OLD WESTBURY
GROWTH OPPORTUNITY
FUND
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Prospectus
January 31, 1997
BESSEMER TRUST
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INVESTMENT ADVISOR
OLD WESTBURY GROWTH OPPORTUNITY FUND
(A PORTFOLIO OF OLD WESTBURY FUNDS, INC.)
FEDERATED TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TELEPHONE: (800) 607-2200
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PROSPECTUS
JANUARY 31, 1997
Old Westbury Funds, Inc. (the "Fund") is a diversified, open-end
management investment company currently consisting of two series, one of which,
the Old Westbury Growth Opportunity Fund portfolio (the "Portfolio"), is
discussed herein. The Portfolio is a fund whose investment objective is to seek
capital appreciation. The Portfolio seeks to achieve its objective by investing
primarily in a diversified portfolio of the equity securities of small and
medium sized companies that have the potential to become industry leaders. Such
companies will be based in the United States and Canada. There can be no
assurance that the Portfolio will achieve its objective. See "Investment
Objectives and Policies."
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This Prospectus sets forth concisely the information a prospective
investor should know before investing in the Portfolio. A Statement of
Additional Information, dated January 31, 1997, containing additional and more
complete information about the Portfolio has been filed with the Securities and
Exchange Commission and is incorporated by reference in its entirety into this
Prospectus. For a free copy, call or write the Portfolio at the telephone number
or address set forth above.
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Bessemer Trust Company, N.A. ("Bessemer") is the investment adviser of the
Portfolio. Edgewood Services, Inc. ("Edgewood") is the distributor of the
Portfolio's shares and Federated Administrative Services ("Federated") is the
administrator of the Portfolio. Bessemer is a national banking association.
Edgewood is a registered broker-dealer and member of the National Association of
Securities Dealers, Inc.
SHARES OF THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
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THIS PROSPECTUS SHOULD BE RETAINED
BY INVESTORS FOR FUTURE REFERENCE.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information appearing in this Prospectus.
THE FUND: Old Westbury Funds, Inc. is an open-end, diversified,
management investment company currently consisting of two series, one of
which, the Old Westbury Growth Opportunity Fund portfolio (the
"Portfolio"), is described herein.
INVESTMENT OBJECTIVE: The Portfolio's investment objective is to
seek capital appreciation. The Portfolio seeks to achieve its objective by
investing primarily in a diversified portfolio of equity securities of
small and medium sized companies that have the potential to become
industry leaders. Such companies will be based in the United States and
Canada. There is no assurance that the Portfolio will achieve its
investment objective. The investment objective of the Portfolio and its
investment restrictions described in the Statement of Additional
Information are fundamental and may not be changed without shareholder
approval.
MANAGEMENT AND FEES: Bessemer Trust Company, N.A. (the "Adviser")
serves as the Portfolio's investment adviser and is compensated for its
services and its related expenses at an annual rate of 0.80% of the first
$100 million of the Portfolio's average daily net assets, 0.75% of the
second $100 million of the Portfolio's average daily net assets and 0.70%
of the Portfolio's average daily net assets exceeding $200 million.
Edgewood Services, Inc. (the "Distributor") will act as distributor for
the Portfolio's shares. The Portfolio has a distribution and service plan
(the "Plan") which permits it to pay (1) the Distributor a service fee of
up to 0.25% per annum of the Portfolio's average daily net assets to
permit it to compensate broker-dealers whose clients are Fund shareholders
for providing shareholder services and (2) reimbursements of up to 0.15%
per annum of the Portfolio's average daily net assets for distribution and
marketing expenses. In addition, under the Plan, the Adviser will act as a
shareholder servicing agent for the Portfolio, pursuant to which the
Portfolio is permitted to pay the Adviser a service fee of a maximum of
0.25% per annum of the Portfolio's average daily net assets to compensate
it and to permit it to compensate banks and other financial institutions
(the Adviser with such other institutions, each a "Shareholder Servicing
Agent") whose clients are Fund shareholders for providing shareholder
services. The service fees payable to the Distributor will only be paid by
the Portfolio with respect to the value of shares of the Portfolio
represented by the clients of broker-dealers that have agreements with the
Distributor (each a "Broker-Dealer," or just "Dealer"), and the service
fees payable to the Adviser will only be paid by the Portfolio with
respect to the value of shares of the Portfolio represented by the clients
of the Adviser and the other Shareholder Servicing Agents that have
agreements with the Adviser. Therefore, the total service fees in the
aggregate payable to the Distributor and the Adviser (collectively, the
"Shareholder Servicing Fees") for shareholder servicing will not exceed
0.25% per annum of the average daily net assets of the Portfolio.
However, the maximum amount payable under the Plan is 0.40% per annum of
the average daily net assets of the Portfolio. See "Distribution and
Service Plan."
HOW TO PURCHASE SHARES: Shares of the Portfolio may be purchased at
the net asset value per share next determined after receipt of an order by
the Portfolio's Distributor or transfer agent in proper form with
accompanying check or other bank wire payment arrangements satisfactory to
the Portfolio plus a sales load of up to 4.5%. Shares of the Portfolio may
be purchased only through a Shareholder Servicing Agent, Dealer, or the
Distributor. The minimum initial investment is $1,000. See "Purchase of
Shares" and "Retirement Plans." Shares of the Portfolio may be purchased
only in those states where they may lawfully be sold.
HOW TO SELL SHARES: Shares of the Portfolio may be redeemed by the
shareholder at any time at the net asset value per share next determined
after the redemption request is received by the Portfolio's Distributor or
transfer agent in proper order. See "Redemption of Shares."
DIVIDENDS AND REINVESTMENT: Each dividend and capital gains
distribution, if any, declared by the Portfolio on its outstanding shares
will, unless a shareholder elects otherwise, be paid on the payment date
in additional shares of the Portfolio 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. Shareholders may change this election by
notifying their Shareholder Servicing Agent or Broker-Dealer 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 Portfolio will
pay any dividends or realize any capital gains. However, the Portfolio
currently intends to pay dividends and capital gains distributions, if
any, on an annual basis. See "Dividends, Distributions and Taxes."
RISK CONSIDERATIONS: Investors should consider the risks associated
with investing in emerging growth companies, which may involve greater
price volatility and risk than those funds which do not invest in such
companies. In addition, investors should consider the risks associated
with investing in Canadian equity securities, since less information about
Canadian companies may be publicly available than is available about
companies in the United States, and the value in U.S. dollars of the
Portfolio's assets denominated in Canadian currency may be affected by
changes in exchange rates and regulations. The Portfolio may invest in
warrants, when-issued and delayed delivery securities, and options and
futures contracts. The Portfolio may not invest more than 15% of its net
assets in illiquid securities. For a more detailed description of the
risks associated with these investments, see "Additional Investment
Information and Risk Factors."
SUMMARY OF FUND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)................................... 4.50%
ANNUAL FUND OPERATING EXPENSES*:
(As a percentage of projected average net assets)
Management Fee (after waiver) (1)........................................ 0.44%
12b-1 Fee................................................................ 0.25%
Total Other Expenses..................................................... 0.81%
Total Fund Operating Expenses (2)........................................ 1.50%
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this voluntary waiver at any time at its sole discretion. The
maximum management fee is 0.80%.
(2) The total Fund operating expenses are estimated to be 1.86% absent the
anticipated voluntary waiver of a portion of the management fee.
* Total Fund Operating Expenses are estimated based on average expenses
expected to be incurred during the period ending October 31, 1997. During the
course of this period, expenses may be more or less than the average amount
shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "Purchase of Shares." Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS
<S> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming a 5% annual return and redemption at the end of each
time period. The Fund charges no contingent deferred sales
charge.......................................................... $60 $90
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</TABLE>
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THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS EXAMPLE
IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING OCTOBER 31, 1997.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio's investment objective is to seek capital appreciation. The
Portfolio seeks to achieve its objective by investing primarily in a diversified
portfolio of equity securities of small and medium-sized companies that have the
potential to become industry leaders. These United States and Canadian based
companies will generally offer special opportunities for growth and capital
appreciation without regard to current income and with earnings growth that over
time would be well above the growth rate of the overall economy and the rate of
inflation. Additionally, these companies will have a rate of growth that is
expected to accelerate as a result of a catalyst, such as new products, changes
in customer preferences, new management or changes or improvements in the
economy. Under normal circumstances, the Portfolio generally will invest at
least 65% to 85% of its total assets in companies with market capitalizations of
under $3 billion. There is no assurance that the Portfolio will achieve its
investment objective. The investment objective of the Portfolio, which is
described herein, is fundamental and may not be changed without shareholder
approval. The Portfolio's investment policies, however, may be changed by the
Board of Directors without shareholder approval.
Although it is not the Portfolio's policy to invest or trade for
short-term gains, the Portfolio may, from time to time, sell a security
regardless of the length of time that it has been held in order to realize a
profit or to avoid anticipated or further loss.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
The following is a discussion of the various investments eligible to be
purchased by the Portfolio, the investment techniques anticipated to be employed
by the Portfolio and the risks associated with such investments. See
"Description of Each Portfolios' Investment Securities" in the Statement of
Additional Information for additional investments and their associated risk
factors.
SMALL AND MID CAPITALIZATION STOCKS
Small market capitalization companies ("Small-Cap Companies") are those
with market capitalizations of $1 billion or less at the time of the Portfolio's
investment. Many Small-Cap Companies will have had their securities publicly
traded, if at all, for only a short period of time and will not have had the
opportunity to establish a reliable trading pattern through economic cycles.
Investing in small and mid capitalization stocks may involve greater risk than
investing in large capitalization stocks and more established companies, since
they can be subject to more abrupt and erratic movements. The price volatility
of Small-Cap Companies is relatively higher than larger, more mature companies.
The greater price volatility of Small-Cap Companies may result from the fact
that there may be less market liquidity, less information publicly available or
few investors who monitor the activities of these companies. Further, in
addition to exhibiting greater volatility, the stocks of Small-Cap Companies
may, to some degree, fluctuate independently
of the stocks of large companies. That is, the stocks of Small-Cap Companies may
decline in price as the price of large company stocks rise or vice versa. In
addition, the market prices of these securities may exhibit more sensitivity to
changes in industry or general economic conditions. Some Small-Cap Companies
will not have been in existence long enough to experience economic cycles or to
know whether they are sufficiently well managed to survive downturns or
inflationary periods. Further, a variety of factors may affect the success of a
company's business beyond the ability of its management to prepare or compensate
for them, including domestic and international political developments,
government trade and fiscal policies, patterns of trade and war or other
military conflict which may affect particular industries or markets or the
economy generally.
Mid capitalization companies ("Mid-Cap Companies") are those with market
capitalizations between $1 billion and $3.0 billion. The risks associated with
investments in Mid-Cap Companies are similar to those associated with Small-Cap
Companies as discussed above.
EMERGING GROWTH COMPANIES
The nature of investing in emerging growth companies involves a greater
level of risk than would be associated when investing in more established
seasoned companies. Emerging growth companies are beyond their initial start-up
periods but have not yet reached a state of established growth or maturity. The
rate of growth of such companies may at times be dramatic; such companies often
provide new products or services that enable them to capture a dominant or
important market position, or have a special area of expertise, or are able to
take advantage of changes in demographic factors in a more profitable way than
other companies. These companies may have limited product lines, markets or
financial resources and may lack management depth since they have not been
tested by time or the marketplace. The securities of emerging growth companies
often have limited marketability and may be subject to more volatile market
movements than securities of larger, more established growth companies or the
market averages in general. Shares of the Portfolio, therefore, may be subject
to greater fluctuation in value than funds investing entirely in proven growth
stocks.
COMMON AND PREFERRED STOCKS
Since the Portfolio contains common stocks of foreign and domestic
issuers, an investment in shares of the Portfolio should be made with an
understanding of the risks inherent in any investment in common stocks including
the risk that the financial condition of the issuers of the securities may
become impaired or that the general condition of the stock market may worsen
(both of which may contribute directly to a decrease in the value of the
Securities and thus in the value of the shares). Additional risks include risks
associated with the right to receive payments from the issuer which is generally
inferior to the rights of creditors of, or holders of debt obligations or
preferred stock issued by, the issuer. Holders of common stocks
have a right to receive dividends only when, if, and in the amounts declared by
the issuer's board of directors and to participate in amounts available for
distribution by the issuer only after all other claims on the issuer have been
paid or provided for. By contrast, holders of preferred stocks usually have the
right to receive dividends at a fixed rate when and as declared by the issuer's
board of directors, normally on a cumulative basis. Dividends on cumulative
preferred stock must be paid before any dividends are paid on common stock and
any cumulative preferred stock dividend which has been omitted is added to
future dividends payable to the holders of such cumulative preferred stock.
Preferred stocks are also usually entitled to rights on liquidation which are
senior to those of common stocks. For these reasons, preferred stocks generally
entail less risk than common stocks.
Moreover, common stocks do not represent an obligation of the issuer and
therefore do not offer any assurance of income or provide the degree of
protection of debt securities. The issuance of debt securities or even preferred
stock by an issuer will create prior claims for payment of principal, interest
and dividends which could adversely affect the ability and inclination of the
issuer to declare or pay dividends on its common stock or the economic interest
of holders of common stock with respect to assets of the issuer upon liquidation
or bankruptcy. Further, unlike debt securities which typically have a stated
principal amount payable at maturity (which value will be subject to market
fluctuations prior thereto), common stocks have neither fixed principal amount
nor a maturity and have values which are subject to market fluctuations for as
long as the common stocks remain outstanding. Common stocks are especially
susceptible to general stock market movements and to volatile increases and
decreases in value as market confidence in and perceptions of the issuers
change. These perceptions are based on unpredictable factors including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction, and global or
regional political, economic or banking crises. The value of the common stocks
in the Portfolio thus may be expected to fluctuate over the life of the
Portfolio.
CANADIAN COMPANIES
The Portfolio may invest more than 10% of its total assets in Canadian
securities. Canadian securities are sensitive to conditions within Canada, but
also tend to follow the U.S. market. The country's economy relies strongly on
the production and processing of natural resources. Also, the government has
attempted to reduce restrictions against foreign investment, and its recent
trade agreements with the U.S. and Mexico are expected to increase trade. Also,
demand by many citizens in the Province of Quebec for succession from Canada may
significantly impact the Canadian economy. In addition, the value in U.S.
dollars of the Portfolio's assets denominated in Canadian currency may be
affected by changes in exchange rates
and regulations. For further disclosure and risk factors regarding investment in
foreign securities, generally, see "Foreign Securities" in the Statement of
Additional Information.
CONVERTIBLE SECURITIES
The convertible securities in which the Portfolio may invest include any
debt securities or preferred stock which may be converted into common stock or
which carry the right to purchase common stock. Convertible securities entitle
the holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time. Convertible securities generally have paid dividends or interest at
rates higher than common stocks but lower than non-convertible securities. They
usually participate to a lesser degree in the appreciation or the depreciation
of the underlying stock into which they are convertible. The convertible
securities in which the Portfolio may invest must be rated, at the time of
purchase, BBB or higher by Standard & Poor's Ratings Group ("S&P") or Baa or
higher by Moody's Investors Service, Inc. ("Moody's"), or, if unrated, be of
comparable quality as determined by the Portfolio's Adviser. (If a security's
rating is reduced below the required minimum after the Portfolio has purchased
it, the Portfolio is not required to sell the security, but may consider doing
so.) Bonds rated BBB by S&P or Baa by Moody's have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead to
weakened capacity to make principal and interest payments than higher rated
bonds.
WARRANTS
The Portfolio may invest in warrants, which entitle the holder to buy
common stock from the issuer at a specific price (the strike price) for a
specific period of time (generally two or more years). The strike price of
warrants sometimes is much lower than the current market price of the underlying
securities, yet warrants are subject to similar price fluctuations. As a result,
warrants may be more volatile investments than the underlying securities.
Warrants do not entitle the holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Portfolio may purchase securities on a when-issued or delayed delivery
basis. Delivery of and payment for these securities may take as long as a month
or more after the date of the purchase commitment. The value of these securities
is subject to market fluctuation during this period and for fixed income
investments no interest accrues to the Portfolio until settlement. At the time
of settlement, a
when-issued security may be valued at less than its purchase price. The
Portfolio maintains with the custodian a separate account with a segregated
portfolio of securities in an amount at least equal to these commitments. When
entering into a when-issued or delayed delivery transaction, the Portfolio will
rely on the other party to consummate the transaction; if the other party fails
to do so, the Portfolio may be disadvantaged. It is the current policy of the
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES
The Portfolio may not acquire any illiquid securities if, as a result
thereof, more than 15% of the market value of the Portfolio's net assets would
be in illiquid investments. Subject to this non-fundamental policy limitation,
the Portfolio may acquire investments that are illiquid or have limited
liquidity, such as private placements or investments that are not registered
under the Securities Act of 1933 (the "1933 Act") and cannot be offered for
public sale in the United States without first being registered under the 1933
Act. An illiquid investment is any investment that cannot be disposed of within
seven days in the normal course of business at approximately the amount at which
it is valued by the Portfolio. The price the Portfolio pays for illiquid
securities or receives upon resale may be lower than the price paid or received
for similar securities with a more liquid market. Accordingly the valuation of
these securities will reflect any limitations on their liquidity.
The Portfolio may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Adviser
and approved by the Directors. The Directors will monitor the Adviser's
implementation of these guidelines on a periodic basis.
The Portfolio may invest in securities listed on a securities exchange or
traded in an over-the-counter market, and may invest in certain restricted or
unlisted securities.
MONEY MARKET INSTRUMENTS
The Portfolio may maintain up to 100% of its assets in U.S. dollar
denominated money market funds for temporary, defensive purposes. This reserve
position provides flexibility in meeting redemptions, expenses, and the timing
of new investments, and serves as a short-term defense during periods of unusual
market volatility. The Portfolio may invest in money market instruments although
it intends to stay invested in equity securities to the extent practical in
light of its objective and long-term investment perspective. The money market
investments permitted for the Portfolio include obligations of the U.S.
Government and its agencies and instrumentalities, other debt securities,
commercial paper, bank obligations and money market mutual funds. For more
detailed information about these
money market investments, see "Description of Each Portfolio's Investment
Securities" in the Statement of Additional Information.
DERIVATIVES
The Portfolio may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. There are in fact many different types of derivatives and many different
ways to use them. Such derivative transactions may be used to adjust the risk
and return characteristics of the Portfolio or to adjust the overall exposure to
certain markets. However, these techniques or investments may result in a loss,
regardless of whether the intent was to reduce risk or increase return, with
unexpected changes in market conditions or if the counterparty to the
transaction does not perform as promised. Additionally, these techniques or
investments may increase volatility of the Portfolio and may involve a small
investment of cash relative to the magnitude of the risk assumed. Futures and
options are commonly used for traditional hedging purposes to attempt to protect
a fund from exposure to changing interest rates, securities prices, or for cash
management purposes as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. The Portfolio
may use derivatives for hedging purposes, cash management purposes and as a
substitute for investing directly in equity instruments or other securities. A
description of the derivatives that the Portfolio may use and some of their
associated risks follows.
OPTIONS AND FUTURES TRANSACTIONS
The Portfolio may use financial futures contracts, options on futures
contracts, call and put options on securities and financial indices
(collectively, "futures and options"). Futures contracts provide for the sale by
one party and purchase by another party of a specified amount of a specific
security at a specified future time and price. An option is a legal contract
that gives the holder the right to buy or sell a specified amount of the
underlying security or futures contract at a fixed or determinable price upon
the exercise of the option. A call option conveys the right to buy, and a put
option conveys the right to sell a specified quantity of the underlying
instrument.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase the Portfolio's return. While the use of these
instruments by the Portfolio may reduce certain risks associated with owning its
portfolio securities, these techniques themselves entail certain other risks. If
the Adviser applies a strategy at an inappropriate time or judges market
conditions or trends incorrectly, options and futures strategies may lower the
Portfolio's return. Certain strategies limit the Portfolio's potential to
realize gains as well as limit its exposure to losses. The Portfolio could
also experience losses if the prices of its options and futures positions were
poorly correlated with its other investments. There can be no assurance that a
liquid market will exist at a time when the Portfolio seeks to close out a
futures contract or a futures option position. Most futures exchanges and boards
of trade limit the amount of fluctuation permitted in futures contract prices
during a single day; once the daily limit has been reached on a particular
contract, no trades may be made that day at a price beyond that limit. In
addition, certain of these instruments are relatively new and without a
significant trading history. As a result, there is no assurance that an active
secondary market will develop or continue to exist. Lack of a liquid market for
any reason may prevent the Portfolio from liquidating an unfavorable position
and the Portfolio would remain obligated to meet margin requirements until the
position is closed. In addition, the Portfolio will incur transaction costs,
including trading commissions and options premiums, in connection with its
futures and options transactions, and these transactions could significantly
increase the Portfolio's turnover rate.
The Portfolio will not enter into futures contracts or options thereon to
the extent that its outstanding obligations to purchase securities under these
contracts in combination with its outstanding obligations with respect to
options transactions would exceed 35% of its total assets. The Portfolio will
use financial futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the Commodity
Futures Trading Commission, or, with respect to positions in financial futures
and related options that do not qualify as "bona fide hedging" positions, will
enter such non-hedging positions only to the extent that assets committed to
initial margin deposits on such instruments, plus premiums paid for open futures
options positions, less the amount by which any such positions are
"in-the-money," do not exceed 5% of the Portfolio's net assets. The Portfolio
will segregate assets or "cover" its positions consistent with requirements
under the 1940 Act.
INVESTMENT COMPANY SECURITIES
Securities of other investment companies may be acquired by the Portfolio
to the extent permitted under the 1940 Act. These limits require that, as
determined immediately after a purchase is made, (i) not more than 5% of the
value of the Portfolio's total assets will be invested in the securities of any
one investment company, (ii) not more than 10% of the value of its total assets
will be invested in the aggregate in securities of investment companies as a
group, and (iii) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Portfolio, unless these limitations are
permitted to be exceeded by the Securities and Exchange Commission. The
Portfolio will limit its investments in the securities of other investment
companies to those which are consistent with the Portfolio's investment
policies. As a shareholder of another investment company, the Portfolio would
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses
would be in addition to the advisory and other expenses that the Portfolio bears
directly in connection with its own operations.
PORTFOLIO TURNOVER
Purchases and sales are made for the Portfolio whenever necessary, in the
Adviser's opinion, to meet the Portfolio's objective. The Adviser expects that
the turnover of the Portfolio should not exceed 100%. Portfolio turnover may
involve the payment by the Portfolio of dealer spreads or underwriting
commissions, and other transaction costs, on the sale of securities, as well as
on the investment of the proceeds in other securities. The greater the portfolio
turnover the greater the transaction costs to the Portfolio which could have an
effect on the Portfolio's total rate of return. In order to qualify as a
regulated investment company, less than 30% of the Portfolio's gross income must
be derived from the sale or other disposition of stock, securities or certain
other investments held for less than three months. Although increased portfolio
turnover (over 100% per year) may increase the likelihood of additional realized
capital gains for the Portfolio, the Portfolio expects to satisfy the 30% income
test.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the total assets of the
Portfolio are subject to the following limitations: (a) the Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer and
(b) the Portfolio may not own more than 10% of the outstanding voting securities
of any one issuer. The classification of the Fund as a diversified investment
company is a fundamental policy of the Fund and may be changed only, with
respect to the Portfolio, with the approval of the holders of a majority of the
outstanding shares of the Portfolio. As used in this Prospectus, the term
"majority of the outstanding shares of the Portfolio" means, respectively, the
vote of the lesser of (i) 67% or more of the shares of the Portfolio present at
a meeting, if more than 50% of the outstanding shares of the Portfolio are
present or represented by proxy, or (ii) more than 50% of the outstanding shares
of the Portfolio.
The Portfolio also operates under certain investment restrictions which
are deemed fundamental policies of the Portfolio and also may be changed only
with the approval of the holders of a majority of the Portfolio's outstanding
shares. In addition to other restrictions listed in the Statement of Additional
Information, the Portfolio may not (except where specified):
(i) mortgage, pledge or hypothecate any assets except that the
Portfolio may pledge not more than one-third of its total assets to secure
borrowings made in accordance with paragraph (ii) below; or
(ii) purchase securities on margin or borrow money, except from
banks for extraordinary or emergency purposes (not for leveraging or
investment), provided that such securities in the aggregate do not exceed
an amount equal
to one-third of the value of the total assets of the Portfolio less its
liabilities (not including the amount borrowed) at the time of the
borrowing, and further provided that 300% asset coverage is maintained at
all times.
The following are investment restrictions, in addition to other
restrictions in the Statement of Additional Information, that may be changed by
a vote of the majority of the Board of Directors. The Portfolio will not:
(a) invest more than 15% of the market value of the Portfolio's net
assets in illiquid investments including time deposits and repurchase
agreements of over seven days' duration; or
(b) purchase securities while borrowings exceed 5% of its total
assets.
If a percentage restriction (except (ii) above) is adhered to at the time
an investment is made, a later change in percentage resulting from changes in
the value of the Portfolio's investment securities will not be considered a
violation of the Portfolio's restrictions.
For a more detailed discussion of these investment restrictions, see
"Investment Restrictions" in the Statement of Additional Information.
MANAGEMENT OF THE FUND
The Fund's Board of Directors, which has overall responsibility for the
management of the Fund, has employed Bessemer Trust Company, N.A. to serve as
Adviser of the Portfolio. The Adviser is a national bank engaged primarily in
investment management, trust, fiduciary and other financial services which it
provides to individuals of high net worth and institutions. The Adviser
supervises all aspects of the Portfolio's operations and provides investment
advice and portfolio management services to the Portfolio. Subject to the
supervision of the Fund's Board of Directors, the Adviser makes the Portfolio's
day-to-day investment decisions with respect to all purchases and sales,
arranges for the execution of portfolio transactions and generally manages the
Portfolio's investments. The Adviser also provides supervisory personnel who are
responsible for supervising the performance of the Portfolio's administrator.
However, the administrator, Federated Administrative Services (the
"Administrator"), provides personnel to perform the operational components of
all administrative services.
Mr. Harry P. Rekas is primarily responsible for the day-to-day investment
management of the Portfolio. Mr. Rekas has been managing equity portfolios since
1981, when he joined Oppenheimer Capital Corporation. Most recently he managed
the Capital Appreciation portfolio at AIG Investment Management Corporation. The
portfolio had assets in excess of $300 million and was focused on small and mid
capitalization equities. In addition to his investment management experience,
Mr. Rekas has been a commercial lender with Fidelity Bank and assistant
treasurer with Computer Science Corporation. After graduating from the Wharton
School of the University of Pennsylvania, where he majored in Finance, he spent
four years on active duty with the U.S. Air Force, attaining the rank of
Captain. Additionally, he earned an MBA degree from Pepperdine University.
Due to the services performed by the Adviser and the Administrator, the
Fund currently has no employees and its officers are not required to devote
their full time to the affairs of the Fund. The Statement of Additional
Information contains general background information regarding each Director and
principal officer of the Fund.
The Adviser, along with its associated entities, Bessemer Trust Company
(New Jersey) and Bessemer Trust Company of Florida, is a subsidiary of The
Bessemer Group, Incorporated, a registered bank holding company in the State of
New Jersey, which is wholly owned by trusts for the benefit of the descendants
of Henry Phipps, a founder of the Carnegie Steel Company. In addition to
services provided to the Phipps family, which now account for less than 20% of
the Adviser's business, the Bessemer banks at present provide investment,
fiduciary and personal banking services to approximately 740 clients with total
assets under management of about $12.4 billion, approximately $430 million of
which is represented by investments in emerging growth securities. The banks
have offices in New York, New York; Washington, D.C.; Woodbridge, New Jersey;
Palm Beach, Florida; Miami, Florida; Naples, Florida; Chicago, Illinois; Los
Angeles, California; San Francisco, California; London, England and Grand
Cayman, Cayman Islands B.W.I. In addition to the Portfolio, Bessemer is
investment adviser to the Old Westbury International Fund, the only other active
series of the Fund. The Adviser's address is 630 Fifth Avenue, New York, New
York 10111.
The Adviser may, from time to time, make recommendations which result in
the purchase or sale of a particular security by its other clients
simultaneously with the Portfolio. If transactions on behalf of more than one
client during the same period increase the demand for securities being purchased
or the supply of securities being sold, there may be an adverse effect on price.
It is the policy of the Adviser to allocate advisory recommendations and the
placing of orders in a manner which is deemed equitable by the Adviser to the
accounts involved, including the Portfolio. When two or more of the clients of
the Adviser, including the Portfolio, are purchasing the same security in a
given day from the same broker-dealer, such transactions may be averaged as to
price.
The Advisory Contract contains provisions relating to the selection of
securities brokers to effect the portfolio transactions of the Portfolio. Under
those provisions, subject to applicable law and procedures adopted by the Board
of Directors, the Adviser may (i) pay commissions to brokers which are higher
than might be charged by another qualified broker to obtain brokerage and/or
research services considered by the Adviser to be useful or desirable for its
investment management of the Portfolio and/or other advisory accounts of itself
and any investment adviser
affiliated with it; and (ii) consider the sales of shares of the Portfolio by
brokers as a factor in its selection of brokers of Portfolio transactions.
As compensation for its services and the related expenses borne by the
Adviser, the Portfolio pays the Adviser a fee, computed daily and payable
monthly, in accordance with the following schedule: 0.80% of the first $100
million of the Portfolio's average net assets, 0.75% of the second $100 million
of the Portfolio's average net assets and 0.70% of the Portfolio's average net
assets exceeding $200 million. The Statement of Additional Information contains
further information about the Advisory Contract including a more complete
description of the advisory and expense arrangements. Pursuant to the
Portfolio's Distribution and Service Plan, the Adviser will also act as a
shareholder servicing agent for the Portfolio pursuant to which the Portfolio is
permitted to pay the Adviser a maximum of 0.25% per annum of the Portfolio's
average daily net assets to compensate it and to permit the Adviser to
compensate banks and other financial institutions (the Adviser with such other
institutions, each a "Shareholder Servicing Agent") whose clients are Fund
shareholders for providing shareholder services. In addition, the Plan provides
that the Adviser may use the advisory fee or its own resources for distribution
and servicing purposes including defraying the costs of performing shareholder
servicing functions on behalf of the Portfolio, compensating others, including
banks, broker-dealers and other organizations whose customers or clients are
shareholders of the Portfolio for providing assistance in distributing the
Portfolio's shares and defraying the cost of shareholder servicing and other
promotional activities. See "Distribution and Service Plan."
The Portfolio is responsible for payment of its expenses, including,
without limitation, the following types of expenses: fees payable to the
Adviser, Distributor, Administrator, custodian, transfer agent and dividend
agent; brokerage and commission expenses; foreign, federal, state or local
taxes, including issuance and transfer taxes incurred by or levied on them;
commitment fees, certain insurance premiums and membership fees and dues in
investment company organizations; interest charges on borrowings;
telecommunications expenses; recurring and nonrecurring legal, accounting,
recordkeeping and auditing expenses; costs of organizing and maintaining the
Fund's existence as a corporation; compensation, including Directors' fees, of
any Directors, officers or employees who are not officers or employees of the
Adviser, the Administrator or their affiliates; costs of other personnel
providing administrative and clerical services; costs of shareholder services,
including charges and expenses of persons providing confirmations of
transactions in the Portfolio's shares, periodic statements to shareholders and
recordkeeping services and costs of shareholders' reports, proxy solicitations,
and corporate meetings; fees and expenses of registering their shares under the
appropriate federal securities laws and of qualifying their shares under
applicable state securities laws, including expenses attendant upon the initial
registration and qualification of these shares and attendant upon renewals of,
or amendments to, those registrations and qualifications; any other distribution
or promotional expenses contemplated by an
effective plan adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act;
and expenses of preparing, printing and delivering the initial registration
statement and of preparing, printing and delivering the Prospectus to existing
shareholders and of printing shareholder application forms for shareholder
accounts. The Distributor pays the promotional and advertising expenses related
to the distribution of the Portfolio's shares and for the printing of all
Portfolio prospectuses used in connection with the distribution and sale of
Portfolio shares for which it may be reimbursed under the Plan. See
"Distribution and Service Plan" herein and in the Statement of Additional
Information.
THE ADMINISTRATOR
Federated Administrative Services, the Administrator, has its principal
office at Federated Tower, Pittsburgh, Pennsylvania 15222-3779.
Pursuant to the Administrative Services Agreement with the Portfolio, the
Administrator provides the overall administration of the Portfolio, subject to
the supervision of the Fund's Board of Directors including, among other
responsibilities, the negotiation of contracts and fees with, and the monitoring
of performance and billings of, the independent contractors and agents of the
Portfolio; the preparation and filing of all documents required for compliance
by the Portfolio with applicable laws and regulations; providing equipment and
clerical personnel necessary for maintaining the organization of the Portfolio;
preparation of certain documents in connection with meetings of the Board of
Directors and shareholders; and the maintenance of books and records of the
Portfolio. The Administrator provides persons satisfactory to the Board of
Directors of the Fund to serve as officers and directors of the Fund, as the
case may be. Such officers, as well as certain other employees and directors of
the Fund, may be directors, officers or employees of the Administrator or its
affiliates. For providing these services and for bearing the related expenses,
the Administrator receives from the Portfolio a fee accrued daily and paid
monthly at an annual rate equal to:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FUND
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Securities and Exchange
Commission has required that an investment company which bears any direct or
indirect expense of distributing its shares must do so only in accordance with a
plan permitted by Rule 12b-1. The Fund's Board of Directors has adopted a
distribution
and service plan (the "Plan") for the Portfolio and, pursuant to the Plan, the
Portfolio has entered into a Distribution Agreement and a Shareholder Servicing
Agreement with the Distributor and a Shareholder Servicing Agreement with the
Adviser.
For its services under its Shareholder Servicing Agreement, the
Distributor is permitted to receive payments from the Portfolio to permit it to
make payments to broker-dealers, with which it has written agreements and whose
clients are Fund shareholders (each a "Broker-Dealer"), for providing
shareholder services up to 0.25% per annum of the Portfolio's average daily net
assets attributable to the clients of these Broker-Dealers. For its services
under its Shareholder Servicing Agreement, the Adviser is permitted to receive a
payment from the Portfolio of 0.25% per annum of the Portfolio's average daily
net assets attributable to the clients of the Adviser (and its affiliates) to
compensate it for providing shareholder services to such clients. In addition,
the Shareholder Servicing Agreement provides that the Adviser is permitted to
receive payments from the Portfolio (together with the Distributor's fee the
"Shareholder Servicing Fee") to actually permit it to make payments to banks,
savings and loans and other financial institutions with which it has written
agreements and whose clients are Fund shareholders (each institution, a
"Shareholder Servicing Agent") for providing shareholder services up to 0.25%
per annum of the Portfolio's average daily net assets attributable to the
clients of the other Shareholder Servicing Agents. Therefore, the total of the
Shareholder Servicing Fees in the aggregate payable to the Distributor and the
Adviser will not exceed 0.25% of the net assets of the Portfolio.
Each Shareholder Servicing Agent and Broker-Dealer will, as agent for its
customers, among other things; answer customer inquiries regarding account
status and history, the manner in which purchases and redemptions of shares of
the Portfolio may be effected and certain other matters pertaining to the
Portfolio; assist shareholders in designating and changing dividend options,
account designations and addressees; provide necessary personnel and facilities
to establish and maintain shareholder accounts and records; assist in processing
purchase and redemption transactions; arrange for the wiring of funds; transmit
and receive funds in connection with customer orders to purchase or redeem
shares; verify and guarantee shareholder signatures in connection with
redemption orders and transfers and changes in shareholder designated accounts;
furnish (either separately or on an integrated basis with other reports sent to
a shareholder by the Portfolio) monthly and year-end statements and confirmation
of purchases and redemptions; transmit, on behalf of the Portfolio, proxy
statements, annual reports, updating prospectuses and other communications from
the Portfolio to shareholders of the Portfolio; receive, tabulate and transmit
to the Portfolio proxies executed by shareholders with respect to meeting of
shareholders of the Portfolio; and provide such other related services as the
Portfolio or a shareholder may request. As set forth in the preceding paragraph,
for these services, each Shareholder Servicing Agent and Broker-Dealer (either
directly or from the Distributor or Adviser) receives a fee, which may be paid
periodically, on an annual basis equal to 0.25% of the average daily net assets
of the
Portfolio represented by shares owned during the period for which payment is
being made by investors with whom such Shareholder Servicing Agent or Broker-
Dealer maintains a servicing relationship. Shareholder Servicing Agents and
Broker-Dealers may waive all or a portion of their Shareholder Servicing Fees.
In addition, the Distribution Agreement with the Distributor provides for
reimbursement to the Distributor by the Portfolio for its distribution,
promotional and advertising costs incurred in connection with the distribution
of the Portfolio's shares in an amount not to exceed 0.10% per annum of the
Portfolio's average daily net assets (the "Distribution Reimbursement").
Under the Distribution Agreement, the Distributor, for nominal
consideration and as agent for the Portfolio, will solicit orders for the
purchase of the Portfolio's shares, provided that any subscriptions and orders
will not be binding on the Portfolio until accepted by the Portfolio as
principal. The Plan, the Distribution Agreement and the Shareholder Servicing
Agreement with the Distributor provide that, in addition to the Shareholder
Servicing Fee and the Distribution Reimbursement, the Portfolio will pay for (i)
telecommunications expenses including the cost of dedicated lines and CRT
terminals incurred by the Distributor in carrying out its obligations under the
Distribution Agreement and the Shareholder Servicing Agreement and by the
Adviser under its Shareholder Servicing Agreement, and (ii) typesetting,
printing and delivering the Portfolio's prospectus to existing shareholders of
the Portfolio and preparing and printing subscription application forms for
shareholder accounts. The expenses enumerated in this paragraph shall not exceed
an amount equal to 0.05% per annum of the Portfolio's average daily net assets.
The maximum amount payable under the Plan is 0.40% per annum of the
average net assets of the Portfolio.
The Plan, the Shareholder Servicing Agreements and the Distribution
Agreement each provide that the Adviser and the Distributor may make payments
from time to time from their own resources, which may include past profits for
the following purposes: to defray the costs of and to compensate others,
including financial intermediaries with whom the Distributor or Adviser has
entered into written agreements, for performing shareholder servicing and
related administrative functions on behalf of the Portfolio; to compensate
certain financial intermediaries for providing assistance in distributing the
Portfolio's shares; to pay the costs of printing and distributing the
Portfolio's prospectus to prospective investors; and to defray the cost of the
preparation and printing of brochures and other promotional materials, mailings
to prospective shareholders, advertising, and other promotional activities,
including the salaries and/or commissions of sales personnel in connection with
the distribution of the Portfolio's shares. The Distributor or the Adviser, as
the case may be, in their sole discretion, will determine the amount of such
payments made pursuant to the Plan with the Shareholder Servicing Agents and
Broker-Dealers they have contracted with, provided that such payments made
pursuant to the Plan will not increase the amount which the Portfolio is
required to pay to the
Distributor or Adviser for any fiscal year under the Shareholder Servicing
Agreements or otherwise.
Shareholder Servicing Agents and Broker-Dealers may charge investors a fee
in connection with their use of specialized purchase and redemption procedures
offered to investors by the Shareholder Servicing Agents and Broker-Dealers. In
addition, Shareholder Servicing Agents and Broker-Dealers offering purchase and
redemption procedures similar to those offered to shareholders who invest in the
Portfolio directly may impose charges, limitations, minimums and restrictions in
addition to or different from those applicable to shareholders who invest in the
Portfolio directly. Accordingly, the net yield to investors who invest through
Shareholder Servicing Agents and Broker-Dealers may be less than by investing in
the Portfolio directly. An investor should read this Prospectus in conjunction
with the materials provided by the Shareholder Servicing Agent and Broker-Dealer
describing the procedures under which Portfolio shares may be purchased and
redeemed through the Shareholder Servicing Agent and Broker-Dealer.
The Glass-Steagall Act limits the ability of a depository institution to
become an underwriter or distributor of securities. However, it is the Fund's
position that banks are not prohibited from acting in other capacities for
investment companies, such as providing administrative and shareholder account
maintenance services and receiving compensation from the Distributor for
providing such services. However, this is an unsettled area of the law and if a
determination contrary to the Fund's position is made by a bank regulatory
agency or court concerning shareholder servicing and administration payments to
banks from the Distributor, any such payments will be terminated and any shares
registered in the banks' names, for their underlying customers, will be
re-registered in the name of the customers at no cost to the Portfolio or its
shareholders.
PURCHASE OF SHARES
Shares of the Portfolio may be purchased only through a Shareholder
Servicing Agent or through a broker-dealer that has an agreement with the
Distributor. The minimum initial investment is $1,000. Initial investments may
be made in any amount equal to or in excess of the minimum. The minimum amount
for subsequent investments is $100. Orders received as of the earlier of 4:00
p.m., New York time, or the close of regular trading on any day on which the New
York Stock Exchange ("NYSE") is open for trading ("Fund Business Day") will be
executed at the public offering price determined on that day. Orders received
after the earlier of 4:00 p.m., New York time, or the close of the NYSE on any
Fund Business Day, will be executed at the public offering price determined on
the next Fund Business Day. Shares will be issued upon receipt of payment by the
Portfolio. The Portfolio or the Distributor each reserves the right to reject
any subscription for its shares. Certificates for Portfolio shares will not be
issued to those who invest in the Portfolio.
The price paid for shares of the Portfolio is the public offering price,
that is, the next determined net asset value of the shares plus a sales load.
The sales load is a one-time charge paid at the time of purchase of shares, most
of which ordinarily goes to the investor's broker-dealer to compensate him or
her for the services provided the investor.
Sales loads are determined in accordance with the following sales load
schedule:
<TABLE>
<CAPTION>
SALES LOAD DEALER
SALES AS % OF NET AS % OF
AMOUNT OF PURCHASE LOAD AMOUNT INVESTED OFFERING PRICE
<S> <C> <C> <C>
Less than $50,000................... 4.50% 4.71% 4.00%
$50,000 up to $99,999............... 3.50% 3.63% 3.00%
$100,000 up to $249,999............. 2.50% 2.56% 2.00%
$250,000 up to $499,999............. 2.00% 2.04% 1.50%
$500,000 up to $999,999............. 1.50% 1.52% 1.25%
$1,000,000 and over................. .00% .00% .00%
</TABLE>
The Distributor reserves the right to change the dealer's concession from
time to time. Dealers who receive 90% or more of the sales load may be deemed to
be underwriters under the 1933 Act. On sales of $1 million or more, the
Distributor or the Adviser may make payment, out of its own resources to
compensate the dealer for such sale, provided that the dealer has an executed
dealer agreement with respect to the Portfolio with the Distributor.
HOW TO PURCHASE SHARES
All funds received by the Portfolio are invested in full and fractional
shares of the Portfolio. Certificates for shares are not issued. The Fund
maintains records of each shareholder's holdings of Portfolio shares, and each
Shareholder Servicing Agent and Broker-Dealer maintains records of each of their
customer's accounts and each shareholder receives a statement of transactions,
holdings and dividends. The Portfolio reserves the right to reject any purchase.
Shares of the Portfolio may be purchased only in those states where they may
lawfully be sold.
An investment may be made using any of the following methods:
By Mail. Contact your Shareholder Servicing Agent or Broker-Dealer for
further instructions. Checks are accepted subject to collection at full value.
Shares will be issued upon receipt of payment by the Portfolio. If shares are
purchased by check and redeemed before the check has cleared, the transmittal of
redemption proceeds will be delayed until funds are collected, which may take up
to 7 days from the date of purchase.
For shareholders who do not maintain a relationship with a Shareholder
Servicing Agent or Broker-Dealer, shares of the Portfolio may be purchased
directly
from the Distributor. Purchase orders will be effected at the public offering
price next determined after acceptance of the order by the Distributor.
Shareholders wishing to purchase shares of the Portfolio through the
Distributor must complete a Purchase Application accompanying this Prospectus
and mail it together with a check payable to "Old Westbury Growth Opportunity
Fund" to:
Old Westbury Growth Opportunity Fund
P.O. Box 119
New York, NY 10274-0119
Subsequent investments in the Portfolio do not require a Purchase
Application, however, the shareholder's account number must be clearly marked on
the check to ensure proper credit. Subsequent purchases may also be made by
sending a check with the detachable coupon that regularly accompanies the
confirmation of a previous transaction.
Accounts of Shareholders who purchase shares directly from the Distributor
will be maintained by the transfer agent for the Fund, Fundamental Shareholder
Services, Inc. ("FSSI" or the "Transfer Agent"). For account balance information
and shareholder services, shareholders may call FSSI at (800) 607-2200.
By Wire. Investments may be made directly through the use of wire
transfers of federal funds. Shares purchased by wire will be effected at the
public offering price next determined after acceptance of the order by the
Distributor. Contact your bank and request it to wire federal funds to the
Portfolio. In most cases, your bank will either be a member of the Federal
Reserve Banking System or have a relationship with a bank that is. Your bank
will normally charge you a fee for handling the transaction. Contact your
Shareholder Servicing Agent or Broker-Dealer for further instructions.
For Shareholders who do not maintain a relationship with a Shareholder
Servicing Agent or Broker-Dealer, shares may be purchased directly from the
Distributor by federal funds wire. Please contact the Transfer Agent at (800)
607-2200 for specific instructions.
Investors making initial investments by wire must promptly complete the
Purchase Application accompanying this Prospectus and forward it to FSSI, the
Fund's Transfer Agent. No Purchase Application is required for subsequent
purchases. Completed applications should be directed to the address listed above
under "How to Purchase Shares--By Mail." The application may also be sent by
facsimile. Please contact FSSI at (800) 607-2200 for complete instructions.
REDUCTION OR ELIMINATION OF SALES LOAD
Volume Discounts. Volume discounts are provided if the total amount being
invested in shares of the Portfolio reaches the levels indicated in the above
sales load schedule. Volume discounts are also available to investors making
sufficient
additional purchases of Portfolio shares. The applicable sales charge may be
determined by adding to the total current value of shares already owned in the
Portfolio the value of new purchases computed at net asset value on the day the
additional purchase is made. For example, if an investor previously purchased,
and still holds, shares of the Portfolio worth $95,000 at the current net asset
value and purchases an additional $5,000 worth of shares of the Portfolio, the
sales charge applicable to the new purchase would be that applicable to the
$100,000 to $249,999 bracket in the above sales load schedule. For the purposes
of determining volume discounts, (i) an investment adviser who is registered
with the Securities and Exchange Commission or appropriate state authorities and
who purchases shares of the Portfolio for more than one account may aggregate
all such accounts, (ii) a bank, trust company or thrift institution which is
acting as fiduciary with respect to more than one account may aggregate all such
accounts and (iii) a financial planner who purchases shares of the Portfolio for
more than one account may aggregate all such accounts. The Shareholder Servicing
Agent or Broker-Dealer must be notified at the time of purchase that the
purchase is entitled to a reduced sales charge which will be granted subject to
confirmation of the purchaser's holdings. The volume discount option may be
modified or discontinued at any time and may not be available through all
Shareholder Servicing Agents or Broker-Dealers.
Reinvestment of Dividends and Distributions. There is no sales load on
purchases of Portfolio shares made by reinvestment of dividends and
distributions paid by the Portfolio. Reinvestment will be made at net asset
value as of the ex-dividend date (i.e., without the imposition of a sales load)
on the day on which the dividend or distribution is payable.
Letter of Intent. Any investor may sign a Letter of Intent, stating an
intention to make purchases of shares totaling a specified amount within a
period of thirteen months. Purchases within the thirteen-month period can be
made at the reduced sales load applicable to the total amount of the intended
purchase noted in the Letter of Intent. If a larger purchase is actually made
during the period, then a downward adjustment will be made to the sales charge
based on the actual purchase size. Any shares purchased within 90 days preceding
the actual signing of the Letter of Intent are eligible for the reduced sales
charge and the appropriate price adjustment will be made on those share
purchases. A number of shares equal to 4.5% of the dollar amount of intended
purchases specified in the Letter of Intent may be held in escrow in the form of
shares registered in the purchaser's name until the Letter of Intent is
completed. Escrowed shares are not available for redemption or transfer until
the Letter of Intent is completed, or the higher sales charge is paid. Any
redemptions made by the purchaser during the thirteen month period will be
subtracted from the amount of the purchases for purposes of determining whether
the Letter of Intent has been completed. Dividends and distributions on the
escrowed shares are paid to the investor. Dividends and distributions taken in
additional shares of the Portfolio will not apply toward completion of the
Letter of Intent. If the intended purchases are not completed during the Letter
of Intent period, the
investor is required to pay an amount equal to the difference between the
regular sales load applicable to a single purchase of the number of shares
actually purchased and the sales load actually paid. If such payment is not made
within 20 days after written request, a sufficient number of escrowed shares
will be redeemed to effect payment of the amount due. Any remaining escrowed
shares are released to the investor's account. Agreeing to a Letter of Intent
does not obligate you to buy, or the Portfolio to sell, the indicated amount of
shares. You should read the Letter of Intent carefully before signing. The
Letter of Intent option may not be available through all Shareholder Servicing
Agents or Broker-Dealers.
Concurrent Purchases. For purposes of qualifying for a sales charge
reduction, a shareholder has the privilege of combining concurrent purchases of
two or more portfolios in the Fund, the purchase price of which includes a sales
charge. For example, if a shareholder concurrently invested $20,000 in the
Portfolio and $30,000 in the Old Westbury International Fund, the sales charge
would be reduced.
To receive this sales charge reduction, the Shareholder Servicing Agent or
Broker-Dealer must be notified by the shareholder in writing at the time the
concurrent purchases are made. The Portfolio will reduce the sales charge after
it confirms the purchase.
Directors of the Fund, Employees and Clients of the Adviser. Directors of
the Fund, Employees (and their relatives) of Bessemer Trust Company, N.A., the
Shareholder Servicing Agents and Broker-Dealers, and their affiliates, may also
purchase shares of the Portfolio at no sales load. In addition, clients of the
Adviser and its affiliates may purchase shares of the Portfolio at no sales
load. The absence of a sales load reflects the reduced sales effort required to
sell shares to this group of investors.
REDEMPTION OF SHARES
Upon receipt by the Portfolio of a redemption request in proper form,
shares of the Portfolio will be redeemed at their next determined net asset
value. Checks for redemption proceeds will be mailed to the shareholder's
address of record within seven days, but will not be mailed until all checks in
payment for the purchase of the shares to be redeemed have been honored, which
may take up to 7 days. The proceeds of a redemption may be more or less than the
amount invested and, therefore, a redemption may result in gain or loss for
income tax purposes.
By Telephone. Redemptions may be made by calling your Shareholder
Servicing Agent or Broker-Dealer. The Shareholder Servicing Agents or
Broker-Dealers may accept telephone redemption requests from any person with
respect to accounts of shareholders who have previously elected this service and
thus such shareholders risk possible loss of principal and interest in the event
of a telephone
redemption not authorized by them. The Portfolio will employ reasonable
procedures to confirm that telephone redemption instructions are genuine and
will require that shareholders electing such option provide a form of personal
identification. The failure by the Portfolio to employ such procedures may cause
the Portfolio to be liable for any losses incurred by investors due to telephone
redemptions based upon unauthorized or fraudulent instructions. The telephone
redemption option may be modified or discounted at any time upon 60-days notice
to shareholders and may not be available through all Shareholder Servicing
Agents or Broker-Dealers.
For Shareholders whose accounts are maintained by the Transfer Agent and
who have previously selected the telephone redemption option, telephone
redemptions may be made by calling (800) 607-2200.
By Mail. Redemption requests may be made by letter to the Shareholder
Servicing Agents or Broker-Dealers, specifying the name of the Portfolio, the
dollar amount or number of shares to be redeemed, and the account number. The
request must be signed in exactly the same way the account is registered (if
there is more than one owner of the shares, all must sign). In cases where the
amount redeemed exceeds $50,000, all the signatures on a redemption request must
be guaranteed by an eligible guarantor institution which includes a domestic
bank, a domestic savings and loan institution, a domestic credit union, a member
bank of the Federal Reserve System or a member firm of a national securities
exchange; pursuant to the Portfolio's transfer agent's standards and procedures.
(Guarantees by notaries public are not acceptable.) Further documentation, such
as copies of corporate resolutions and instruments of authority, may be
requested from corporations, administrators, executors, personal
representatives, trustees or custodians to evidence the authority of the person
or entity making the redemption request.
Shareholders may also redeem Portfolio shares through participating
organizations holding such shares who have made arrangements with the Portfolio
permitting them to redeem such shares by telephone or facsimile transmission and
who may charge a fee for this service.
For Shareholders whose accounts are maintained by the Transfer Agent,
redemptions may be made by sending a written redemption request to:
Old Westbury Growth Opportunity Fund
P.O. Box 119
New York, NY 10274-0119
The redemption request must be signature guaranteed as noted above.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period when (i) trading on the NYSE is restricted or
the
NYSE is closed, other than customary weekend and holiday closing; (ii) the
Securities and Exchange Commission has by order permitted such suspension for
the protection of the shareholders of the Portfolio; or (iii) an emergency, as
defined by rules of the Securities and Exchange Commission, exists making
disposal of portfolio investments or determination of the value of the net
assets of the Portfolio not reasonably practicable.
To minimize expenses, the Portfolio reserves the right to redeem, upon not
less than 30 days written notice to shareholders, all shares of the Portfolio in
an account (other than an Individual Retirement Account) which has a value below
$500 caused by reason of a redemption by a shareholder of shares of the
Portfolio. However, a shareholder will be allowed to make additional investments
prior to the date fixed for redemption to avoid liquidation of the account.
The proceeds of a redemption may be more or less than the amount invested
and, therefore, a redemption may result in a gain or loss for federal income tax
purposes.
EXCHANGE OF SHARES
An investor may, without cost, exchange shares of the Portfolio of the
Fund into Old Westbury International Fund and any other portfolio of the Fund,
when and if created, subject to the $1,000 minimum initial investment
requirement for the Portfolio. See "Purchase of Shares." The Fund will provide
shareholders with 60 days' written notice prior to any modification of the
exchange privilege. Shares are exchanged on the basis of relative net asset
value per share. Exchanges are in effect redemptions from one portfolio and
purchases of another portfolio; and the Portfolio's purchase and redemption
procedures and requirements are applicable to exchanges. An exchange pursuant to
this exchange privilege is treated for federal income tax purposes as a sale on
which a shareholder may realize a taxable gain or loss. See "Purchase of Shares"
and "Redemption of Shares."
RETIREMENT PLANS
The Fund has available a form of Individual Retirement Account ("IRA") for
investment in Portfolio shares. Self-employed investors may purchase shares of
the Portfolio through tax-deductible contributions to existing retirement plans
for self-employed persons, known as Keogh or H.R. 10 plans. Portfolio 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 all such retirement plans is $1,000.
The minimum for all subsequent investments is $100.
Under the Internal Revenue Code of 1986, as amended (the "Code"),
individuals may make wholly or partly tax deductible IRA contributions of up to
$2,000 annually, depending on whether they are active participants in an
employer-sponsored retirement plan and on their income level. However, dividends
and distributions held in the account are not taxed until withdrawn in
accordance with the provisions of the Code. An individual with a non-working
spouse may establish a separate IRA for the spouse under the same conditions and
contribute a combined maximum of $4,000 annually to either or both IRAs provided
that no more than $2,000 may be contributed to the IRA of either spouse.
Investors should be aware that they may be subject to penalties or
additional tax on contributions or withdrawals from IRAs or other retirement
plans which are not permitted by the applicable provisions of the Code, and,
prior to a withdrawal, shareholders may be required to certify their age and
awareness of such restrictions in writing. Persons desiring information
concerning investments through IRAs or other retirement plans should write or
telephone his or her Shareholder Servicing Agent or Broker-Dealer. For
Shareholders who do not maintain a relationship with a Shareholder Servicing
Agent or Broker-Dealer, information on an IRA account may be obtained by calling
the Distributor at 800-607-2200.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each dividend and capital gains distribution, if any, declared by the
Portfolio on its outstanding shares will, at the election of each shareholder,
be paid on the payment date fixed by the Board of Directors in additional shares
of the Portfolio having an aggregate net asset value as of the ex-dividend date
of such dividend or distribution equal to the cash amount of such dividend or
distribution. An election to receive dividends and distributions in cash or
shares is made at the time shares are subscribed for and may be changed by
notifying the Portfolio 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.
Shareholders may change this election by notifying their Shareholder Servicing
Agent or Broker-Dealer. There is no fixed dividend rate, and there can be no
assurance that the Portfolio will pay any dividends or realize any capital
gains. The Portfolio anticipates paying income and capital gains distributions,
if any, on an annual basis.
The following is a general discussion of certain of the federal income tax
consequences of the purchase, ownership and disposition of shares of the
Portfolio. The summary is limited to investors who hold the shares as "capital
assets" (generally, property held for investment), and to whom special
categories of rules do not apply, such as foreign investors and tax-exempt
investors. Shareholders should consult their tax advisers in determining the
federal, state, local and any other tax consequences of the purchase, ownership
and disposition of shares.
The Portfolio intends to qualify for and elect the special tax treatment
applicable to "regulated investment companies." To qualify as a regulated
investment company, the Portfolio must meet certain complex tests concerning its
investments and distributions. It is anticipated that the Portfolio will not be
subject to federal income or excise tax.
Dividends from net investment income and distributions of realized short-
term capital gains will be taxable to the recipient shareholders as ordinary
income. In the case of corporate shareholders, distributions attributable to
dividends received from foreign corporations will not be eligible for the
dividends-received deduction. Distributions of long-term capital gains will be
taxable to shareholders as long-term capital gains. If an investor purchases
shares shortly before a distribution date, the distribution may be taxable to
the investor as income, even though, in effect, it is a return of principal.
A shareholder may recognize a taxable gain or loss if the shareholder
sells or redeems his shares. If the securities held by the Portfolio appreciate
in value, purchasers of shares of the Portfolio after the occurrence of such
appreciation will acquire such shares subject to the tax obligation that may be
incurred in the future when there is a sale of such securities.
The federal tax status of each year's distributions will be reported to
shareholders and to the Internal Revenue Service. Distributions may also be
subject to state and local taxation and shareholders should consult their own
tax advisers in this regard.
The Portfolio is required by federal law to withhold 31% of reportable
payments paid to certain shareholders who have not complied with Internal
Revenue Service regulations. In connection with this withholding requirement, a
shareholder will be asked to certify on his application that the social security
or tax identification number provided is correct and that the shareholder is not
subject to the 31% backup withholding for previous underreporting to the
Internal Revenue Service.
CALCULATION OF INVESTMENT PERFORMANCE
The Portfolio may from time to time include its yield, total return, and
average annual total return in advertisements or information furnished to
present or prospective shareholders. The Portfolio may also from time to time
include in advertisements the ranking of those performance figures relative to
such figures for groups of mutual funds categorized by the Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc., Morningstar Inc.,
Wiesenberger Investment Company Service, Barron's, Business Week, Changing
Times, Financial World, Forbes, Fortune, Money, Personal Investor, Bank Rate
Monitor, and The Wall Street Journal as having the same investment objectives.
The performance of the Portfolio may be compared to the Standard & Poor's 500
Stock Index and the Dow Jones
Industrial Average, both of which are recognized indices of domestic stocks
performance, as well as Wilshire 2000, a recognized index of small and mid
capitalization companies and emerging growth companies.
Average annual total return is a measure of the average annual compounded
rate of return of $1,000 invested at the maximum public offering price over a
specified period, which assumes that any dividends or capital gains
distributions are automatically reinvested in the Portfolio rather than paid to
the investor in cash. Total return is calculated with the same assumptions and
shows the aggregate return on an investment over a specified period.
The formula for total return used by the Portfolio includes three steps:
(1) adding to the total number of shares purchased by the hypothetical
investment in the portfolio of $1,000 (assuming the investment is made at a
public offering price that includes the current maximum sales load of 4.5%) all
additional shares that would have been purchased if all dividends and
distributions paid or distributed during the period had been automatically
reinvested; (2) calculating the value of the hypothetical initial investment as
of the end of the period by multiplying the total number of shares owned at the
end of the period by the net asset value per share on the last trading day of
the period; and (3) dividing this account value for the hypothetical investor by
the amount of the initial investment and annualizing the result for periods of
less than one year.
The Portfolio computes yield by annualizing net investment income per
share for a recent 30-day period and dividing that amount by a Portfolio's
share's maximum public offering price (reduced by any undeclared earned income
expected to be paid shortly as a dividend) on the last trading day of that
period. The Portfolio's yield will vary from time to time depending upon market
conditions, the composition of the Portfolio and operating expenses of the
Portfolio.
Total return and yield may be stated with or without giving effect to any
expense limitations in effect for the Portfolio.
GENERAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on
August 26, 1993 and is registered with the Securities and Exchange Commission as
a diversified, open-end, management investment company. The Portfolio was
designated as a separate series of the Fund on January 23, 1997.
The Fund prepares semi-annual unaudited and annual audited reports which
include a list of investment securities held by the Portfolio and which are sent
to shareholders.
As a general matter, the Fund will not hold annual or other meetings of
the Portfolio's shareholders. This is because the By-laws of the Fund provide
for meetings only: (a) for the election of directors as required by the 1940
Act, (b) for
approval of revised investment advisory contracts with respect to a particular
class or series of stock, (c) for approval of revisions to the Fund's
distribution plan as required by the 1940 Act with respect to a particular class
or series of stock, and (d) upon the written request of holders of shares
entitled to cast not less than ten percent of all the votes entitled to be cast
at such meeting. The Portfolio's shareholders retain the right to remove
directors. Furthermore, the Fund will assist in shareholder communications.
The Fund's Board of Directors is authorized to divide the unissued shares
into separate series of stock, each series representing a separate, additional
investment portfolio. Shares of all series will have identical voting rights,
except where, by law, certain matters must be approved by a majority of the
shares of the affected series. Each share of any series of shares when issued
has equal dividend, distribution, liquidation and voting rights within the
series 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 Portfolio. See
"Description of Common Stock" in the Statement of Additional Information.
Annual and other meetings may be required with respect to such additional
matters relating to the Fund as may be required by the 1940 Act, any
registration of the Fund with the Securities and Exchange Commission or any
state, or as the Directors may consider necessary or desirable. Each Director
serves until the next meeting of the shareholders called for the purpose of
considering the election or reelection of such Director or of a successor to
such Director, and until the election and qualification of his or her successor,
elected at such a meeting, or until such Director sooner dies, resigns, retires
or is removed by the vote of the shareholders.
For further information with respect to the Portfolio and the shares
offered hereby, reference is made to the Fund's registration statement filed
with the Securities and Exchange Commission, including the exhibits thereto. The
Registration Statement and the exhibits thereto may be examined at the
Commission and copies thereof may be obtained upon payment of certain
duplicating fees.
NET ASSET VALUE
The net asset value of the Portfolio's shares is determined as of the
earlier of 4:00 p.m., New York time, or as of the close of regular trading on
the NYSE on each Fund Business Day. Fund Business Day means any day on which the
NYSE is open for business. It is computed by dividing the value of the
Portfolio's net assets (i.e., the value of its securities and other assets less
its liabilities, including expenses payable or accrued but excluding capital
stock and surplus) by the total number of shares outstanding. Portfolio
securities for which market quotations are
readily available are valued at market value. All other investment assets of the
Portfolio are valued in such manner as the Board of Directors in good faith
deems appropriate to reflect their fair value.
CUSTODIAN, TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Bessemer Trust Company (New Jersey) is custodian for the Portfolio's cash
and securities. The Portfolio's custodian does not assist in, and is not
responsible for, investment decisions involving assets of the Portfolio.
Fundamental Shareholder Services, Inc., whose principal address is 90 Washington
Street, New York, NY 10006, is the Portfolio's transfer and dividend disbursing
agent.
THIS PAGE INTENTIONALLY LEFT BLANK
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................. 2
Table of Fees and Expenses.......... 4
Investment Objective and Policies... 5
Investment Restrictions............. 12
Management of the Fund.............. 13
The Administrator................... 16
Distribution and Service Plan....... 17
Purchase of Shares.................. 19
Redemption of Shares................ 23
Exchange of Shares.................. 25
Retirement Plans.................... 26
Dividends, Distributions and
Taxes............................. 26
Calculation of Investment
Performance....................... 28
General Information................. 29
Net Asset Value..................... 30
Custodian, Transfer Agent and
Dividend Disbursing Agent......... 30
- -------------------------------------
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 AND REPRESENTATION
MAY NOT BE RELIED UPON AS AUTHORIZED
BY THE FUND, ITS ADVISER, DISTRIBUTOR
OR ANY AFFILIATE THEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF
ANY OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY
STATE TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH STATE.
- -------------------------------------
OLD WESTBURY
UNDS, INC.
OLD WESTBURY
GROWTH
OPPORTUNITY
FUND
PROSPECTUS
JANUARY 31, 1997
Adviser:
Bessemer Trust Company, N.A
630 Fifth Avenue
New York, New York 10111
(212) 708-9100
Administrator:
Federated Administrative Services
Federated Investors Tower
Pittsburgh, Pennsylvania 15222
(412) 288-1900
Distributor:
Edgewood Services, Inc.
Federated Tower
Pittsburgh, Pennsylvania
(412) 288-1900
DISTRIBUTOR AND SHAREHOLDER
SERVICING AGENT:
Edgewood Services, Inc.
Federated Investors Tower
Pittsburgh, PA 15222-3779
ADMINISTRATOR:
Federated Administrative Services
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip 680414208
G02009-01 (1/97) (not part of Prospectus)
OLD WESTBURY FUNDS, INC.
Old Westbury International Fund
Old Westbury Growth Opportunity Fund
(each a "Portfolio" and collectively the "Portfolios")
Federated Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone: (800) 607-2200
Statement of Additional Information
January 31, 1997
This Statement of Additional Information is not a prospectus and is
only authorized for distribution when preceded or accompanied by the
prospectus (each a "Prospectus") for the Portfolios listed above. This
Statement of Additional Information contains additional and more detailed
information than that set forth in each Prospectus and should be read in
conjunction with each Prospectus, additional copies of which may be
obtained without charge by writing or telephoning the Portfolios at the
address and telephone number set forth above.
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVE AND POLICIES
1
DESCRIPTION OF EACH PORTFOLIO'S INVESTMENT SECURITIES AND RISK FACTORS
1
INVESTMENT RESTRICTIONS 9
DIRECTORS AND OFFICERS 10
ADVISER 11
ADMINISTRATOR 13
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT 14
DISTRIBUTION AND SERVICE PLAN 14
BROKERAGE AND PORTFOLIO TURNOVER 17
COUNSEL AND INDEPENDENT AUDITORS 18
PURCHASE AND REDEMPTION OF SHARES 18
DESCRIPTION OF COMMON STOCK 19
PERFORMANCE 19
NET ASSET VALUE
20
TAX STATUS
20
DESCRIPTION OF CORPORATE DEBT RATINGS
24
FINANCIAL STATEMENTS
25
INVESTMENT OBJECTIVE AND POLICIES
Each Portfolio will normally invest its assets primarily in common
stocks, but may, however, increase its holdings in equity securities other
than common stocks including convertible securities, preferred stock and
warrants when the Adviser believes it is advisable to do so. Each Portfolio
may also invest in debt securities as described in their respective
Prospectus. Investments in debt securities are consistent with the
Portfolios' investment objective because they could result in capital
appreciation due to an increase in the value of such securities caused by
changes in interest rates and currency values.
Each Portfolio intends to qualify as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). Each Portfolio will be restricted in that, at the close of each
quarter of the taxable year, at least 50% of the value of each Portfolio's
total assets must be represented by cash, Government securities, investment
company securities and other securities limited in respect of any one
issuer to not more than 5% in value of the total assets of each Portfolio
and to not more than 10% of the outstanding voting securities of such
issuer. In addition, at the close of each quarter of its taxable year, not
more than 25% in value of each Portfolio's total assets may be invested in
the securities of one issuer other than Government securities. The
limitations described in this paragraph regarding qualifications as a
"regulated investment company" are not fundamental policies and may be
revised to the extent applicable federal income tax requirements are
revised.
DESCRIPTION OF EACH PORTFOLIO'S INVESTMENT SECURITIES AND RISK FACTORS
The following discussion is additional disclosure that supplements
each Portfolio's respective Prospectus and should be read in conjunction
with the current Prospectus. The material relating to the risk factors
pertaining to the securities invested by each Portfolio set forth in its
Prospectus is herein incorporated by reference. Capitalized terms not
otherwise defined herein have the meanings accorded to them in the
Portfolios' Prospectus. In addition, hereinafter, Old Westbury
International Fund shall be referred to as the "International Fund" and Old
Westbury Growth Opportunity Fund shall be referred to as the "Growth Fund."
The Fund's executive offices are located at Federated Tower, Pittsburgh,
Pennsylvania 15222-3779.
Foreign Securities
Investments are made primarily in those regions where, in the opinion
of the International Fund's Adviser, there are opportunities to achieve
superior investment returns relative to other investment opportunities
outside the United States. The International Fund does not, however,
generally invest in debt or equity securities of U.S. issuers. The
International Fund emphasizes those industrial sectors of the world's
market which, in the opinion of its Adviser, offer the most attractive
risk/reward relationships. Securities of any given issuer are evaluated on
the basis of such measures as price/earnings ratios, price/book ratios,
cash flows and dividends and interest income.
Since investments in foreign securities may involve foreign
currencies, the value of a fund's assets as measured in U.S. dollars may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations, including currency blockage. The International Fund
may enter into forward commitments for the purchase or sale of foreign
currencies in connection with the settlement of foreign securities
transactions or to manage the International Fund's currency exposure
related to foreign investments as described in its Prospectus.
The Portfolios may invest in certain foreign securities; however, the
only foreign securities the Growth Fund may invest in are securities of
Canadian based companies (see "Canadian Companies" in the Growth Fund
Prospectus). Investment in securities of foreign issuers and in obligations
of foreign branches of domestic banks involves somewhat different
investment risks from those affecting securities of U.S. domestic issuers.
There may be limited publicly available information with respect to foreign
issuers, and foreign issuers are not generally subject to uniform
accounting, auditing and financial standards and requirements comparable to
those applicable to domestic companies. Dividends and interest paid by
foreign issuers may be subject to withholding and other foreign taxes which
may decrease the net return on foreign investments as compared to dividends
and interest paid to the Portfolios by domestic companies.
Investors should realize that the value of the Portfolios' investments
in foreign securities may be adversely affected by changes in political or
social conditions, diplomatic relations, confiscatory taxation,
expropriation, nationalization, limitation on the removal of funds or
assets, or imposition of (or change in) exchange control or tax regulations
in those foreign countries. In addition, changes in government
administrations or economic or monetary policies in the United States or
abroad could result in appreciation or depreciation of portfolio securities
and could favorably or unfavorably affect the Portfolios' operations.
Furthermore, the economies of individual foreign nations may differ from
the U.S. economy, whether favorably or unfavorably, in areas such as growth
of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position; it may also be
more difficult to obtain and enforce a judgment against a foreign issuer.
Any foreign investments made by the Portfolios must be made in compliance
with U.S. foreign currency restrictions and tax laws restricting the
amounts and types of foreign investments.
In addition, while the volume of transactions effected on foreign
stock exchanges has increased in recent years, in most cases it remains
appreciably below that of domestic security exchanges. Accordingly, the
Portfolios' foreign investments may be less liquid and their prices may be
more volatile than comparable investments in securities of U.S. companies.
Moreover, the settlement periods for foreign securities, which are often
longer than those for securities of U.S. issuers, may affect portfolio
liquidity. In buying and selling securities on foreign exchanges,
purchasers normally pay fixed commissions that are generally higher than
the negotiated commissions charged in the United States. In addition, there
is generally less government supervision and regulation of securities
exchanges, brokers and issuers located in foreign countries than in the
United States.
The International Fund may invest in securities of foreign issuers
directly or in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") or other similar securities of foreign
issuers. These securities may not necessarily be dominated in the same
currency as the securities they represent. ADRs are receipts typically
issued by a U.S. bank or trust company evidencing ownership of the
underlying foreign securities. Certain such institutions issuing ADRs may
not be sponsored by the issuer of the underlying foreign securities. A non-
sponsored depository may not provide the same shareholder information that
a sponsored depository is required to provide under its contractual
arrangements with the issuer of the underlying foreign securities. EDRs are
receipts issued by a European financial institution evidencing a similar
arrangement. Generally, ADRs, in registered form, are designed for use in
the U.S. securities markets, and EDRs, in bearer form, are designed for use
in European securities markets.
Money Market Instruments
As discussed in each Portfolio's respective Prospectus, a Portfolio
may invest in money market instruments to the extent consistent with its
investment objective and policies. A description of the various types of
money market instruments that may be purchased by a Portfolio appears
below.
U.S. Treasury Securities
The Growth Fund may invest in direct obligations of the U.S. Treasury,
including Treasury bills, notes and bonds, all of which are backed as to
principal and interest payments by the full faith and credit of the United
States.
Additional U.S. Government Obligations
The Portfolios may invest in obligations issued or guaranteed by U.S.
Government agencies or instrumentalities. These obligations may or may not
be backed by the "full faith and credit" of the United States. In the case
of securities not backed by the full faith and credit of the United States,
the Portfolios must look principally to the federal agency issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which the
Portfolios may invest that are not backed by the full faith and credit of
the United States include, but are not limited to, obligations of the
Federal Home Loan Mortgage Corporation and the U.S. Postal Service, each of
which has the right to borrow from the U.S. Treasury to meet its
obligations. Securities in which the Portfolios may invest that are not
backed by the full faith and credit of the United States include
obligations of the Federal Farm Credit System and the Federal Home Loan
Banks, both of whose obligations may be satisfied only by the individual
credits of each issuing agency. Securities which are backed by the full
faith and credit of the United States include obligations of the Government
National Mortgage Association, the Farmers Home Administration, and the
Export-Import Bank.
Bank Obligations
The Portfolios, unless otherwise noted in their Prospectus or below,
may invest in negotiable certificates of deposit, time deposits and
bankers' acceptances of (i) banks, savings and loan associations and
savings banks which have more than $2 billion in total assets (the "Asset
Limitation") and are organized under the laws of the United States or any
state, (ii) foreign branches of these banks or of foreign banks of
equivalent size (Euros) and (iii) U.S. branches of foreign banks of
equivalent size (Yankees). The Portfolios will not invest in obligations
for which the Adviser, or any of its affiliated persons, is the ultimate
obligor or accepting bank. The Portfolios may also invest in obligations of
international banking institutions designated or supported by national
governments to promote economic reconstruction, development or trade
between nations (e.g., the European Investment Bank, the Inter-American
Development Bank, or the World Bank).
Commercial Paper
The Portfolios may invest in commercial paper, including master demand
obligations. Master demand obligations are obligations that provide for a
periodic adjustment in the interest rate paid and permit daily changes in
the amount borrowed. The commercial paper in which the Portfolios may
invest must be rated A-1 or A-2 by Standard & Poor's Rating Group
(`S&P''), Prime-1 or Prime-2 by Moody's Investors Service, Inc.
(`Moody's''), or F-1 or F-2 by Fitch Investors Service, Inc. Master demand
obligations are governed by agreements between the issuer and Bessemer
Trust Company, N.A. acting as agent, for no additional fee, in its capacity
as investment advisor to the Portfolios and as fiduciary for other clients
for whom it exercises investment discretion. The monies loaned to the
borrower come from accounts managed by the Adviser or its affiliates,
pursuant to arrangements with such accounts. Interest and principal
payments are credited to such accounts. The Adviser, acting as a fiduciary
on behalf of its clients, has the right to increase or decrease the amount
provided to the borrower under an obligation. The borrower has the right to
pay without penalty all or any part of the principal amount then
outstanding on an obligation together with interest to the date of payment.
Since these obligations typically provide that the interest rate is tied to
the Federal Reserve commercial paper composite rate, the rate on master
demand obligations is subject to change. Repayment of a master demand
obligation to participating accounts depends on the ability of the borrower
to pay the accrued interest and principal of the obligation on demand which
is continuously monitored by the Adviser. Since master demand obligations
typically are not rated by credit rating agencies, the Portfolios may
invest in such unrated obligations only if at the time of an investment the
obligation is determined by the Adviser to have a credit quality which
satisfies the Portfolios' quality restrictions. Although there is no
secondary market for master demand obligations, such obligations are
considered by the Portfolios to be liquid because they are payable upon
demand. The Portfolios do not have any specific percentage limitation on
investments in master demand obligations.
Money Market Mutual Funds
The Growth Fund may invest in securities of money market mutual funds.
See "Investment Company Securities" below.
Foreign Government Obligations
The International Fund, subject to its applicable investment policies,
may also invest in short-term obligations of foreign sovereign governments
or of their agencies, instrumentalities, authorities or political
subdivisions. These securities may be denominated in the U.S. dollar or in
another currency.
Foreign Currency Exchange Transactions and Options
Because each Portfolio may buy and sell securities and receive
interest and dividends in currencies other than the U.S. dollar, a
Portfolio may from time to time enter into foreign currency exchange
transactions. A Portfolio either enters into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or uses forward contracts to purchase or sell foreign
currencies. The cost of a Portfolio's spot currency exchange transactions
is generally the difference between the bid and offer spot rate of the
currency being purchased or sold.
A forward foreign currency exchange contract is an obligation by a
Portfolio 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. Forward
foreign currency exchange contracts establish an exchange rate at a future
date. These contracts are derivative instruments, as their value derives
from the spot exchange rates of the currencies underlying the contract.
These contracts are entered into in the interbank market directly between
currency traders (usually large commercial banks) and their customers. A
foreign currency exchange contract generally has no deposit requirement and
is traded at a net price without commission. The Portfolios will not enter
into forward contracts for speculative purposes. Neither spot transactions
nor forward foreign currency exchange contracts eliminate fluctuations in
the prices of a Portfolio's securities or in foreign exchange rates, or
prevent loss if the prices of these securities should decline.
Each Portfolio may enter into foreign currency exchange transactions
in an attempt to protect against changes in foreign currency exchange rates
between the trade and settlement dates of specific securities transactions
or anticipated securities transactions. A Portfolio may also enter into
forward contracts to hedge against a change in foreign currency exchange
rates that would cause a decline in the value of existing investments
denominated or principally traded in a foreign currency. To do this, a
Portfolio would enter into a forward contract to sell the foreign currency
in which the investment is denominated or principally traded in exchange
for U.S. dollar or in exchange for another foreign currency. A Portfolio
will only enter into forward contracts to sell a foreign currency in
exchange for another foreign currency if the Adviser expects the foreign
currency purchased to appreciate against the U.S. dollar.
Although these transactions are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
limit any potential gain that might be realized should the value of the
hedged currency increase. In addition, forward contracts that convert a
foreign currency into another foreign currency will cause the Portfolio to
assume the risk of fluctuations in the value of the currency purchased vis
a vis the hedged currency and the U.S. dollar. The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible because the future value of such securities in
foreign currencies will change as a consequence of market movements in the
value of such securities between the date the forward contract is entered
into and the date it matures. The projection of currency market movements
is extremely difficult, and the successful execution of a hedging strategy
is highly uncertain.
In using options as a hedge against changes in the value of foreign
currencies relative to the U.S. dollar, each Portfolio may trade exchange-
traded options on foreign currencies. Each Portfolio may write (sell)
covered call options and secured put options on up to 25% of net assets and
may purchase put and call options provided that no more than 5% of net
assets may be invested in premiums on such options.
A separate account of the Portfolio will be established with the
Portfolio's custodian consisting of cash or U.S. Government or other high-
grade liquid debt obligations equal to the amount of the Portfolio's assets
that could be required to consummate forward contracts or put options
entered into to hedge against movements in the value of foreign currencies
with respect to the Portfolio's portfolio positions. For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market or fair value. If the market or fair
value of such securities declines, additional cash or high grade liquid
debt securities will be placed in the account daily so that the value of
the account will equal the amount of such commitments by the Portfolio.
Investments in Warrants and Rights
Warrants basically are options to purchase equity securities at a
specified price valid for a specific period of time. Their prices do not
necessarily move parallel to the prices of the underlying securities.
Rights are similar to warrants, but normally have a short duration and are
distributed directly by the issuer to its shareholders. Rights and warrants
have no voting rights, receive no dividends and have no rights with respect
to the assets of the issuer. Each Portfolio does not intend to purchase
warrants and rights in excess of 5% of each Portfolio's total assets.
Convertible Securities
Each Portfolio may, as an interim alternative to investment in common
stocks, purchase investment grade convertible debt securities having a
rating of, or equivalent to, at least "BBB" by S&P or "Baa" by Moody's or,
if unrated, judged by the Adviser to be of comparable quality. Securities
rated BBB or Baa have speculative characteristics. Although lower rated
bonds generally have higher yields, they are more speculative and subject
to a greater risk of default with respect to the issuer's capacity to pay
interest and repay principal than are higher rated debt securities.
In selecting convertible securities for each Portfolio, the Adviser
relies primarily on its own evaluation of the issuer and the potential for
capital appreciation through conversion. It does not rely on the rating of
the security or sell because of a change in rating absent a change in its
own evaluation of the underlying common stock and the ability of the issuer
to pay principal and interest or dividends when due without disrupting its
business goals. Interest or dividend yield is a factor only to the extent
it is reasonably consistent with prevailing rates for securities of similar
quality and thereby provides a support level for the market price of the
security. Each Portfolio will purchase the convertible securities of highly
leveraged issuers only when, in the judgment of the Adviser, the risk of
default is outweighed by the potential for capital appreciation. Each
Portfolio does not intend to purchase convertible securities in excess of
5% of each Portfolio's total assets.
The issuers of debt obligations having speculative characteristics may
experience difficulty in paying principal and interest when due in the
event of a downturn in the economy or unanticipated corporate developments.
The market prices of such securities may become increasingly volatile in
periods of economic uncertainty. Moreover, adverse publicity or the
perceptions of investors over which the Adviser has no control, whether or
not based on fundamental analysis, may decrease the market price and
liquidity of such investments. Although the Adviser will attempt to avoid
exposing each Portfolio to such risks, there is no assurance that it will
be successful or that a liquid secondary market will continue to be
available for the disposition of such securities. The International Fund
will not purchase or hold more than 5% of its net assets in securities
rated below investment grade. The Growth Fund will not invest in securities
rated below investment grade.
The market for unrated securities may not be as liquid as the market
for rated securities, which may result in depressed prices for each
Portfolio in the disposal of such nonrated securities. There is no
established secondary market for many of these securities. The Adviser
cannot anticipate whether these securities could be sold other than to
institutional investors. There is frequently no secondary market for the
resale of those debt obligations that are in default. The limited market
for these securities may affect the amount actually realized by each
Portfolio upon such sale. Such sale may result in a loss to each Portfolio.
There are certain risks involved in applying credit ratings as a method of
evaluating high yield securities. For example, while credit rating agencies
evaluate the safety of principal and interest payments, they do not
evaluate the market risk of the securities and the securities may decrease
in value as a result of credit developments. See "Description of Corporate
Debt Ratings" for a comparison of investment grade and speculative ratings
issued by S&P and Moody's.
Lower rated and nonrated securities tend to offer higher yields than
higher rated securities with the same maturities because the
creditworthiness of the obligors of lower rated securities may not have
been as strong as that of other issuers. Since there is a general
perception that there are greater risks associated with the lower-rated
securities in each Portfolio, the yields and prices of such securities tend
to fluctuate more with changes in the perceived quality of the credit of
their obligors. In addition, the market value of high yield securities may
fluctuate more than the market value of higher rated securities since high
yield securities tend to reflect short-term market developments to a
greater extent than higher rated securities, which fluctuate primarily in
response to the general level of interest rates, assuming that there has
been no change in the fundamental credit quality of such securities. High
yield securities are also more sensitive to adverse economic changes and
events affecting specific issuers than are higher rated securities. Periods
of economic uncertainty can be expected to result in increased market price
volatility of the high yield securities. High yield securities may also be
directly and adversely affected by variables such as interest rates,
unemployment rates, inflation rates and real growth in the economy and may
be more susceptible to variables such as adverse publicity and negative
investor perception than are more highly rated securities, particularly in
a limited secondary market. Lower rated securities generally involve
greater risks of loss of income and principal than higher rated securities.
The obligors of lower rated securities possess less creditworthy
characteristics than the obligors of higher rated securities, as is
evidenced by those securities that have experienced a downgrading in rating
or that are in default. The evaluation of the price of such securities is
highly speculative and volatile. As such, these evaluations are very
sensitive to the latest available public information relating to
developments concerning such securities.
Investments in Unseasoned Companies
The securities of unseasoned companies (i.e., issuers, which including
predecessors, have been in business less than three years) may have a
limited trading market, which may adversely affect their disposition and
can result in their being priced lower than might otherwise be the case. If
other investment companies and investors who invest in such issuers trade
the same securities when each Portfolio attempts to dispose of its
holdings, that Portfolio may receive lower prices than might otherwise be
obtained. Each Portfolio does not intend to purchase securities of
unseasoned companies in excess of 5% of that Portfolio's net assets.
Corporate Reorganizations
Each Portfolio may invest in 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 Adviser, there is reasonable prospect
of capital appreciation significantly greater than the brokerage and other
transaction expenses involved. The primary risk of such investments is that
if the contemplated transaction is abandoned, revised, delayed or becomes
subject to unanticipated uncertainties, the market price of the securities
may decline below the purchase price paid by the Portfolios.
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 proposal. However, the increased market
price of such securities 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
shareholders 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 contingencies requires
unusually broad knowledge and experience on the part of the Adviser 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 offerer as well as the dynamics of the business climate
when the offer or proposal is in process.
In making such investments, each Portfolio will not violate any of its
diversification requirements or investment restrictions (see below,
"Investment Restrictions") including the requirement that, with respect to
75% of its total assets, not more than 5% of its total assets may be
invested in the securities of any one issuer. Since such investments are
ordinarily short term in nature, they will increase the turnover ratio of
the Portfolios thereby increasing its brokerage and other transaction
expenses as well as make it more difficult for the Portfolios to meet the
tests for favorable tax treatment as a "Regulated Investment Company"
specified by the Code (see the Prospectus, "Dividends, Distributions and
Taxes"). The Adviser 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 the risk involved and the
potential of available alternate investments as well as monitor the effect
of such investments on the tax qualification tests of the Code. Each
Portfolio does not intend to purchase these securities in excess of 5% of
that Portfolio's total assets.
Repurchase Agreements
Each Portfolio may engage in repurchase agreements with U.S. sellers
as set forth in the Prospectus. A repurchase agreement is an instrument
under which the purchaser (i.e., a Portfolio) acquires a debt security and
the seller agrees, at the time of the sale, to repurchase the obligation at
a mutually agreed upon time and price, thereby determining the yield during
the purchaser's holding period. This results in a fixed rate of return
insulated from market fluctuations during such period. The underlying
securities are ordinarily U.S. Treasury or other government obligations or
high quality money market instruments. A Portfolio will require that the
value of such underlying securities, together with any other collateral
held by the Portfolio, always equals or exceeds the amount of the
repurchase obligations of the vendor. While the maturities of the
underlying securities in repurchase agreement transactions may be more than
one year, the term of such repurchase agreement will always be less than
one year. A Portfolio's risk is primarily that, if the seller defaults, the
proceeds from the disposition of underlying securities and other collateral
for the seller's obligation are less than the repurchase price. If the
seller becomes bankrupt, the Portfolio might be delayed in selling the
collateral. Under the Investment Company Act of 1940, as amended (the "1940
Act"), repurchase agreements are considered loans. Repurchase agreements
usually are for short periods, such as one week or less, but could be
longer. The Portfolios will not enter into repurchase agreements of a
duration of more than seven days if, taken together with other illiquid
securities, more than 15% of that Portfolio's net assets would be so
invested. Under normal market conditions, the Portfolios do not intend to
purchase repurchase agreements in excess of 5% of that Portfolio's net
assets.
Loans of Portfolio Securities
To increase income, the International Fund may lend its securities to
securities broker-dealers or financial institutions if: (1) the loan is
collateralized in accordance with applicable regulatory requirements
including collateralization continuously at no less than 100% by marking to
market daily, (2) the loan is subject to termination by the Portfolio at
any time, (3) the Portfolio receives reasonable interest or fee payments on
the loan, (4) the Portfolio 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 one-third of the value of the
Portfolio's assets.
If the borrower fails to maintain the requisite amount of collateral,
the loan automatically terminates and the Portfolio could use the
collateral to replace the securities while holding the borrower liable for
any excess of replacement cost over the value of the collateral. As with
any extension of credit, there are risks of delay in recovery and in some
cases even loss of rights in collateral should the borrower of the
securities fail financially. The International Fund does not currently
intend to lend portfolio securities in excess of 5% of its total assets.
The Growth Fund does not currently intend to lend portfolio securities.
Privately Placed and Certain Unregistered Securities
The Portfolios may invest in privately placed, restricted, Rule 144A
or other unregistered securities as described in the Prospectus.
As to illiquid investments, a Portfolio is subject to a risk that
should the Portfolio decide to sell them when a ready buyer is not
available at a price the Portfolio deems representative of their value, the
value of the Portfolio's net assets could be adversely affected. Where an
illiquid security must be registered under the Securities Act of 1933, as
amended (the "1933 Act") before it may be sold, a Portfolio may be
obligated to pay all or part of the registration expenses, and a
considerable period may elapse between the time of the decision to sell and
the time the Portfolio may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, a Portfolio might obtain a less favorable price
than prevailed when it decided to sell.
INVESTMENT RESTRICTIONS
Each Portfolio has adopted the following investment restrictions which
may not be changed without the approval of the "majority of the outstanding
shares" of that Portfolio (as defined in the Prospectus). Under such
fundamental restrictions, each Portfolio may not:
1. Purchase securities on margin or borrow money, except (a) from banks
for extraordinary or emergency purposes (not for leveraging or investment)
or (b) by engaging in reverse repurchase agreements, provided that (a) and
(b) in the aggregate do not exceed an amount equal to one-third of the
value of the total assets of the Portfolio less its liabilities (not
including the amount borrowed) at the time of the borrowing, and further
provided that 300% asset coverage is maintained at all times;
2. Lend portfolio securities of value exceeding in the aggregate one-
third of the market value of the Portfolio's total assets less liabilities
other than obligations created by these transactions;
3. Mortgage, pledge or hypothecate any assets except that a Portfolio may
pledge not more than one-third of its total assets to secure borrowings
made in accordance with paragraph 1 above. However, although not a
fundamental policy of the Portfolio, as a matter of operating policy in
order to comply with certain state statutes, no Portfolio will pledge its
assets in excess of an amount equal to 10% of total net assets;
4. Act as an underwriter of securities of other issuers, except insofar
as the Portfolio may be deemed an underwriter under the 1933 Act in
disposing of a portfolio security;
5. Purchase or otherwise acquire interests in real estate, real estate
mortgage loans or interests, including limited partnership interests, in
oil, gas or other mineral exploration, leasing or development programs;
6. Purchase or acquire commodities, commodity contracts or futures except
that the Portfolio may purchase and write options on foreign currencies or
enter into forward delivery contracts for foreign currencies and may also
purchase foreign index contracts;
7. Issue senior securities, except insofar as the Portfolio may be deemed
to have issued a senior security in connection with any permitted
borrowing;
8. With respect to the International Fund only, invest 25% or more
of the value of its total assets in any particular industry or groups of
related industries; and
9. Participate on a joint, or a joint and several, basis in any
securities trading account.
The following are investment restrictions that may be changed by a
vote of the majority of the Board of Directors. Each Portfolio will not:
1. Invest more than 15% of the market value of the Portfolio's net assets
in illiquid investments including repurchase agreements maturing in more
than seven days;
2. Invest in securities of other investment companies, except (a)
with respect to International Fund, the Portfolio may purchase securities
of other investment companies which meet the investment objectives of the
Portfolio and then only up to 5% of the Portfolio's net assets, except as
they may be acquired as part of a merger, consolidation or acquisition of
assets and further except as permitted by Section 12(d) of the 1940 Act;
and (b) with respect to Growth Fund, (i) not more than 5% of the value of
the Portfolio's total assets will be invested in the securities of any one
investment company, (ii) not more than 10% of the value of its total assets
will be invested in the aggregate in securities of investment companies as
a group, and (iii) not more than 3% of the outstanding voting stock of any
one investment company will be owned by the Portfolio, unless the
Portfolio is permitted to exceed these limitations by the Securities and
Exchange Commission. Growth Fund will limit its investments in the
securities of other investment companies consistent with the Portfolio's
investment policies.
3. Purchase securities while borrowings exceed 5% of its total assets;
4. Invest in companies for the purpose of exercising control.
If a percentage restriction (except paragraph 3 of the fundamental
restrictions) is adhered to at the time an investment is made, a later
change in percentage resulting from changes in the value of the Portfolio's
investment securities will not be considered a violation of the Portfolio's
restrictions.
DIRECTORS AND OFFICERS
The Directors and principal officers of the Fund, their age and
principal occupations for the past five years, are listed below. Directors
deemed to be "interested persons" of the Fund for purposes of the 1940 Act
are indicated by an asterisk. Unless otherwise indicated below, the address
of each Director and officer is Old Westbury Funds, Inc. c/o Edgewood
Services, Inc., Federated Tower, Pittsburgh, Pennsylvania 15222-3779.
ROBERT M. KAUFMAN (age 66) - Director.
Chairman of the Board and Director; Partner, Proskauer Rose Goetz &
Mendelsohn, Attorneys at Law. His principal address is 1585 Broadway, New
York, NY 10036.
JOHN KEVIN KENNY (age 60) - Director.
Director; President and Chief Executive Officer, Christina Holdings, Inc.
(since June 1995); Principal, Real Estate Investments (since 1992);
President and Chief Executive Officer, J.J. Kenny Co., Inc. Kenny
Information Services, Inc. (from 1961 to 1992). His principal address is
2000 PGA Boulevard, Suite 3220, P.O. Box 13076, North Palm Beach, FL 33408.
HOWARD D. GRAVES (age 57) - Director.
Director; Chairman of the Board, Recycling Holdings, Inc. (since 1996);
Director, Recycling Holdings, Inc. (from 1995 to 1996); and Superintendent,
United States Military Academy, West Point, New York (Lieutenant General,
U.S. Army) (from 1991 to 1996). His principal address is 2101 Kings Mill
Court, Falls Church, VA 22043.
EDWARD C. GONZALES (age 67) - President, Treasurer and Principal
Financial Officer.
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice
President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp. and Passport
Research, Ltd.; Executive Vice President and Director, Federated Securities
Corp.; Trustee, Federated Shareholder Services Company; Trustee or Director
of other funds distributed by Federated Securities Corp.; President,
Executive Vice President and Treasurer of other funds distributed by
Federated Securities Corp.
RONALD M. PETNUCH (age 37) - Vice President.
Vice President and Assistant Treasurer of other funds distributed by
Federated Securities Corp. Senior Vice President, Federated Services
Company; and formerly, Associate Corporate Counsel, Federated
Investors.
C. CHRISTINE THOMSON (age 39) - Vice President and Assistant
Treasurer.
Vice President and Assistant Treasurer of other funds distributed by
Federated Securities Corp.
JUDITH J. MACKIN (age 37) - Vice President.
Vice President and Assistant Treasurer of other funds distributed by
Federated Securities Corp.
C. GRANT ANDERSON (age 56) - Secretary.
Corporate Counsel, Federated Investors.
COMPENSATION TABLE
Pension or Total
Retirement Compensation
Aggregate Benefits Estimated From
Compensation Accrued as Annual Fund and Fund
Name of from part of Portfolio Benefits Upon
Complex Paid
Director the Fund Expenses Retirement to Directors
Howard D. Graves none none none none
Robert M. Kaufman $5,500 none none $5,500
John Kevin Kenny $5,500 none none $5,500
The compensation table above reflects the fees received by the Directors
from the Fund for fiscal year ended October 31, 1996. All the Directors are
not "interested persons" (as defined in the 1940 Act) of the Fund and each
will receive an annual retainer of $5,000 to be paid in quarterly
installments of $1,250, $500 per meeting, plus reasonable expenses.
As of October 16, 1996, all Directors and officers as a group owned
less than 1% of each Portfolio's outstanding shares.
As of that date, there were no shareholders of record of the Growth
Fund and the following shareholders of record owned more than 5% of the
International Fund's outstanding shares: Bessemer Trust Company (Cayman)
Limited, P.O. Box 694, Edward Street, Grand Cayman, Cayman Islands, B.W.I.,
9.4%. Bessemer Trust Company, 100 Woodbridge Center Drive, Woodbridge, New
Jersey 07095-1191 held 94.0% of the outstanding shares of the Portfolio
under the nominee name Naidot & Co. for its customers. Bessemer Trust
Company (Cayman) Limited is a subsidiary of The Bessemer Group
Incorporated.
ADVISER
The Adviser to each Portfolio is Bessemer Trust Company, N.A., a
national banking association. Pursuant to the Advisory Contract for each
Portfolio, the Adviser manages the portfolio of securities and makes
decisions with respect to the purchase and sale of investments, subject to
the general control of the Board of Directors of the Fund.
The Adviser also provides each Portfolio with supervisory personnel
who are responsible for supervising the performance of the Portfolios'
Administrator. The Administrator will provide personnel who will be
responsible for performing the operational components of such supervisory
services and who may be employees of the Adviser, of its affiliates or of
other organizations. The Advisory Contracts for the International Fund and
for the Growth Fund were approved by their shareholders at meetings held on
October 12, 1993 and January 31, 1997, respectively, and the continuance of
the Advisory Contract for the International Fund was most recently approved
on August 8, 1996 by the Board of Directors, including a majority of the
directors who are not "interested persons" (as defined in the 1940 Act) of
the Fund or the Adviser. The Advisory Contract for the Growth Fund was
approved on August 8, 1996 by the Board of Directors, including a majority
of the disinterested directors.
The Advisory Contract will be continued in force for successive
twelve-month periods beginning each October 1, provided that such
continuance is specifically approved annually by a vote of a "majority of
the outstanding shares" of the Portfolio (as defined in the Prospectus) or
by the Fund's Board of Directors, and in either case by a majority of the
directors who are not parties to the Advisory Contract or interested
persons of any such party, by votes cast in person at a meeting called for
the purpose of voting on such matter.
The Advisory Contract is terminable without penalty by a Portfolio on
sixty days' written notice when authorized either by a vote of a "majority
of the outstanding shares" of the Portfolio (as defined in the Prospectus)
or by a vote of a majority of the Fund's Board of Directors, or by the
Adviser on sixty days' written notice, and will automatically terminate in
the event of an "assignment" (as defined in the 1940 Act). The Advisory
Contract provides that in the absence of willful misfeasance, bad faith or
gross negligence on the part of the Adviser, or of reckless disregard of
its obligations thereunder, the Adviser shall not be liable for any action
or failure to act in accordance with its duties thereunder.
Each Portfolio has, under the Advisory Contract, confirmed its
obligation for payment of all its other expenses, including without
limitation: fees payable to the Adviser, Administrator, custodian, transfer
agent and dividend agent; brokerage and commission expenses; foreign,
federal, state or local taxes, including issuance and transfer taxes
incurred by or levied on it; commitment fees, certain insurance premiums
and membership fees and dues in investment company organizations; interest
charges on borrowings; telecommunications expenses; recurring and
nonrecurring legal, accounting and record-keeping expenses; costs of
organizing and maintaining the Fund's existence as a corporation;
compensation, including directors' fees, of any directors, officers or
employees who are not also officers or employees of the Adviser, the
Administrator or their affiliates and costs of other personnel providing
administrative and clerical services; costs of stockholders' services and
costs of stockholders' reports, proxy solicitations, and corporate
meetings; fees and expenses of registering its shares under the appropriate
federal securities laws and of qualifying its shares under applicable state
securities laws, including expenses attendant upon the initial registration
and qualification of these shares and attendant upon renewals of, or
amendments to, those registrations and qualifications; any other
distribution or promotional expenses contemplated by an effective plan
adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act; and expenses
of preparing, printing and delivering the Prospectus to existing
shareholders and of printing shareholder application forms for shareholder
accounts. The Distributor pays the promotional and advertising expenses
related to the distribution of each Portfolio's shares and for the printing
of all Portfolio prospectuses used in connection with the distribution and
sale of Portfolio shares for which it may be reimbursed under the Plan. See
"Distribution and Service Plan." Each Portfolio also reimburses the Adviser
for all of that Portfolio's operating costs, including rent, depreciation
of equipment and facilities, interest and amortization of loans financing
equipment used by the Portfolio and all the expenses incurred to conduct
that Portfolio's affairs. The amounts of such reimbursements must be agreed
upon between each Portfolio and the Adviser. The Adviser at its discretion
may voluntarily waive all or a portion of the advisory fee and the
operating expense reimbursement.
The Fund may from time to time hire its own employees or contract to
have management services performed by third parties, and the management of
the Fund intends to do so whenever it appears advantageous to the Fund. The
Fund's expenses for employees and for such services are among the expenses
subject to the expense limitation described below under "Distribution and
Service Plan."
For its services under the Advisory Contract, the Adviser receives
from each Portfolio an advisory fee, computed daily and payable monthly, in
accordance with the following schedule: (i) 0.80% of the first $100 million
of that Portfolio's average net assets; (ii) 0.75% of the second $100
million of that Portfolio's average net assets; and (iii) 0.70% of that
Portfolio's average net assets exceeding $200 million. For the fiscal years
ended October 31, 1994, 1995, and 1996, the International Fund accrued
$570,189, $771,294 and $990,632, respectively, in advisory fees, of which
$134,868, $91,974 and $29,346, respectively, were permanently and
irrevocably waived.
Any portion of the total fees received by the Adviser may be used by
the Adviser to provide distribution, shareholder and administrative
services. Pursuant to the Funds' Distribution and Service Plan, the Adviser
will also act as a shareholder servicing agent for each Portfolio pursuant
to which the Portfolios are permitted to pay the Adviser a maximum of 0.25%
per annum of that Portfolio's average daily net assets to compensate it and
to permit the Adviser to compensate banks, savings and loans and other
financial institutions (the Adviser with such other institutions, each a
"Shareholder Servicing Agent") whose clients are Fund shareholders for
providing shareholder services. The Adviser may irrevocably waive its
rights to any portion of the advisory fees and may use any portion of the
advisory fee for distribution and servicing purposes including defraying
the costs of performing shareholder servicing functions on behalf of each
Portfolio, compensating others, including banks, broker-dealers and other
organizations whose customers or clients are shareholders of the Portfolios
for providing assistance in distributing each Portfolio's shares and
defraying the costs of shareholder servicing and other promotional
activities. See "Distribution and Service Plan." There can be no assurance
that such fees will be waived in the future.
ADMINISTRATOR
The Administrator for each Portfolio is Federated Administrative
Services ("Federated" or the "Administrator"), which has its principal
office at Federated Tower, Pittsburgh, Pennsylvania 15222-3779. The
Administrator serves as administrator of other mutual funds. Each Portfolio
will not invest in these funds or in any other fund which may in the future
be affiliated with the Administrator or any of its affiliates. In addition,
the Administrator provides persons satisfactory to the Board of Directors
of the Fund to serve as officers and directors of the Fund, as the case may
be. Such officers, as well as certain other employees and directors of the
Fund, may be directors, officers or employees of the Administrator or its
affiliates.
Pursuant to the Administrative Services Agreement for the Portfolios,
the Administrator provides all management and administrative services
reasonably necessary for each Portfolio, other than those provided by the
Adviser, subject to the supervision of the Fund's Board of Directors.
Because of the services rendered each Portfolio by the Administrator and
the Portfolios' Adviser, the Fund itself may not require any employees
other than its officers, none of whom receive compensation from the Fund.
For the services rendered to each Portfolio by the Administrator, the
Portfolios pays the Administrator a fee, accrued daily and payable monthly,
equal, on an annual basis.
For the fiscal years ended October 31, 1994, 1995 and 1996, the
International Fund accrued $106,932, $143,716 and $175,182, respectively,
in administrative services with the former Administrator, Signature Broker-
Dealer Services, Inc. (`Signature''), of which $5,989, $84 and $0,
respectively, was permanently and irrevocably waived.
Under the Administrative Services Agreement with the Portfolios, the
Administrator provides all administrative services including, without
limitation: (i) provides services of persons competent to perform such
administrative and clerical functions as are necessary to provide effective
administration of each Portfolio, including maintaining certain books and
records described in Rule 31a-1 under the 1940 Act (except for those
records maintained by each Portfolio's Shareholder Servicing Agents or each
Portfolio's transfer agent), and reconciling account information and
balances among each Portfolio's custodian and Adviser; (ii) oversees the
performance of administrative and professional services to each Portfolio
by others, including each Portfolio's custodian; (iii) prepares, but does
not pay for, the periodic updating of the Fund's Registration Statement,
Prospectus and Statement of Additional Information in conjunction with Fund
counsel, including the printing or reproduction of such documents for the
purpose of filings with the Securities and Exchange Commission and state
securities administrators, prepares the Fund's tax returns, and prepares
reports to the Portfolio's shareholders and the Securities and Exchange
Commission; (iv) prepares in conjunction with Fund counsel, but does not
pay for, all filings under the securities or "Blue Sky" laws of such states
or countries as are designated by the Distributor, which may be required to
register or qualify, or continue the registration or qualification, of the
Fund and/or each Portfolio's shares under such laws; (v) prepares (but does
not pay for reproduction or mailing costs) notices and agendas for meetings
of the Fund's Board of Directors and minutes of such meetings in all
matters required by the 1940 Act to be acted upon by the Board; (vi)
monitors daily and periodic compliance with respect to all requirements and
restrictions of the 1940 Act, the Code and the Prospectuses; and (vii)
monitors and evaluates daily income and expense accruals, and sales and
redemptions of shares of the Portfolios.
The Administrative Services Agreement is terminable at any time after
August 31, 1998, without the payment of any penalty, by a vote of the
majority of the Fund's shareholders, by the Fund on behalf of the
Portfolios or the Administrator on six month's written notice. After August
31, 1998, the Administrative Services Agreement shall remain in effect for
the same periods as the Advisory Contract subject to annual approval by the
Fund's Board of Directors. The Administrative Services Agreement provides
that in the absence of willful misfeasance, bad faith or gross negligence
on the part of the Administrator, or reckless disregard of its obligations
thereunder, the Administrator shall not be liable for any action or failure
to act in accordance with its duties thereunder.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
Bessemer Trust Company (New Jersey), 100 Woodbridge Center Drive,
Woodbridge, New Jersey 07095, is the Portfolios' custodian. Pursuant to a
Custodian Agreement with the Portfolios, it is responsible for maintaining
the books and records of each Portfolio's securities and cash. Subject to
the supervision of the Adviser and Administrator, the custodian maintains
each Portfolio's accounting and portfolio transaction records. Fundamental
Shareholder Services, Inc. whose principal address is 90 Washington Street,
New York, NY 10006 is the Portfolios' transfer and dividend disbursing
agent.
DISTRIBUTION AND SERVICE PLAN
The Fund has adopted a distribution and service plan, pursuant to Rule
12b-1 under the 1940 Act (the "Rule") for the Portfolios. The Rule provides
that an investment company which bears any direct or indirect expense of
distributing its shares must do so only in accordance with a plan permitted
by the Rule. The Plan provides that each Portfolio may bear certain
expenses and costs which in the aggregate are subject to a maximum of 0.40%
per annum of that Portfolio's average daily net assets. Pursuant to the
Plan, the Portfolios entered into a Distribution Agreement and a
Shareholder Servicing Agreement with Edgewood Services, Inc. (the
"Distributor") and the Portfolios also entered into a Shareholder Servicing
Agreement with the Adviser. For its services under its Shareholder
Servicing Agreement, the Distributor is permitted to receive payments from
each Portfolio up to 0.25% per annum of the average daily net assets of
that Portfolio to permit it to make payments to broker-dealers with which
it has written agreements and whose clients are Fund shareholders (each a
"Broker-Dealer"), for providing shareholder services. For its service under
its Shareholder Servicing Agreement, the Adviser is permitted to receive a
payment from each Portfolio equal to 0.25% per annum of that Portfolio's
average daily net assets attributable to the clients of the Adviser (and
its affiliates) to compensate it for providing shareholder services to such
clients. In addition, the Shareholder Servicing Agreement provides that the
Adviser is permitted to receive payments from each Portfolio (together with
the Distributor's fee, the "Shareholder Servicing Fee") to actually permit
it to make payments made to banks, savings and loans and other financial
institutions with which it has written agreements and whose clients are
Fund shareholders (each institution, a "Shareholder Servicing Agent") for
providing shareholder services up to 0.25% per annum of that Portfolio's
average daily net assets attributable to the clients of the other
Shareholder Servicing Agents. Therefore, the total of the Shareholder
Servicing Fees in the aggregate payable to the Distributor and the Adviser
will not exceed 0.25% of the total net assets of that Portfolio. For the
fiscal years ended October 31, 1994, 1995 and 1996, the International Fund
accrued $176,227, $237,518 and $309,850, respectively, in shareholder
servicing fees with Signature.
Each Shareholder Servicing Agent and Broker-Dealer will, as agent for
its customers, among other things; answer customer inquiries regarding
account status and history, the manner in which purchases and redemptions
of shares of each Portfolio may be effected and certain other matters
pertaining to each Portfolio; assist shareholders in designating and
changing dividend options, account designations and addresses; provide
necessary personnel and facilities to establish and maintain shareholder
accounts and records; assist in processing purchase and redemption
transactions; arrange for the wiring of funds; transmit and receive funds
in connection with customer orders to purchase or redeem shares; verify and
guarantee shareholder signatures in connection with redemption orders and
transfers and changes in shareholder designated accounts; furnish (either
separately or on an integrated basis with other reports sent to a
shareholder by a Portfolio) monthly and year-end statements and
confirmations of purchases and redemptions, as required by Rule 10b-10
under the Securities Exchange Act of 1934; transmit, on behalf of each
Portfolio, proxy statements, annual reports, updating prospectuses and
other communications from each Portfolio to shareholders of that Portfolio;
receive, tabulate and transmit to each Portfolio proxies executed by
shareholders with respect to meeting of shareholders of that Portfolio; and
provide such other related services as each Portfolio or a shareholder may
request. As set forth herein for these services, each Shareholder Servicing
Agent and Broker-Dealer (either directly or from the Distributor or
Adviser) receives a fee, which may be paid periodically, on an annual basis
equal to 0.25% of the average daily net assets of that Portfolio
represented by shares owned during the period for which payment is being
made by investors with whom such Shareholder Servicing Agent or Broker-
Dealer maintains a servicing relationship. Shareholder Servicing Agents and
Broker-Dealers may waive all or a portion of their Shareholder Servicing
Fees. In addition, the Distribution Agreement with the Distributor provides
for reimbursement to the Distributor by that Portfolio for its
distribution, promotional and advertising costs incurred in connection with
the distribution of that Portfolio's shares in an amount not to exceed
0.10% per annum of that Portfolio's average daily net assets (the
`Distribution Reimbursement"). For the fiscal years ended October 31,
1994, 1995 and 1996, the International Fund paid $16,100, $7,002 and
$5,739, respectively, under the former Distribution Agreement with
Signature.
Under the Distribution and Shareholder Servicing Agreement, the
Distributor, for nominal consideration and as agent for each Portfolio,
will solicit orders for the purchase of each Portfolio's shares, provided
that any subscriptions and orders will not be binding on a Portfolio until
accepted by that Portfolio as principal. The Plan, the Distribution
Agreement and the Shareholder Servicing Agreement provide that, in addition
to the Shareholder Servicing Fee and the Distribution Reimbursement, each
Portfolio will pay for (i) telecommunications expenses, including the cost
of dedicated lines and CRT terminals, incurred by the Distributor in
carrying out its obligations under the Distribution Agreement and the
Shareholder Servicing Agreement, and by the Adviser under its Shareholder
Servicing Agent and (ii) preparing, printing and delivering each
Portfolio's prospectus to existing shareholders of that Portfolio and
preparing and printing subscription application forms for shareholder
accounts. The expenses enumerated in this paragraph shall not exceed an
amount equal to 0.05% per annum of that Portfolio's average daily net
assets. For the fiscal years ended October 31, 1994, 1995 and 1996, the
International Fund paid $26,566, $3,740 and $3,740, respectively, for such
expenses with Signature.
The Plan, the Shareholder Servicing Agreements and the Distribution
Agreement each provide that the Adviser and the Distributor may make
payments from time to time from their own resources which may include past
profits for the following purposes: to defray the costs of and to
compensate others, including financial intermediaries with whom the
Distributor or Adviser has entered into written agreements, for performing
shareholder servicing and related administrative functions on behalf of a
Portfolio; to compensate certain financial intermediaries for providing
assistance in distributing a Portfolio's shares; to pay the costs of
printing and distributing a Portfolio's prospectus to prospective
investors; and to defray the cost of the preparation and printing of
brochures and other promotional materials, mailings to prospective
shareholders, advertising, and other promotional activities, including the
salaries and/or commissions of sales personnel in connection with the
distribution of a Portfolio's shares. The Distributor or the Adviser, as
the case may be, in their sole discretion, will determine the amount of
such payments made pursuant to the Plan with the Shareholder Servicing
Agents and Broker- Dealers they have contracted with, provided that such
payments made pursuant to the Plan will not increase the amount which a
Portfolio is required to pay to the Distributor or the Adviser for any
fiscal year under the Shareholder Servicing Agreements or otherwise.
Shareholder Servicing Agents and Broker-Dealers may charge investors a
fee in connection with their use of specialized purchase and redemption
procedures offered to investors by the Shareholder Servicing Agents and
Broker-Dealers. In addition, Shareholder Servicing Agents and Broker-
Dealers offering purchase and redemption procedures similar to those
offered to shareholders who invest in a Portfolio directly may impose
charges, limitations, minimums and restrictions in addition to or different
from those applicable to shareholders who invest in a Portfolio directly.
Accordingly, the net yield to investors who invest through Shareholder
Servicing Agents and Broker-Dealers may be less than by investing in a
Portfolio directly. An investor should read the respective Prospectus in
conjunction with the materials provided by the Shareholder Servicing Agent
and Broker-Dealer describing the procedures under which Portfolio shares
may be purchased and redeemed through the Shareholder Servicing Agent and
Broker-Dealer.
The Glass-Steagall Act limits the ability of a depository institution
to become an underwriter or distributor of securities. However, it is the
Fund's position that banks are not prohibited from acting in other
capacities for investment companies, such as providing administrative and
shareholder account maintenance services and receiving compensation from
the Distributor for providing such services. However, this is an unsettled
area of the law and if a determination contrary to the Fund's position is
made by a bank regulatory agency or court concerning shareholder servicing
and administration payments to banks from the Distributor, any such
payments will be terminated and any shares registered in the banks' names,
for their underlying customers, will be re-registered in the name of the
customers at no cost to a Portfolio or its shareholders. In addition, state
securities laws on this issue may differ from the interpretation of federal
law expressed herein and banks and financial institutions may be required
to register as dealers pursuant to state law.
In accordance with the Rule, the Plan provides that all written
agreements relating to the Plan entered into by each Portfolio, the
Distributor or the Adviser, and the Shareholder Servicing Agents, Broker-
Dealers, or other organizations must be in a form satisfactory to the
Fund's Board of Directors. In addition, the Plan requires each Portfolio
and the Distributor to prepare, at least quarterly, written reports setting
forth all amounts expended for distribution purposes by each Portfolio and
the Distributor pursuant to the Plan and identifying the distribution
activities for which those expenditures were made.
The Plan provides that it may continue in effect for successive annual
periods provided it is approved by the shareholders or by the Board of
Directors, including a majority of directors who are not interested persons
of the Fund and who have no direct or indirect interest in the operation of
the Plan or in the agreements related to the Plan. The shareholders of the
International Fund approved the Plan at a meeting held on October 12, 1993.
The Board of Directors most recently approved the continuation of the Plan
and amended it to include the Growth Fund on August 8, 1996. In addition,
the Board of Directors approved an amendment and restatement of the Plan to
reflect the Distributor, Edgewood Services, Inc., at a special meeting held
on October 18, 1996. The Plan further provides that it may not be amended
to increase materially the costs which may be spent by a Portfolio for
distribution pursuant to the Plan without shareholder approval, and the
other material amendments must be approved by the directors in the manner
described in the preceding sentence. The Plan may be terminated at any time
by a vote of a majority of the disinterested directors of each Portfolio or
the shareholders.
For the purpose of this obligation to reimburse expenses, each
Portfolio's annual expenses are estimated and accrued daily, and any
appropriate estimated payments are made to it on a monthly basis. From time
to time, the Adviser and the Distributor may voluntarily assume certain
expenses of a Portfolio. This would have the effect of lowering the overall
expense ratio of that Portfolio and of increasing yield to investors in
that Portfolio.
BROKERAGE AND PORTFOLIO TURNOVER
Brokerage
The Adviser makes each Portfolio's portfolio decisions and determines
the broker to be used in each specific transaction with the objective of
negotiating a combination of the most favorable commission and the best
price obtainable on each transaction (generally defined as best execution).
When consistent with the objective of obtaining best execution, brokerage
may be directed to persons or firms supplying investment information to the
Adviser or portfolio transactions may be effected by the Adviser. Neither a
Portfolio nor the Adviser has entered into agreements or understandings
with any brokers regarding the placement of securities transactions because
of research services they provide. To the extent that such persons or firms
supply investment information to the Adviser for use in rendering
investment advice to a Portfolio, such information may be supplied at no
cost to the Adviser and, therefore, may have the effect of reducing the
expenses of the Adviser in rendering advice to that Portfolio. While it is
impossible to place an actual dollar value on such investment information,
its receipt by the Adviser probably does not reduce the overall expenses of
the Adviser to any material extent. Consistent with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., and
subject to seeking best execution, the Adviser may consider sales of shares
of a Portfolio as a factor in the selection of brokers to execute portfolio
transactions for the Portfolios.
For the fiscal years ended October 31, 1994, 1995 and 1996, the
aggregate commissions paid from the International Fund were $516,020,
$325,787 and $462,315, respectively.
The investment information provided to the Adviser is of the type
described in Section 28(e) of the Securities Exchange Act of 1934 and is
designed to augment the Adviser's own internal research and investment
strategy capabilities. Research services furnished by brokers through which
each Portfolio effects securities transactions are used by the Adviser in
carrying out its investment management responsibilities with respect to all
its clients' accounts. There may be occasions where the transaction cost
charged by a broker may be greater than that which another broker may
charge if the Adviser determines in good faith that the amount of such
transaction cost is reasonable in relation to the value of brokerage and
research services provided by the executing broker. The Adviser may
consider the sale of shares of a Portfolio by brokers including the
Distributor as a factor in its selection of brokers of Portfolio
transactions.
A Portfolio may deal in some instances in securities which are not
listed on a national securities exchange but are traded in the over-the-
counter market. It may also purchase listed securities through the third
market. Where transactions are executed in the over-the-counter market or
third market, that Portfolio will seek to deal with the primary market
makers; but when necessary in order to obtain best execution, it will
utilize the services of others. In all cases each Portfolio will attempt to
negotiate best execution.
Portfolio Turnover
Each Portfolio's average annual portfolio turnover rate, i.e., the
ratio of the lesser of sales or purchases to the monthly average value of
the portfolio (excluding from both the numerator and the denominator all
securities with maturities at the time of acquisition of one year or less)
is expected to be high. Purchases and sales are made for each Portfolio
whenever necessary in the Adviser's opinion, to meet that Portfolio's
objective. In order to qualify as a regulated investment company, less than
30% of a Portfolio's gross income (including tax exempt income) must be
derived from the sale or other disposition of stock, securities or certain
investments held for less than three months. Although increased Portfolio
turnover (over 100%) may increase the likelihood of additional capital
gains for a Portfolio, each Portfolio expects to satisfy the 30% income
test.
COUNSEL AND INDEPENDENT AUDITORS
Legal matters for the Fund are passed upon by Battle Fowler LLP, 75
East 55th Street, New York, New York 10022.
Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281, have been selected as independent auditors for each Portfolio.
PURCHASE AND REDEMPTION OF SHARES
The material relating to the purchase and redemption of shares in each
Prospectus is herein incorporated by reference.
DESCRIPTION OF COMMON STOCK
The authorized capital stock of the Fund, which was incorporated on
August 26, 1993 in the State of Maryland, consists of twenty billion shares
of stock having a par value of one tenth of one cent ($.001) per share. The
Fund's Board of Directors is authorized to divide the unissued shares into
separate series of stock, each series representing a separate, additional
investment portfolio. The Growth Fund was designated as a separate series
of the Fund on January 23, 1997, by the filing of Articles Supplementary in
the State of Maryland. Shares of all series will have identical voting
rights, except where, by law, certain matters must be approved by a
majority of the shares of the affected series. Each share of any series of
shares when issued has equal dividend, distribution, liquidation and voting
rights within the series 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 are redeemable at net asset
value, at the option of the shareholder.
Under its Articles of Incorporation, the Fund has the right to redeem
for cash shares of stock owned by any shareholder to the extent and at such
times as the Fund's Board of Directors determines to be necessary or
appropriate to prevent an undue concentration of stock ownership which
would cause the Fund to become a "personal holding company" for federal
income tax purposes. In this regard, the Fund may also exercise its right
to reject purchase orders.
The shares of each Portfolio have noncumulative voting rights, which
means that the holders of more than 50% of the shares outstanding voting
for the election of directors can elect 100% of the directors if the
holders choose to do so, and, in that event, the holders of the remaining
shares will not be able to elect any person or persons to the Board of
Directors. The Fund will not issue certificates evidencing Fund shares.
As a general matter, the Fund will not hold annual or other meetings
of the Fund's shareholders. This is because the By-laws of the Fund provide
for annual meetings only: (a) for the election of directors, (b) for
approval of the revised investment advisory contracts with respect to a
particular class or series of stock, (c) for approval of revisions to the
Fund's distribution plan as required by the 1940 Act with respect to a
particular class or series of stock, and (d) upon the written request of
holders of shares entitled to cast not less than 25 percent of all the
votes entitled to be cast at such meeting. Annual and other meetings may be
required with respect to such additional matters relating to the Fund as
may be required by the 1940 Act, any registration of the Fund with the
Securities and Exchange Commission or any state, or as the Directors may
consider necessary or desirable. Each Director serves until the next
meeting of the shareholders called for the purpose of considering the
election or re-election of such Director or of a successor to such
Director, and until the election and qualification of his or her successor,
elected at such a meeting, or until such Director sooner dies, resigns,
retires or is removed by the vote of the shareholders.
PERFORMANCE
The material relating to the International Fund's performance in the
Prospectus is herein incorporated by reference. The Adviser may also
include performance information in such advertisements or information
furnished to current or prospective shareholders not only regarding the
Adviser's performance since John Trott, the International Fund's portfolio
manager, joined the Adviser in 1992, but also regarding Mr. Trott's
personal investment performance since 1988 when, as chief investment
officer for Klienwart Benson International Investment LTD., he managed
investments for clients with similar objectives to those of the
International Fund. In addition, the Adviser may also include performance
information regarding the Adviser's performance since Harry Rekas, the
Growth Fund's portfolio manager, joined the Adviser in 1996, but also
regarding Mr. Rekas' personal investment performance since 1993 when he
managed the Capital Appreciation portfolio of AIG Investment Management
Corporation, a portfolio which was focused on small and mid-capitalization
equities.
NET ASSET VALUE
For purposes of determining each Portfolio's net asset value per
share, readily marketable portfolio securities listed on an exchange are
valued, except as indicated below, at the last sale price reflected at the
close of the regular trading session of the exchange on the business day as
of which such value is being determined. If there has been no sale on such
day, the securities are valued at the mean of the closing bid and asked
prices on such day. If no bid or asked prices are quoted on such day, then
the security is valued by such method as the Board of Directors shall
determine in good faith to reflect its fair market value. Portfolio
securities traded on more than one national securities exchange are valued
at the last sale price on the business day as of which such value is being
determined as reflected on the tape at the close of the exchange
representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by the Adviser
to be over-the-counter are valued at the mean of the current bid and asked
prices from such sources as the Board of Directors deems appropriate to
reflect their fair value.
United States Government obligations and other debt instruments having
sixty days or less remaining until maturity are stated at amortized cost.
Debt instruments having a greater remaining maturity will be valued at the
highest bid price obtained from a dealer maintaining an active market in
that security or on the basis of prices obtained from a pricing service
approved as reliable by the Board of Directors. All other investment
assets, including restricted and not readily marketable securities, are
valued under procedures established by and under the general supervision
and responsibility of the Fund's Board of Directors designed to reflect in
good faith the fair value of such securities.
As indicated in each Prospectus, the net asset value per share of each
Portfolio's shares will be determined as of the close of the regular
trading session of the New York Stock Exchange (the "NYSE") on each day
that the NYSE is open for trading. The NYSE 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 Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. However, the NYSE may close on days
not included in that announcement.
TAX STATUS
The following is a general discussion of certain federal income tax
consequences of the purchase, ownership and disposition of shares of a
Portfolio (the "Shares") and holders of the Shares (the "Shareholders").
The summary is limited to investors who hold the Shares as "capital assets"
(generally, property held for investment) within the meaning of Section
1221 of the Code. Shareholders should consult their tax advisers in
determining the federal, state, local and any other tax consequences of the
purchase, ownership and disposition of Shares.
A Portfolio intends to qualify for and elect the special tax treatment
applicable to "regulated investment companies" under Sections 851-855 of
the Code. If a Portfolio qualifies as a "regulated investment company" and
distributes to Shareholders 90% or more of its investment company taxable
income (without regard to its net capital gain, i.e., the excess of its net
long-term capital gain over its net short-term capital loss), it will not
be subject to federal income tax on the portion of its investment company
taxable income (including any net capital gain) it distributes to
Shareholders in a timely manner. In addition, to the extent a Portfolio
distributes to Shareholders in a timely manner at least 98% of its taxable
income (including any net capital gain) it will not be subject to the 4%
excise tax on certain undistributed income of a regulated investment
company. In order to maintain its status as a regulated investment company,
a Portfolio must derive less than 30% of its gross income from the sale or
other disposition of securities held less than three months. It is
anticipated that each Portfolio will not be subject to federal income tax
or the excise tax. Distribution of each Portfolio's investment company
taxable income (including any net capital gain) is expected to occur in a
timely manner. Although all or a portion of each Portfolio's taxable income
(including any net capital gain) for a calendar year may be distributed
shortly after the end of the calendar year, such a distribution will be
treated for federal income tax purposes as having been received by
Shareholders during the calendar year.
Each Portfolio intends to qualify as a publicly offered regulated
investment company and as such will not be subject to the 2% limitation on
itemized expense deductions. Thus, distributions will take into account all
of the itemized expenses incurred by each Portfolio. Additionally, Section
68 of the Code, which limits the amount of allowable itemized deductions of
individuals with an adjusted gross income in excess of specified amounts,
does not appear to apply to indirect deductions incurred by a pass through
entity, such as a regulated investment company. However, regulations may be
promulgated in the future that could alter this result.
Distributions to Shareholders of each Portfolio's taxable income
(other than its net capital gain) for a year will be taxable as ordinary
income to Shareholders. To the extent that distributions to a Shareholder
in any year are not taxable as ordinary income, they will be treated as a
return of capital and will reduce the Shareholder's basis in his Shares
and, to the extent that they exceed his basis, will be treated as a gain
from the sale of his Shares as discussed below. It is anticipated that
substantially all of the distributions of each Portfolio's taxable income
(other than net capital gain distributions) will be taxable as ordinary
income to Shareholders.
Distributions of each Portfolio's net capital gain (designated as
capital gain dividends by that Portfolio) will be taxable to Shareholders
as long-term capital gain, regardless of the length of time the Shares have
been held by a Shareholder. A Shareholder may recognize a taxable gain or
loss if the Shareholder sells or redeems his Shares. Any gain or loss
arising from (or treated as arising from) the sale or redemption of Shares
will be a capital gain or loss, except in the case of a dealer in
securities. The excess of net long-term capital gains over net short-term
capital losses may be taxed at a lower rate than ordinary income for
certain noncorporate taxpayers. A capital gain or loss is long-term if the
asset is held for more than one year and short-term if held for one year or
less. To the extent that a capital gain dividend with respect to the Shares
is afforded long-term capital gain treatment, a Shareholder who realizes a
capital loss upon the sale of such Shares that were owned for six months or
less must treat the loss as long-term. The deduction of capital losses is
subject to limitations. If the securities appreciate in value, purchasers
of Shares after the occurrence of such appreciation will acquire their
Shares subject to the tax obligation that may be incurred in the future
when there is a sale of such Shares. If a Shareholder incurs a load charge
in acquiring a Share and a reinvestment right and disposes of the Share
within 90 days and subsequently acquires an interest in a regulated
investment company for no load charge, any loss recognized on the first
disposition will be disallowed to the extent of the load charge.
Distributions that are taxable as ordinary income to Shareholders will
constitute dividends for federal income tax purposes but will be eligible
for the dividends-received deduction for corporations (other than
corporations such as "S" corporations that are not eligible for such
deduction because of their special characteristics and other than for
purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) only to the extent of dividends received from
domestic issuers by each Portfolio with respect to stock held by that
Portfolio for more than 45 days and only if the Shareholder has held his
Shares for more than 45 days. The requirement that dividends must be
received from domestic issuers in order to qualify for the dividends
received deduction will reduce, or eliminate, the availability of this
deduction to Shareholders. The dividends-received deduction is currently
70%. However, Congress from time to time considers proposals to reduce the
rate, and enactment of such a proposal would adversely affect the after-tax
return to investors who can take advantage of the deduction. Sections 246
and 246A of the Code contain limitations on the eligibility of dividends
for the corporate dividends-received deduction (in addition to the
limitations discussed above). Depending upon the corporate Shareholder's
circumstances (including whether it has a more than 45-day holding period
for its Shares and whether its Shares are debt financed), these limitations
may be applicable to dividends received by a corporate Shareholder from
that Portfolio that would otherwise qualify for the dividends-received
deduction under the principles discussed above. Accordingly, Shareholders
should consult their own tax advisers in this regard. A corporate
Shareholder should be aware that the receipt of dividend income for which
the dividends-received deduction is available may give rise to an
alternative minimum tax liability (or increase an existing liability)
because the dividend income will be included in the corporation's "adjusted
current earnings" for purposes of the adjustment to alternative minimum
taxable income required by Section 56(g) of the Code.
Dividends and interest received by each Portfolio from foreign issuers
will in most cases be subject to foreign withholding taxes. A Portfolio may
qualify to make an election that will enable Shareholders to credit foreign
withholding taxes against their federal income tax liability on
distributions by that Portfolio.
The federal tax status of each year's distributions will be reported
to Shareholders and to the Internal Revenue Service. The foregoing
discussion relates only to the federal income tax status of a Portfolio and
to the tax treatment of distributions by that Portfolio to U.S.
Shareholders. Shareholders who are not United States citizens or residents
should be aware that distributions from each Portfolio will generally be
subject to a withholding tax of 30%, or a lower treaty rate, and should
consult their own tax advisers to determine whether an investment in a
Portfolio is appropriate. Distributions may also be subject to state and
local taxation and Shareholders should consult their own tax advisers in
this regard.
Sections 1291-1297 of the Code impose certain additional taxes and
interest on Shareholders of a "passive foreign investment company," defined
as a foreign corporation 75% or more of the gross income of which is from
passive investments or at least 50% of the adjusted basis of the assets of
which are assets that produce passive income. The additional tax and
interest are imposed on the Shareholders of the passive foreign investment
company in the event of a distribution of accumulated earnings or the
holder's recognition of gain from the sale of stock of the company. In the
case of a "regulated investment company" that is the Shareholder, this tax
and interest will be imposed on the "regulated investment company," not on
the Shareholders of the "regulated investment company."
Entities that generally qualify for an exemption from federal income
tax, such as many pension trusts, are nevertheless taxed under Section 511
of the Code on "unrelated business taxable income." Unrelated business
taxable income is income from a trade or business regularly carried on by
the tax-exempt entity that is unrelated to the entity's exempt purpose.
Unrelated business taxable income generally does not include dividend or
interest income or gain from the sale of investment property, unless such
income is derived from property that is debt-financed or is dealer
property. A tax-exempt entity's dividend income from a Portfolio and gain
from the sale of Shares in that Portfolio or that Portfolio's sale of
securities is not expected to constitute unrelated business taxable income
to such tax-exempt entity unless the acquisition of the Shares itself is
debt-financed or constitutes dealer property in the hands of the tax-exempt
entity.
Before investing in each Portfolio, the trustee or investment manager
of an employee benefit plan (e.g., a pension or profit sharing retirement
plan) should consider among other things (a) whether the investment is
prudent under the Employee Retirement Income Security Act of 1974
("ERISA"), taking into account the needs of the plan and all of the facts
and circumstances of the investment in a Portfolio; (b) whether the
investment satisfies the diversification requirement of Section
404(a)(1)(C) of ERISA; and (c) whether the assets of a Portfolio are deemed
"plan assets" under ERISA and the Department of Labor regulations regarding
the definition of "plan assets."
Prospective tax-exempt investors are urged to consult their own tax
advisers prior to investing in a Portfolio.
DESCRIPTION OF CORPORATE DEBT RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuations of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
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 a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's Investors Services, Inc.'s publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be
formed; if a bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa-1, A-1, Baa-1 and B-1.
STANDARD & POOR'S CORPORATION
AAA: Bonds rated AAA have the highest rating assigned by Standard &
Poor's Corporation ("S&P"). Capacity to pay interest and repay principal is
extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the higher rated issues only in small
degree.
A: Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
the highest rated categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than in higher
rated categories.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of this
obligation. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, they are outweighed by large uncertainties of
major risk exposures to adverse conditions.
C1: The rating C1 is reserved for income bonds on which no interest is
being paid.
D: Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
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.
NR: Indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
FINANCIAL STATEMENTS
The Annual Report of the International Fund dated October 31, 1996 has
been filed with the Securities and Exchange Commission pursuant to Section
30(b) of the 1940 Act and Rule 30b2-1 thereunder and is hereby incorporated
herein by reference. A copy of such Annual Report and the Annual Report for
the Growth Fund will be provided, without charge, to each person receiving
this Statement of Additional Information.
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