund, Inc., and The Mentor Funds; formerly,
Senior Accountant, Wheat First Butcher Singer, Inc., April 1993 through March
1994; Audit Senior, BDO Seidman, July 1989 through March 1993.
PROPOSAL 2: APPROVAL OF A CHANGE TO THE INVESTMENT OBJECTIVE OF THE FUND.
The Board of Directors is recommending that stockholders approve a change
to the Fund's investment objective. The change is intended to clarify the Fund's
flexibility in seeking its objective of current income and moderate capital
growth. The Fund would continue to focus its investments in the securities of
utility companies and in any event would continue to invest at least 65% of its
assets in securities of utility companies. However, implementation of the
proposed change would clarify the Fund's ability, subject to the oversight of
the Board of Directors, to invest in other securities and to engage in other
investment strategies to the extent consistent with seeking current income and
moderate capital growth and would also clarify the types of utility companies in
which the Fund may invest.
THE FUND'S CURRENT INVESTMENT OBJECTIVE. The Fund's investment objective is
TO SEEK CURRENT INCOME AND MODERATE CAPITAL GROWTH THROUGH INVESTMENT IN
SECURITIES ISSUED BY UTILITY COMPANIES. The Fund's current prospectus describes
"utility companies" to include electric and gas utilities and holding companies
thereof, companies engaged in the distribution of natural gas and local and long
distance telephone companies and holding companies thereof. The securities in
which the Fund may invest include common and preferred stocks, and long-and
short-term debt securities.
The Fund's current prospectus states that, under normal circumstances, the
Fund intends to make the maximum investment possible in such securities based on
market conditions, with a minimum of 65% of its total assets invested in such
securities. It also states that the relative weightings among common stocks,
preferred stocks, and debt securities in the Fund's portfolio will vary
depending on the judgment of the Fund's investment manager. The prospectus
provides in addition that the Fund's investment policies are not fundamental and
may be changed without a vote of stockholders.
THE PROPOSED CHANGE. Commonwealth has proposed, and your Directors have
approved, a change to the investment objective of the Fund. The new objective of
the Fund would be TO SEEK CURRENT INCOME AND MODERATE CAPITAL GROWTH BY
INVESTING PRIMARILY IN SECURITIES ISSUED BY UTILITY COMPANIES. Utility companies
would be defined to include companies engaged in the manufacture, production,
generation, transmission, sale, or distribution of electric or gas energy and
companies engaged in telecommunications, including telephone, telegraph,
satellite, microwave and other communications media. Commonwealth would consider
a particular company to be a "utility company" if at the time of investment
Commonwealth determines that at least 50% of the company's assets, revenues, or
profits are derived from one or more of the activities described above (other
than public broadcasting or cable television).
The proposed changes are intended to make clear that the Fund may invest in
a wide variety of companies engaged in the utilities industries and that the
Fund may invest up to 35% of its assets (determined at the time of investment)
in securities of companies other than utility companies and to engage in other
investment strategies to the extent Commonwealth believes they are consistent
with seeking current income and moderate capital growth.
The Fund would invest at least 65% of its assets (determined at the time of
investment) in securities of utility companies, including equity and debt
securities of such companies. The Fund would be permitted to
5
<PAGE>
invest the remaining 35% of its assets in other securities Commonwealth believes
have the potential to produce current income, capital growth, or both. These may
include U.S. government securities, corporate bonds, notes, and debentures, and
equity securities of other kinds of companies. The types of securities held by
the Fund will vary from time to time in light of the Fund's investment
objective, changes in interest rates, and economic and other factors, and would
be subject to the oversight of the Fund's Directors.
A COPY OF THE DESCRIPTION OF THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
THAT IS EXPECTED TO APPEAR IN THE FUND'S PROSPECTUS IF THE CHANGE TO THE FUND'S
OBJECTIVE IS APPROVED IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX A, AND A
DESCRIPTION OF MANY OF THE INVESTMENT STRATEGIES IN WHICH THE FUND MIGHT ENGAGE
IS ATTACHED AS APPENDIX B.
POSSIBLE INVESTMENTS BY THE FUND. The following are some of the types of
investments Commonwealth is currently considering for investment by the Fund,
depending on market conditions, if the proposed change to the Fund's investment
objective is approved. The Fund's use of any of these investments or investment
strategies is subject to initial approval by the Board of Directors.
(Bullet) INVESTMENTS IN FIXED-INCOME SECURITIES. The Fund might
invest in fixed-income securities of any issuer if
Commonwealth believes they would be consistent with the
Fund's objective of earning current income or realizing
capital growth. Such securities might include, for example,
U.S. Government securities and securities of private
issuers. The Fund would invest in debt securities considered
to be of "investment grade" at the time of investment --
meaning that the debt security is rated at least Baa3 by
Moody's Investors Service, Inc. or BBB-by Standard & Poor's
or the equivalent by another nationally recognized rating
organization or, if unrated, determined by Commonwealth to
be of comparable quality. Securities rated Baa or BBB lack
outstanding investment characteristics and have speculative
characteristics and are subject to greater credit and market
risks than higher-rated securities. (The Fund currently may
invest a portion of its assets in fixed-income securities,
to the extent consistent with its investment policies.)
(Bullet) INVESTMENTS IN FOREIGN SECURITIES. Such investments may
offer greater potential for current income or growth of
capital, or both, than securities of U.S. companies,
although they entail certain risks that may not be present
in domestic investments. The Fund might also buy and sell
foreign currencies and foreign currency forward and futures
contracts for risk management purposes in connection with
its foreign investments.
(Bullet) INVESTMENTS IN COMPANIES ENGAGED IN THE OIL INDUSTRY. These
might include securities of issuers engaged in the
production, refining, sale, or distribution of oil or
oil-related products. Such investments often provide
attractive current income and, under certain market
conditions, their prices may vary inversely to those of
securities of utility companies, providing some protection
against a decline in the Fund's net asset value at times of
a general decline in the prices of securities of utility
companies.
(Bullet) REPURCHASE AGREEMENTS. The Fund may enter into fully-secured
repurchase agreements with certain Board-approved banks,
broker/dealers, and other recognized financial institutions.
These transactions must be fully collateralized at all
times.
FOR A MORE DETAILED DESCRIPTION OF THE INVESTMENTS WHICH THE FUND MIGHT
HOLD, AND THE INVESTMENT STRATEGIES IN WHICH IT MIGHT ENGAGE IF THE PROPOSED
CHANGE IS APPROVED, INCLUDING CERTAIN OF THE RISKS THEY MIGHT ENTAIL, SEE
APPENDIX A AND APPENDIX B TO THIS PROXY STATEMENT.
6
<PAGE>
STOCKHOLDER APPROVAL IS REQUIRED ONLY TO AMEND THE FUND'S INVESTMENT
OBJECTIVE. THE FUND MAY, WITH THE APPROVAL OF THE BOARD OF DIRECTORS, IMPLEMENT
ANY OTHER INVESTMENT POLICY STRATEGY (OTHER THAN ONE IN VIOLATION OF ANY
INVESTMENT RESTRICTION OF THE FUND DESIGNATED AS FUNDAMENTAL IN THE FUND'S
PROSPECTUS OR STATEMENT OF ADDITIONAL INFORMATION), INCLUDING ANY POLICY OR
STRATEGY SET OUT IN THIS PROXY STATEMENT, WITHOUT A STOCKHOLDER VOTE OR
RATIFICATION, AND MAY DO SO AT ANY TIME IN THE FUTURE.
THE BOARD OF DIRECTORS OF THE FUND UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" THIS PROPOSAL.
PROPOSAL 3: APPROVAL OR DISAPPROVAL OF AN AMENDMENT
TO A FUNDAMENTAL INVESTMENT RESTRICTION OF THE FUND
TO PERMIT THE FUND TO ENTER INTO REPURCHASE AGREEMENTS.
Commonwealth has proposed, and the Board of Directors has approved, the
Fund's entering into repurchase agreements from time to time. Commonwealth would
enter into such transactions for the Fund only if it believed that they offered
the potential for current income with minimal risk to the Fund. The Fund's use
of repurchase agreements requires an amendment to one of the Fund's fundamental
investment restrictions, as described below.
When the Fund enters into a REPURCHASE AGREEMENT, it purchases a debt
instrument for a relatively short period (usually not more than one week), which
the seller typically agrees to repurchase at a fixed time and price,
representing the Fund's cost plus interest. Although Commonwealth will monitor
repurchase agreement transactions to ensure that they will be fully
collateralized at all times, the Fund bears the risk of loss if the other party
defaults on its obligations and the Fund is delayed or prevented from exercising
its rights to dispose of the collateral. In a repurchase agreement, if the other
party should become involved in bankruptcy or insolvency proceedings, it is
possible that the Fund might be treated as an unsecured creditor and required to
return the underlying collateral to the other party's estate. For additional
information with respect to these transactions and risks related to their use,
see Appendix B.
One of the fundamental investment restrictions of the Fund may be read to
prohibit the Fund's use of repurchase agreements. The Board of Directors has
approved an amendment to the restriction to eliminate the prohibition. Set out
below is the full text of the investment restriction as proposed to be amended,
with the proposed changes highlighted. Additions are underlined and deletions
are marked by strike through.
[It is a fundamental policy of the Fund] not to make loans to
other persons other than (i) through the purchase of a portion of
an issue of publicly distributed debt securities which are not
considered loans, [or] (ii) through the purchase of bonds,
debentures, commercial paper, corporate notes and similar
evidences of indebtedness of a type commonly sold privately to
financial institutions, or (iii) by entering into repurchase
agreements with respect to not more than 25% of its total assets
(taken at current value).
THE BOARD OF DIRECTORS OF THE FUND UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" THIS PROPOSAL.
7
<PAGE>
PROPOSAL 4: APPROVAL OR DISAPPROVAL OF AMENDMENTS TO CERTAIN
OF THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS TO PERMIT
THE FUND TO ENGAGE IN FOREIGN CURRENCY FUTURES
AND OPTIONS TRANSACTIONS AND FORWARD CONTRACTS.
The Board of Directors is recommending that stockholders approve amendments
to certain of the Fund's fundamental investment restrictions to provide the Fund
flexibility to enter into options and futures transactions and forward contracts
related to foreign currencies. The proposed amendment also would remove the
Fund's ability to invest in any puts, calls, straddles, or spreads except in
connection with transactions in foreign currencies. The changes are intended to
permit the Fund to use such foreign currency transactions for hedging purposes
to limit the adverse effect on the Fund's portfolio from changes in the value of
foreign currencies against the U.S. dollar. As noted above, if the proposed
change to the Fund's investment objective is implemented, Commonwealth would
have the ability from time to time to enter into transactions in options,
futures contracts (including options on futures contracts), and forward
contracts only as related to the Fund's foreign investments. See Appendix B for
a description of options and futures contracts and certain related risks.
Set out below is the full text of the investment restrictions as proposed
to be amended, with the proposed changes highlighted. Additions are underlined
and deletions are marked by strike through.
[It is a fundamental restriction of the Fund] not to buy
securities on margin, or to effect short sales of securities.
(Margin payments in connection with transactions in futures
contracts, options, forward contracts, and other financial
instruments are not considered to constitute the purchase of
securities on margin for this purpose.)
[It is a fundamental restriction of the Fund] not to own, buy or
sell commodities or commodity [futures] contracts (except that the
Fund may purchase and sell foreign currencies, foreign currency
futures contracts and related options), or real estate or
interests in real estate; provided, that the Fund may purchase and
sell securities which are secured by real estate and securities of
companies which invest or deal in real estate.
[It is a fundamental restriction of the Fund] not to invest [more
than 2% of its total assets] in puts, calls, straddles, spreads, or
any combination thereof (except that the Fund may invest in
foreign currency futures and options transactions and forward
contracts). [(There is no present intention to invest any of the
Fund's assets in puts, calls, straddles, spreads, or any
combination thereof.)]
THE BOARD OF DIRECTORS OF THE FUND UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" THIS PROPOSAL.
PROPOSAL 5: SELECTION OF INDEPENDENT AUDITORS.
The Board of Directors, including the directors who are not interested
persons of the Fund, have selected Deloitte & Touche LLP as independent auditors
for the Fund for the fiscal year ending December 31, 1996. Deloitte & Touche LLP
was selected primarily on the basis of its expertise as auditors of investment
companies, the quality of its audit services, and the competitiveness of the
fees charged for these services. A representative of Deloitte & Touche LLP will
be present at the Meeting and will have an opportunity to make a statement if he
or she desires to do so and to respond to appropriate questions.
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The Board of Directors' policy regarding engaging independent accountants'
services is that management may engage the Fund's independent auditors to
perform any services normally provided by independent accounting firms, provided
that any such services meet any and all of the independence requirements of the
American Institute of Certified Public Accountants and the Securities and
Exchange Commission.
THE BOARD OF DIRECTORS OF THE FUND UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" THIS PROPOSAL.
REQUIRED STOCKHOLDER VOTES
The vote of a majority of the votes cast if a quorum is present is required
to elect each Director and to ratify the Board of Director's selection of
independent auditors. The vote necessary to approve each of Proposals 2, 3 and 4
is the lesser of (i) 67% of the shares of the Fund represented at the Meeting,
if more than 50% of the shares of the Fund are represented at the Meeting, and
(ii) more than 50% of the outstanding shares of the Fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS
As of the Record Date, the Fund had no knowledge of any beneficial owner of
5% or more of shares of the Fund's Common Stock, except for Signet Trust
Company, P.O. Box 85539, Richmond, Virginia, which beneficially owned 744,357,
or 11.33%, of the outstanding shares of the Fund as of such date.
All directors and officers of the Fund as a group own 35,363 shares, or
less than 1% of the total outstanding shares of Common Stock of the Fund, as of
February 23, 1996.
OTHER INFORMATION
Commonwealth Investment Counsel, Inc., Project America, Inc., the Fund's
principal underwriter, Mentor Investment Group, Inc., the Fund's administrator,
and America's Utility Fund Service Company, which provides certain
administrative services to the Fund, are located at 901 East Byrd Street,
Richmond, Virginia 23219. Commonwealth is a wholly-owned subsidiary of Mentor
Investment Group, Inc., which in turn is a wholly-owned subsidiary of Wheat
First Butcher Singer, Inc. Project America and AUF Service Company are
wholly-owned subsidiaries of Dominion Capital, Inc., which in turn is a
wholly-owned subsidiary of Dominion Resources, Inc.
Mr. Ludeman and certain officers of the Fund because of their positions
with Mentor Investment Group, Inc. and its affiliates or their ownership of
stock in Wheat First Butcher Singer, may benefit from the management fees and
administrative fees paid by the Fund. Mr. Robertson and certain officers of the
Fund, because of their positions with Dominion Resources, Inc., Dominion
Capital, Inc. and AUF Service Company and its affiliates, may benefit from the
administrative fees and other amounts paid by the Fund.
Any number of stockholders together holding at least one-third of the
outstanding shares of Common Stock entitled to vote at the Meeting, represented
in person or by proxy, will constitute a quorum for the transaction of business
at the Meeting, although, as stated above, Proposals 2, 3 and 4 require a
greater vote. Votes cast by proxy or in person at the Meeting will be counted by
persons appointed by the Fund as inspectors of election for the Meeting. The
inspectors of election will count the total number of votes cast "for" approval
of the Proposals for purposes of determining whether sufficient affirmative
votes have been cast. The inspectors of election will count all shares
represented by proxies that reflect abstentions and "broker non-votes" (i.e.,
shares held by brokers or nominees as to which instructions have not been
received from the beneficial owners or the persons entitled to vote) for
purposes of determining the presence of a quorum. With
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respect to the election of Directors and selection of auditors, neither
abstentions nor broker non-votes have any effect on the outcome. With respect to
any other proposals, abstentions and broker non-votes have the effect of a
negative vote.
Although the Meeting is called to transact any other business that may
properly come before it, the only business that management intends to present or
knows that others will present are the Proposals in the Notice of Meeting.
However, you are being asked on the enclosed proxy to authorize the persons
named therein to vote in accordance with their judgment with respect to any
additional matters which properly come before the Meeting, and on all matters
incidental to the conduct of the Meeting.
STOCKHOLDER PROPOSALS
Stockholder proposals to be presented at any future meeting of stockholders
of the Fund must be received by the Fund a reasonable time before the Fund's
solicitation of proxies for that meeting in order for such proposals to be
considered for inclusion in the proxy materials relating to that meeting.
Richmond, Virginia
April 12, 1996
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APPENDIX A
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND, AS THEY ARE EXPECTED TO APPEAR IN
THE PROSPECTUS OF THE FUND, IF PROPOSAL 2 IS APPROVED BY STOCKHOLDERS.
THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK CURRENT INCOME AND MODERATE CAPITAL
GROWTH BY INVESTING PRIMARILY IN SECURITIES ISSUED BY UTILITY COMPANIES. The
Fund's investments in utility companies may include equity securities, including
common stocks and preferred stocks, and debt securities. Commonwealth Investment
Counsel, Inc. ("Commonwealth") is the Fund's investment manager.
"Utility companies" include companies engaged in the manufacture, production,
generation, transmission, sale, or distribution of electric or gas energy and
companies engaged in telecommunications, including telephone, telegraph,
satellite, microwave and other communications media. Commonwealth considers a
particular company to be a "utility company" if at the time of investment
Commonwealth determines that at least 50% of the company's assets, revenues, or
profits are derived from one or more of the activities described above (other
than public broadcasting or cable television). Under normal circumstances, the
Fund will invest at least 65% of its total assets (determined at the time of
investment) in the securities of utility companies.
The Fund may invest the remainder of its assets in other securities it believes
have the potential to produce current income, capital growth, or both. These may
include U.S. government securities, corporate bonds, notes, and debentures, and
equity securities of other kinds of companies. The types of securities held by
the Fund will vary from time to time in light of the Fund's investment
objective, changes in interest rates, and economic and other factors. The Fund
may hold a portion of its assets in cash and money market instruments.
Debt securities in which the Fund may invest will be rated at the time of
purchase at least Baa by Moody's Investors Service, Inc. or BBB by Standard &
Poor's (or comparably rated by another nationally recognized rating
organization), or may be unrated securities determined to be of comparable
quality by Commonwealth. Investments in securities rated BBB or Baa have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of the issuer to
make principal and interest payments than would likely be the case with
investments in securities with higher credit ratings. The Fund will not
necessarily dispose of a security when its rating is reduced below its rating at
the time of purchase, although Commonwealth will monitor the investment to
determine whether continued investment in the security would serve the Fund's
investment objective.
RISK FACTORS REGARDING THE FUND'S INVESTMENTS IN UTILITY COMPANIES. Since the
Fund's investments are concentrated in securities of utility companies, the
value of its shares can be expected to change in response to factors affecting
utilities and their industries, and may fluctuate more widely than the value of
shares of a portfolio that invests in a broader range of companies. Many utility
companies, especially electric, gas, and other energy-related utility companies,
have historically been subject to risks of increase in fuel and other operating
costs, changes in interest rates on borrowings for capital improvement programs,
changes in applicable laws and regulations, changes in technology which may
render existing plants, equipment, or products obsolete, the effects of energy
conservation and operating constraints, and increased costs and delays
associated with compliance with environmental regulations. In particular,
regulatory changes with respect to nuclear and conventionally-fueled power
generating facilities could increase costs or impair the ability of utility
companies to operate such facilities or obtain adequate return on invested
capital. Generally, prices charged by utilities are regulated in the United
States and in foreign countries with the intention of protecting the public
while ensuring that utility companies earn a return sufficient to allow them to
attract capital in
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order to grow and continue to provide appropriate services. There can be no
assurance that such pricing policies or rates of return will continue in the
future.
In recent years, regulatory changes in the United States have increasingly
allowed utility companies to provide services and products outside their
traditional geographic areas and lines of business, creating new areas of
competition within the utilities industries. This trend toward deregulation and
the emergence of new entrants have caused non-regulated providers of utility
services to become a significant part of the utilities industries. Commonwealth
believes that the emergence of competition and deregulation will result in
certain utility companies being able to earn more than their traditional
regulated rates of return, while others may be forced to defend their core
business from increased competition and may be less profitable. Although
Commonwealth seeks to take advantage of favorable investment opportunities that
may arise from these structural changes, there can be no assurance that the Fund
will benefit from any such changes.
OTHER INVESTMENT PRACTICES.
FOREIGN INVESTMENTS. The Fund may invest in foreign securities. Foreign
investments can involve risks that may not be present in domestic investments.
Since foreign securities are normally denominated and traded in foreign
currencies, the value of Fund assets may be affected favorably or unfavorably by
currency exchange rates and exchange control regulations. There may be less
information publicly available about a foreign company than a U.S. company, and
foreign companies are not generally subject to accounting, auditing, and
financial reporting standards and practices comparable with those in the United
States.
The securities of some foreign companies are less liquid and at times more
volatile than securities of comparable U.S. companies. Foreign brokerage
commissions and other fees are also generally higher than those in the United
States. Foreign settlement procedures and trade regulations may involve certain
risks (such as delay in payment or delivery of securities or in the recovery of
fund assets held abroad) and expenses not present in the settlement of domestic
investments. In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange controls, confiscatory
taxation, political or financial instability and diplomatic developments that
could affect the value of investments in certain foreign countries. Legal
remedies available to investors in certain foreign countries may be more limited
than those available with respect to investments in the United States or in
certain other foreign countries. The laws of some foreign countries may limit
investments in securities of certain issuers located in those foreign countries.
Special tax considerations apply to foreign securities.
The Fund may buy and sell foreign currencies and foreign currency forward and
futures contracts for hedging purposes in connection with its foreign
investments.
INVESTMENTS IN COMPANIES ENGAGED IN THE OIL INDUSTRY. The Fund may invest in
securities of issuers engaged in the production, refining, sale, or distribution
of oil or oil-related products. Under certain market conditions, the prices of
such securities may vary inversely to the prices of securities of utility
companies, and so may provide some limited protection against a decline in the
Fund's net asset value at times of a general decline in prices of securities of
utility companies. The Fund may invest in such securities in an attempt to gain
such protection or in an attempt generally to seek capital growth.
The prices of securities of companies in the oil industry and the price of oil
are subject to substantial fluctuations, and may be affected by unpredictable
economic and political circumstances such as social, political, or military
disturbances in or near oil-producing countries or oil shipping or pipeline
routes, the taxation and regulatory policies of various governments, the
activities and policies of OPEC (an organization of major oil producing
countries), the discovery of new oil and gas reserves and the development of new
techniques for
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producing, refining and transporting oil, gas, and related products, energy
conservation practices, and the development of alternative energy sources and
alternative uses for oil and gas products.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
certain Board-approved banks, broker/dealers, and other financial institutions.
These transactions must be fully collateralized at all times, but involve some
risk to the Fund if the other party should default on its obligations and the
Fund is delayed or prevented from recovering the collateral.
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APPENDIX B
ADDITIONAL INFORMATION REGARDING CERTAIN INVESTMENT INSTRUMENTS AND TECHNIQUES
REFERRED TO IN THE PROXY STATEMENT, AND CERTAIN OF THE RISKS THEY MAY ENTAIL.
REPURCHASE AGREEMENTS
A repurchase agreement is a contract under which the Fund acquires a
security for a relatively short period (usually not more than one week) subject
to the obligation of the seller to repurchase and the Fund to resell such
security at a fixed time and price (representing the Fund's cost plus interest).
It is the Fund's present intention to enter into repurchase agreements only with
member banks of the Federal Reserve System and securities dealers meeting
certain criteria as to creditworthiness and financial condition established by
the Board of Directors and only with respect to obligations of the U.S.
government or its agencies or instrumentalities or other high quality short term
debt obligations. Repurchase agreements may also be viewed as loans made by the
Fund which are collateralized by the securities subject to repurchase.
Commonwealth will monitor such transactions to ensure that the value of the
underlying securities will be at least equal at all times to the total amount of
the repurchase obligation, including the interest factor. If the seller
defaults, the Fund could realize a loss on the sale of the underlying security
to the extent that the proceeds of sale including accrued interest are less than
the resale price provided in the agreement including interest. In addition, if
the seller should be involved in bankruptcy or insolvency proceedings, the Fund
may incur delay and costs in selling the underlying security or may suffer a
loss of principal and interest if the Fund is treated as an unsecured creditor
and required to return the underlying collateral to the seller's estate.
FOREIGN SECURITIES
Investments in foreign securities may involve considerations different from
investments in domestic securities due to limited publicly available
information, non-uniform accounting standards, lower trading volume and possible
consequent illiquidity, greater volatility in price, the possible imposition of
withholding or confiscatory taxes, the possible adoption of foreign governmental
restrictions affecting the payment of principal and interest, expropriation of
assets, nationalization, or other adverse political or economic developments.
Foreign companies may not be subject to auditing and financial reporting
standards and requirements comparable to those which apply to U.S. companies.
Foreign brokerage commissions and other fees are generally higher than in the
United States. It may be more difficult to obtain and enforce a judgment against
a foreign issuer.
In addition, to the extent that the Fund's foreign investments are not
United States dollar-denominated, the Fund may be affected favorably or
unfavorably by changes in currency exchange rates or exchange control
regulations and may incur costs in connection with conversion between
currencies.
Income received by the Fund from sources within foreign countries may be
reduced by 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 effective rate of
foreign tax in advance since the amount of the Fund's assets to be invested in
various countries is not known, and tax laws and their interpretations may
change from time to time and may change without advance notice. Any such taxes
paid by the Fund will reduce its net income available for distribution to
stockholders.
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FOREIGN CURRENCY TRANSACTIONS. The Fund may engage in currency exchange
transactions to protect against uncertainty in the level of future foreign
currency exchange rates and to increase current return. The Fund may engage in
both "transaction hedging" and "position hedging".
When it engages in transaction hedging, the Fund enters into foreign
currency transactions with respect to specific receivables or payables of the
Fund generally arising in connection with the purchase or sale of its portfolio
securities. The Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging the Fund will attempt to protect against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis
at the prevailing spot rate in connection with transaction hedging. The Fund may
also enter into contracts to purchase or sell foreign currencies at a future
date ("forward contracts") and purchase and sell foreign currency futures
contracts.
For transaction hedging purposes the Fund may also purchase exchange-listed
and over-the-counter call and put options on foreign currency futures contracts
and on foreign currencies. A put option on a futures contract gives the Fund the
right to assume a short position in the futures contract until expiration of the
option. A put option on currency gives the Fund the right to sell a currency at
an exercise price until the expiration of the option. A call option on a futures
contract gives the Fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives the
Fund the right to purchase a currency at the exercise price until the expiration
of the option.
When it engages in position hedging, the Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which securities held by the Fund are denominated or are quoted in
their principle trading markets or an increase in the value of currency for
securities which the Fund expects to purchase. In connection with position
hedging, the Fund may buy or sell foreign currency futures contracts and put and
call options on foreign currencies and on foreign currency futures contracts and
may enter into foreign currency futures contracts. The Fund may also purchase or
sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the values of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is impossible to forecast with precision the market value of the Fund's
portfolio securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security or securities being hedged is less than the
amount of foreign currency the Fund is obligated to deliver and if a decision is
made to sell the security or securities and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security or securities
of the Fund if the market value of such security or securities exceeds the
amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Fund owns or intends to purchase
or sell. They simply establish a rate of exchange which one can
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achieve at some future point in time. Additionally, although these techniques
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, they tend to limit any potential gain which might result from the
increase in the value of such currency.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market.
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
as agreed by the parties, at a price set at the time of the contract. In the
case of a cancelable forward contract, the holder has the unilateral right to
cancel the contract at maturity by paying a specified fee. The contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date of a
forward contract may be any fixed number of days from the date of the contract
agreed upon by the parties, rather than a predetermined date in a given month.
Forward contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in foreign currency futures contracts and related options may be
closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although the Fund will normally purchase or
sell foreign currency futures contracts and related options only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or option or at any particular time. In such event,
it may not be possible to close a futures or related option position and, in the
event of adverse price movements, the Fund would continue to be required to make
daily cash payments of variation margin on its futures positions.
FOREIGN CURRENCY OPTIONS. Options on foreign currencies are traded
primarily in the over-the-counter market, although options on foreign currencies
have recently been listed on several exchanges. Such options will be purchased
or written only when Commonwealth believes that a liquid secondary market exists
for such options. There can be no assurance that a liquid secondary market will
exist for a particular option at any specific time. Options on foreign
currencies are affected by all of those factors which influence exchange rates
and investments generally.
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The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
To the extent that the U.S. options markets are closed while the markets
for the underlying currencies remain open, significant price and rate movements
may take place in the underlying markets that cannot be reflected in the U.S.
options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's
investments in foreign securities and to the Fund's foreign currency exchange
transactions may be more complex than settlements with respect to investments in
debt or equity securities of U.S. issuers, and may involve certain risks not
present in the Fund's domestic investments. For example, settlement of
transactions involving foreign securities or foreign currency may occur within a
foreign country, and the Fund may be required to accept or make delivery of the
underlying securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay any fees, taxes
or charges associated with such delivery. Such investments may also involve the
risk that an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not
generally charge a fee for currency conversion, they do realize a profit based
on the difference (the "spread") between prices at which they buy and sell
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
OPTIONS AND FUTURES CONTRACTS
While the Fund may purchase and sell options and enter into futures
contracts only as a hedge against foreign securities transactions, the following
is a general discussion of such hedging techniques.
Options
A call option gives the holder the right to purchase, and obligates the
writer to sell, an asset at the exercise price at any time before the expiration
date. A call option is "covered" if the writer, at all times while obligated as
a writer, either owns the underlying asset (or a comparable asset satisfying the
cover requirements of the securities exchanges), or has the right to acquire
such asset through immediate conversion of securities or other assets.
A put option gives the holder the right to sell, and obligates the writer
to buy, an asset at the exercise price at any time before the expiration date. A
put option is "covered" if the writer segregates cash and high-grade short-term
debt obligations or other permissible collateral equal to the price to be paid
if the option is exercised.
RISKS INVOLVED IN THE SALE OR PURCHASE OF OPTIONS. Options transactions
involve certain risks, including the risks that Commonwealth will not forecast
interest rate or market movements correctly, that the Fund may be unable at
times to close out such positions, or that hedging transactions may not
accomplish their purpose because of imperfect market correlations. The
successful use of these strategies depends on the ability of Commonwealth to
forecast market and interest rate movements correctly.
An exchange-listed option may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will
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exist for any particular option or at any particular time. If no secondary
market were to exist, it would be impossible to enter into a closing transaction
to close out an option position. As a result, the Fund may be forced to continue
to hold, or to purchase at a fixed price, an asset on which it has sold an
option at a time when Commonwealth believes it is inadvisable to do so.
Higher than anticipated trading activity or order flow or other unforeseen
events might cause The Options Clearing Corporation or an exchange to institute
special trading procedures or restrictions that might restrict the Fund's use of
options. The exchanges have established limitations on the maximum number of
calls and puts of each class that may be held or written by an investor or group
of investors acting in concert. It is possible that the Fund and other clients
of Commonwealth may be considered such a group. These position limits may
restrict the Fund's ability to purchase or sell options on particular
securities.
Options which are not traded on national securities exchanges may be closed
out only with the other party to the option transaction. For that reason, it may
be more difficult to close out unlisted options than listed options.
Furthermore, unlisted options are not subject to the protection afforded
purchasers of listed options by The Options Clearing Corporation.
Government regulations, particularly the requirements for qualification as
a "regulated investment company" under the Internal Revenue Code, may also
restrict the Fund's use of options.
In the case of options purchased by the Fund, the Fund's loss is limited to
the premium paid by the Fund (plus any transaction costs) for the option. In the
case of an option sold by the Fund the amount of the Funds's loss is not so
limited and will vary depending on changes in the value of the asset underlying
the option.
Futures Contracts
When the Fund enters into a futures contract, it agrees to buy or sell a
specified asset at a time and at a price specified under the terms of the
contract. In the case of foreign currency futures contracts, the asset is one or
more foreign currencies. In the case of other financial futures contracts, the
assets might be a notional amount whose value is determined based on one or more
currency, securities, or market indices. The Fund makes money or loses money
depending on the change in the value of the asset over the term of the contract.
MARGIN PAYMENTS. When the Fund purchases or sells a futures contract, it is
required to deposit with its custodian an amount of cash, U.S. Treasury bills,
or other permissible collateral equal to a small percentage of the amount of the
futures contract. This amount is known as "initial margin". The nature of
initial margin is different from that of margin in security transactions in that
it does not involve borrowing money to finance transactions. Rather, initial
margin is similar to a performance bond or good faith deposit that is returned
to the Fund upon termination of the contract, assuming the Fund satisfies its
contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market". These payments are called "variation
margin" and are made as the value of the underlying futures contract fluctuates.
For example, when the Fund sells a futures contract and the value of the
underlying asset rises above the delivery price, the Fund's position declines in
value. The Fund then pays the broker a variation margin payment equal to the
difference between the delivery price of the futures contract and the value of
the asset underlying the futures contract. Conversely, if the price of the
underlying asset falls below the delivery price of the contract, the Fund's
futures position increases in value. The broker then must make a variation
margin payment equal to the difference between the delivery price of the futures
contract and the value of the asset underlying the futures contract.
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When the Fund terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Fund, and the Fund realizes a loss or a gain. Such closing transactions involve
additional commission costs.
Special Risks of Transactions in Futures Contracts and Related Options
LIQUIDITY RISKS. Positions in futures contracts may be closed out only on
an exchange or board of trade which provides a secondary market for such
futures. Although the Fund intends to purchase or sell futures only on exchanges
or boards of trade where there appears to be an active secondary market, there
is no assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular contract or at any particular time. If there is
not a liquid secondary market at a particular time, it may not be possible to
close a futures position at such time and, in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin. However, in the event financial futures are used to hedge
portfolio securities, such securities will not generally be sold until the
financial futures can be terminated. In such circumstances, an increase in the
price of the portfolio securities, if any, may partially or completely offset
losses on the financial futures.
In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
such a market will develop. Although the Fund generally will purchase only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. In the event no such market exists
for particular options, it might not be possible to effect closing transactions
in such options with the result that the Fund would have to exercise the options
in order to realize any profit.
HEDGING RISKS. There are several risks in connection with the use by the
Fund of futures contracts and related options as a hedging device. One risk
arises because of the imperfect correlation between movements in the prices of
the futures contracts and options and movements in the underlying asset or
movements in the prices of the Fund's portfolio securities which are the subject
of a hedge. Commonwealth will, however, attempt to reduce this risk by
purchasing and selling, to the extent possible, futures contracts and related
options on securities and assets the movements of which will, in its judgment,
correlate closely with movements in the value of the underlying asset and the
Fund's portfolio securities sought to be hedged.
Successful use of futures contracts and options by the Fund for hedging
purposes is also subject to Commonwealth's ability to predict correctly
movements in the direction of the market. It is possible that, where the Fund
has purchased puts on futures contracts to hedge its portfolio against a decline
in the market, the asset on which the puts are purchased may increase in value
and the value of securities held in the portfolio may decline. If this occurred,
the Fund would lose money on the puts and also experience a decline in value in
its portfolio securities. In addition, the prices of futures, for a number of
reasons, may not correlate perfectly with movements in the underlying asset due
to certain market distortions. First, all participants in the futures market are
subject to margin deposit requirements. Such requirements may cause investors to
close futures contracts through offsetting transactions which could distort the
normal relationship between the underlying asset and futures markets. Second,
the margin requirements in the futures markets are less onerous than margin
requirements in the securities markets in general, and as a result the futures
markets may attract more speculators than the securities markets do. Increased
participation by speculators in the futures markets may also cause temporary
price distortions. Due to the possibility of price distortion, even a correct
B-6
<PAGE>
forecast of general market trends by Commonwealth may still not result in a
successful hedging transaction over a very short time period.
OTHER RISKS. The Fund will incur brokerage fees in connection with its
futures and options transactions. In addition, while futures contracts and
options on futures will be purchased and sold to reduce certain risks, those
transactions themselves entail certain other risks. Thus, while the Fund may
benefit from the use of futures and related options, unanticipated changes in
interest rates or stock price movements may result in a poorer overall
performance for the Fund than if it had not entered into any futures contracts
or options transactions. Moreover, in the event of an imperfect correlation
between the futures position and the Fund position which is intended to be
protected, the desired protection may not be obtained and the Fund may be
exposed to risk of loss, which may be unlimited.
B-7
*****************************PROXY CARD*************************************
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW, AS SHOWN, USING BLUE
OR BLACK INK OR DARK PENCIL. DO NOT USE RED INK.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING. THE DIRECTORS RECOMMEND A VOTE FOR THE
PROPOSALS BELOW.
1. To elect the following named persons to serve as Directors of
the Fund, each to hold office in accordance with the Articles
of Incorporation and Bylaws:
Arch T. Allen III Daniel J. Ludeman
Robert P. Black Louis W. Moelchert, Jr.
Peter W. Brown Linwood R. Robertson
Clifford A. Cutchins, IV
VOTE FOR ALL NOMINEES ( )
REFRAIN FROM VOTING FOR ALL NOMINEES ( )
To refrain from voting for any individual nominee, write that nominee's name
below:
___________________________________
2. To approve the proposed change to the investment
objective of the Fund, as described in the Proxy
Statement.
( ) FOR ( ) AGAINST ( ) ABSTAIN
3. To approve an amendment to a fundamental investment
restriction of the Fund to permit the Fund to enter into repurchase
agreements, as described in the Proxy Statement.
( ) FOR ( ) AGAINST ( ) ABSTAIN
4. To approve an amendment to certain of the Fund's fundamental investment
restrictions in respect of foreign currency futures and options transactions
and forward contracts, as described in the Proxy Statement.
( ) FOR ( ) AGAINST ( ) ABSTAIN
5. To ratify the selection of Deloitte & Touche LLP as
independent auditors.
( ) FOR ( ) AGAINST ( ) ABSTAIN
PLEASE SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
-21-
<PAGE>
AMERICA'S UTILITY FUND, INC. PROXY SOLICITED BY THE BOARD OF DIRECTORS
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS -- May 2, 1996
The undersigned hereby appoints Paul F. Costello, Henry C. Riely, and Glenna G.
Bryant, and each of them, proxies, with power of substitution to each, and
hereby authorizes them to represent and to vote, as designated below, at the
Special Meeting of Stockholders of America's Utility Fund, Inc. (the "Fund") on
Thursday, May 2, 1996 at 9:30 a.m. Eastern Daylight time, and at any
adjournments thereof, all of the shares of the Fund which the undersigned would
be entitled to vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR EACH OF THE PROPOSALS
Date _____________________________
NOTE: Please sign exactly as your
name appears on this card. All
joint owners should sign. When
signing as executor,
administrator, attorney, trustee,
or guardian or as custodian for a
minor, please give full title as
such. If a corporation, please
sign in full corporate name and
indicate the signer's office. If a
partner, sign in the partnership
name.
Signature(s) _____________________
__________________________________
(see other side)
