As filed with the Securities and Exchange Commission on October 9, 1996
Securities Act File No. 33- _______
Investment Company Act File No. 811-8050
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
Form N-2
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.
[ ] Post-Effective Amendment No.
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
[X] COMPANY ACT OF 1940
[ ] Pre-Effective Amendment No.
[X] Post-Effective Amendment No. 1
THE ASIA TIGERS FUND, INC.
Exact name of Registrant as specified in charter
--------------------
Oppenheimer Tower
200 Liberty Street - 38th Floor
World Financial Center
New York, New York 10281
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
Registrant's Telephone Number, including Area Code: 1-800-421-4777
--------------------
Alan Rappaport
Advantage Advisers, Inc.
Oppenheimer Tower
200 Liberty Street - 38th Floor
World Financial Center
New York, New York 10281
Name and address (Number, Street, City, State, Zip Code) of Agent for Service
--------------------
with copies to:
Gary S. Schpero, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3909
(212) 455-2000
--------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis in reliance on Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with a dividend
reinvestment plan, check the following box. [X]
It is proposed that this filing will become effective (check appropriate box):
[X] when declared effective pursuant to Section 8(c)
This Registration Statement relates to the registration of an indeterminate
number of shares solely for market-making transactions. A fee of $100 is being
paid at this time. Pursuant to Rule 429, this registration statement relates to
shares previously registered on Form N-2 (File No. 33-69366).
<PAGE>
THE ASIA TIGERS FUND, INC.
CROSS-REFERENCE SHEET
Parts A and B of Prospectus*
<TABLE>
<CAPTION>
Items in Parts A and B of Form N-2 Location in Prospectus
<S> <C> <C>
Item 1. Outside Front Cover ........................ Cover of Prospectus
Item 2. Inside Front and Outside Back Cover Page ... Inside Front and Outside Back Cover of Prospectus
Item 3. Fee Table and Synopsis ..................... Prospectus Summary; Summary of Expenses
Item 4. Financial Highlights........................ Financial Highlights
Item 5. Plan of Distribution ....................... Cover of Prospectus
Item 6. Selling Shareholders ....................... Not Applicable
Item 7. Use of Proceeds ............................ Use of Proceeds; Investment Objective and
Policies; Additional Investment Activities
Item 8. General Description of the Registrant ...... Cover of Prospectus; Prospectus Summary; The
Fund; Investment Objective and Policies;
Additional Investment Restrictions; Risk
Factors and Special Considerations;
Description of Capital Stock
Item 9. Management ................................. Management of the Fund; Custodian, Transfer
Agent, Dividend Paying Agent and Registrar;
Description of Capital Stock
Item 10. Capital Stock, Long-Term Debt, and
Other Securities ....................... Description of Capital Stock; Dividends and
Distributions; Dividend Reinvestment and Cash
Purchase Plan; Taxation
Item 11. Defaults and Arrears on Senior Securities .. Not Applicable
Item 12. Legal Proceedings .......................... Not Applicable
Item 13. Table of Contents of the Statement of
Additional Information ................. Not Applicable
Item 14. Cover Page ................................. Not Applicable
Item 15. Table of Contents .......................... Not Applicable
Item 16. General Information and History ............ Not Applicable
Item 17. Investment Objective and Policy ............ Investment Objective and Policies; Additional
Investment Activities; Investment Restrictions;
Portfolio Transactions
Item 18. Management ................................. Management of the Fund; Custodian, Transfer
Agent, Dividend Paying Agent and Registrar
Item 19. Control Persons and Principal Holders of
Securities ............................. Description of Capital Stock
Item 20. Investment Advisory and Other Services .... Management of the Fund
Item 21. Brokerage Allocation and Other Practices .. Portfolio Transactions
Item 22. Tax Status ................................. Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan;
Taxation
Item 23. Financial Statements ....................... Experts; Report of Independent Accountants;
Statement of Assets and Liabilities
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* Pursuant to General Instruction H of Form N-2, all information required to be set forth in Part B: Statement
of Additional Information has been included in Part A: The Prospectus. All Items required to be set forth in
Part C are set forth in Part C.
</TABLE>
<PAGE>
The Asia Tigers Fund, Inc.
Common Stock
The Asia Tigers Fund, Inc. (the "Fund") is a non-diversified, closed-end
management investment company. The Fund's investment objective is long-term
capital appreciation which it seeks to achieve by investing primarily in equity
securities of "Asian Companies" (as defined in this Prospectus). Asian Countries
in which the Fund can invest include China, Hong Kong, India, Indonesia, Korea,
Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka, Taiwan and Thailand.
Under normal market conditions, the Fund invests at least 65% of its total
assets in equity securities of Asian Companies. There can be no assurance that
the Fund's investment objective will be achieved. Due to the risks inherent in
international investments generally, the Fund should be considered as a vehicle
for investing a portion of an investor's assets in foreign securities markets
and not as a complete investment program. Investment in foreign securities
involves certain considerations which are not normally involved in investments
in securities of U.S. companies. See "Investment Objective and Policies" and
"Risk Factors and Special Considerations."
Advantage Advisers, Inc., a subsidiary of Oppenheimer & Co., Inc., acts as
Investment Manager to the Fund. BZW Investment Management Inc. serves as
Investment Adviser to the Fund.
The Fund's Common Stock is listed and traded on the New York Stock Exchange
(the "NYSE") under the symbol "GRR." The Common Stock may be offered pursuant to
this Prospectus from time to time in order to effect over-the-counter ("OTC")
secondary market sales by Oppenheimer & Co., Inc., in its capacity as a dealer
and secondary-market maker at negotiated prices related to prevailing market
prices on the NYSE at the time of sale. The closing price for the Common Stock
on the NYSE on September 20, 1996, was $10.875. See "Trading History." The Fund
will not receive any proceeds from the sale of the Common Stock offered pursuant
to this Prospectus.
Although the Fund has no present intention to do so to any significant
extent, the Fund may utilize leverage by borrowing or by issuing preferred stock
or short-term debt securities in an amount up to 25% of the Fund's total assets.
There are special risks and costs associated with leveraging. See "Additional
Investment Activities -- Leverage."
The address of the Fund is Oppenheimer Tower, 200 Liberty Street, 38th
Floor, World Financial Center, New York, New York 10281. Periodically updated
information regarding the markets in which the Fund invests and the Fund's
investments is available by calling the Fund's telephone number, 1-800-421-4777.
Investors are advised to read this Prospectus, which sets forth information
about the Fund that investors should know before investing, and to retain it for
future reference.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------
Oppenheimer & Co., Inc.
The date of this Prospectus is October 9, 1996
<PAGE>
Note: In this Prospectus, the People's Republic of China is referred to as
"China"; the Republic of India is referred to as "India"; the Republic of Korea
is referred to as "Korea"; the Republic of the Philippines is referred to as
"the Philippines"; the Democratic Socialist Republic of Sri Lanka is referred to
as "Sri Lanka"; the Islamic Republic of Pakistan is referred to as "Pakistan";
the Republic of Indonesia is referred to as "Indonesia"; the Republic of
Singapore is referred to as "Singapore"; the Republic of China is referred to as
"Taiwan" and the Kingdom of Thailand is referred to as "Thailand." For purposes
of this Prospectus, Hong Kong, a British colony, is sometimes referred to as a
country. In this Prospectus, unless otherwise specified, all references to
"dollars," "US$" or "$" are to United States dollars.
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus.
The Fund.................... The Fund is a non-diversified, closed-end
management investment company developed for
investors seeking to invest a portion of their
assets in a professionally managed portfolio
composed primarily of equity securities of
"Asian Companies" (as defined below). See "The
Fund."
Investment Objective and
Policies ................ The Fund's investment objective is long-term
capital appreciation, which it seeks to achieve
by investing primarily in equity securities of
Asian Companies. Under normal market conditions,
at least 65% of the Fund's total assets will be
invested in equity securities of Asian
Companies. Equity securities include common and
preferred stock, American, Global or other types
of Depositary Receipts, convertible bonds, notes
and debentures, equity interests in trusts,
partnerships, joint ventures or similar
enterprises and common stock purchase warrants
and rights. Most of the equity securities
purchased by the Fund are expected to be traded
on a foreign stock exchange or in a foreign
over-the-counter market. However, the Fund may
invest to a limited extent in securities which
are not publicly traded and in investment funds
which invest principally in securities in which
the Fund is authorized to invest. The Fund
invests in such investment funds when the
Investment Adviser believes that such
investments may be more advantageous to the Fund
than a direct market purchase of such
securities. For temporary defensive purposes and
to meet dividend and expense requirements, the
Fund may invest without limitation in Temporary
Securities (as defined herein). No assurance can
be given that the Fund's investment objective
will be realized. See "Investment Objective and
Policies" and "Risk Factors and Special
Considerations."
Asian Companies include companies that (i) are
organized under the laws of China, Hong Kong,
India, Indonesia, Korea, Malaysia, Pakistan, the
Philippines, Singapore, Sri Lanka, Taiwan, or
Thailand, or any other country in the Asia
region (other than Japan) that in the future
permits foreign investors to participate in its
stock markets (collectively, "Asian Countries"),
(ii) regardless of where organized, derive at
least 50% of their revenues from goods produced
or sold, investments made, or services
performed, in or with Asian Countries or (iii)
have securities which are traded principally on
a stock exchange in an Asian Country. See
"Investment Objective and Policies -- Portfolio
Structure" for other eligible investments.
There are no prescribed limits on geographic asset
distributions among Asian Countries and, from
time to time, a significant portion of the
Fund's assets may be invested in Asian Companies
in as few as three Asian Countries. The Fund
invests in established markets and companies
with large capitalizations as well as newer
markets and smaller companies, and the portion
of the Fund's assets invested in each varies
from time to time. See "Investment Objective and
Policies."
Upto 35% of the Fund's total assets may be
invested, subject to certain restrictions, in
(i) equity securities of companies (other than
companies meeting the definition of Asian
Companies as defined above), regardless of where
organized, which the Investment Adviser believes
derive, or will derive, at least 25% of their
revenues from business in or with Asian
Countries; (ii) debt securities denominated in
the currency of an Asian Country or issued or
guaranteed by an Asian Company or the government
of an Asian Country ("Asian Debt Securities"),
provided that, as a matter of nonfundamental
policy, (A) not more than 10% of the Fund's
total assets may be invested in Asian Debt
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2
<PAGE>
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Securities rated less than A by Moody's
Investors Service, Inc. ("Moody's") or Standard
& Poor's Corporation ("S & P") or, if unrated,
of comparable quality as determined by the
Investment Adviser and (B) none of the Fund's
assets may be invested in Asian Debt Securities
rated below investment grade by Moody's or "S &
P" or, if unrated, of comparable quality as
determined by the Investment Adviser; and (iii)
short-term debt securities of the type described
under "Investment Objective and Policies --
Temporary Investments." See "Risk Factors and
Special Considerations." The Fund's assets may
be invested in debt securities (other than
Temporary Securities) when the Investment
Adviser believes that, based upon factors such
as relative interest rate levels and foreign
exchange rates, such securities offer
opportunities for long-term capital
appreciation.
The Offering ............... Shares of the Fund's Common Stock (the "Common
Stock") may be offered pursuant to this
Prospectus from time to time in order to effect
over-the-counter ("OTC") secondary market sales
by Oppenheimer & Co., Inc., in its capacity as a
dealer and secondary-market maker at negotiated
prices related to prevailing market prices on
the New York Stock Exchange, Inc. (the "NYSE")
at the time of sale. See "The Offering" and
"Trading History."
Listing..................... The Common Stock is listed and traded on the NYSE
under the symbol GRR.
Investment Manager and
Investment Adviser..... The Investment Manager is Advantage Advisers,
Inc., a subsidiary of Oppenheimer & Co., Inc.,
and the Investment Adviser is BZW Investment
Management Inc. Pursuant to a management
agreement (the "Management Agreement"), the
Investment Manager supervises the Fund's
investment program, including advising and
consulting with the Investment Adviser regarding
the Fund's overall investment strategy and
advising the Fund and the Investment Adviser
regarding the Fund's overall use of leveraging
techniques, including the extent and timing of
the Fund's use of such techniques. In addition,
the Investment Manager consults with the
Investment Adviser on a regular basis regarding
the Investment Adviser's decisions concerning
the purchase, sale or holding of particular
securities. The Investment Manager also provides
the Investment Adviser with access on a
continuous basis to economic, financial and
political information, research and assistance
concerning Asian Countries and, as appropriate,
is involved in the process of Asian Country
selection. In addition to the foregoing, the
Investment Manager monitors the performance of
the Fund's outside service providers, including
the Fund's administrator, transfer agent and
custodian.
Pursuant to an investment advisory agreement (the
"Advisory Agreement") among the Investment
Manager, the Investment Adviser and the Fund,
the Investment Adviser acts as the Fund's
investment adviser and is responsible on a
day-to-day basis for investing the Fund's
portfolio in accordance with its investment
objective and policies. The Investment Adviser
has discretion over investment decisions for the
Fund and, in that connection, places purchase
and sale orders for the Fund's portfolio
securities. In addition, the Investment Adviser
makes available research and statistical data to
the Fund.
Oppenheimer & Co., Inc., the Investment Manager's
parent company, has been engaged directly or
through its affiliates in the management of
investment funds for more than 35 years. As of
June 30, 1996, total assets under management by
Oppenheimer & Co., Inc., and its affiliates were
approximately $50 billion for investment
company, corporate, pension, profit-sharing and
other accounts. The Investment Manager serves as
an investment adviser for 12 registered
investment companies.
- --------------------------------------------------------------------------------
3
<PAGE>
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The Investment Adviser is a subsidiary of Barclays
de Zoete Wedd US Holdings Inc., which itself is
an indirect wholly owned subsidiary of Barclays
Bank PLC. Barclays Bank is one of the world's
largest financial institutions and is among the
largest banks in the United Kingdom. The BZWAM
Group is responsible for institutional asset
management in the Barclays Group around the
world. Assets under management are approximately
$345 billion and global asset management
services are provided from 13 primary investment
management locations worldwide, including
London, Hong Kong, Tokyo, Sydney, Paris, Madrid,
Toronto, New York, Munich, Wellington and
Bangkok. The BZWAM Group has a staff of over 100
professionals in Asia providing specialized
investment insight to both local and
international investors. The BZWAM Group manages
over $8.75 billion in the markets of Asia. See
"Management of the Fund -- Investment Manager
and Investment Adviser."
The Fund pays the Investment Manager a monthly fee
at an annual rate of 1.00% of the Fund's average
weekly net assets for its services, and the
Investment Manager pays the Investment Adviser a
monthly fee at an annual rate of 0.50% of the
Fund's average weekly net assets for its
services. See "Management of the Fund
-Compensation and Services." The advisory fees
paid by the Fund are higher than those paid by
most other U.S. investment companies investing
exclusively in the securities of U.S. issuers,
primarily because of the additional time and
expense required of the Investment Manager and
the Investment Adviser in pursuing the Fund's
objective of investing in securities of Asian
Companies.
Administrator............... Oppenheimer & Co., Inc. serves as the Fund's
Administrator pursuant to the terms of an
Administration Agreement. The Fund pays the
Administrator a monthly fee at an annual rate of
0.20% of the Fund's average weekly net assets
for its services. See "Management of the Fund--
Administrator."
Dividends
and Distributions........ The Fund distributes annually to holders of Common
Stock substantially all of its net investment
income, and distributes any net realized capital
gains at least annually. See "Investment
Objective and Policies."
Under the Fund's Dividend Reinvestment and Cash
Purchase Plan (the "Plan"), all dividends and
distributions are automatically reinvested in
additional shares of Common Stock of the Fund
unless a shareholder elects to receive cash.
Participants also have the option of making
additional cash payments, annually, to be used
to acquire additional shares of Common Stock of
the Fund in the open market. Shareholders whose
shares are held in the name of a broker or
nominee should contact such broker or nominee to
confirm that they may participate in the Fund's
Plan. See "Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan."
Share Repurchases and
Conversion to an
Open-End Fund........... If, at any time, shares of the Fund's Common Stock
publicly trade for a substantial period of time
at a substantial discount from net asset value,
the Fund's Board of Directors will consider, at
its next regularly scheduled meeting,
authorizing various actions designed to
eliminate the discount, which may include
periodic repurchases of the Fund's shares or
recommending to shareholders the conversion of
the Fund to an open-end investment company. No
assurance can be given that the Board of
Directors will undertake any such action or that
if repurchases are undertaken, the Fund's shares
will trade at a price that is close to or equal
to net asset value. The Board of Directors would
consider all relevant factors in determining
whether to take any such actions, including the
effect of such actions on the Fund's status as a
regulated investment
- --------------------------------------------------------------------------------
4
<PAGE>
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company under the Internal Revenue Code of 1986,
as amended (the "Code") and the availability of
cash to finance share repurchases in view of the
restrictions on the Fund's ability to borrow.
Under certain circumstances, a shareholder vote
may be required to authorize periodic
repurchases of the Fund's shares of Common
Stock.
Inconsidering whether to recommend to
shareholders the conversion of the Fund to an
open-end investment company, the Fund's Board of
Directors would consider a number of factors
including whether the Fund's ability to operate
in accordance with its investment policies, such
as its authority to invest in illiquid
securities, may be impaired as a result.
Conversion to an open-end investment company
would require a shareholder vote. See
"Description of Capital Stock -- Future Actions
Relating to a Discount in the Price of the
Fund's Shares of Common Stock."
Custodian, Transfer Agent,
Dividend Paying Agent
and Registrar............ The Chase Manhattan Bank acts as custodian for the
Fund's assets and employs foreign sub-custodians
approved by the Fund's Board of Directors in
accordance with regulations of the Securities
and Exchange Commission (the "SEC"). PNC Bank,
National Association acts as transfer agent,
dividend paying agent and registrar for the
Fund's Common Stock.
Risk Factors and
Special Considerations... The Fund's investments in foreign securities
involve certain special considerations not
typically associated with investing in
securities of U.S. companies, including risks
relating to (i) foreign currency and exchange
matters, including fluctuations in the rate of
exchange between the dollar and the various
foreign currencies in which the Fund's portfolio
securities are denominated, exchange control
regulations and costs associated with conversion
of investment principal and income from one
currency to another; (ii) restrictions on
foreign investment and repatriation of capital;
(iii) differences between the U.S. and foreign
securities markets, including potential price
volatility in and relative illiquidity of some
foreign securities markets, the absence of
uniform accounting, auditing and financial
reporting standards, practices and disclosure
requirements and less government supervision and
regulation; and (iv) certain economic and
political risks. Settlement procedures in
certain Asian Countries are less developed and
reliable than those in the United States and in
other developed markets, and the Fund may
experience settlement delays or other material
difficulties. For example, significant delays
are common in registering the transfer of
securities in India, and such transfers can take
a year or longer. Indian securities regulations
would normally preclude the Fund from selling
such securities until the completion of the
registration process.
Many of the Asian Countries may be subject to a
greater degree of economic, political and social
instability than is the case in the United
States and Western European countries. Such
instability may result from, among other things,
the following: (i) authoritarian governments or
military involvement in political and economic
decision-making, including changes in government
through extra-constitutional means; (ii) popular
unrest associated with demands for improved
political, economic and social conditions; (iii)
internal insurgencies; (iv) hostile relations
with neighboring countries; and (v) ethnic,
religious and racial disaffection. Such social,
political and economic instability could disrupt
the principal financial markets in which the
Fund invests and adversely affect the value of
the Fund's assets. See "Risk Factors and Special
Considerations -Political, Economic and Social
Factors."
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5
<PAGE>
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The Fund may invest up to 20% of its total assets
in illiquid securities for which there may be no
or only a limited trading market and for which a
low trading volume of a particular security may
result in abrupt and erratic price movements.
The Fund may encounter substantial delays and
could incur losses in attempting to resell
illiquid securities. See "Additional Investment
Activities."
The Fund may use various investment practices that
involve special considerations, including
purchasing and selling options on securities,
financial futures, fixed income indices and
other financial instruments, entering into
financial futures contracts, entering into
interest rate transactions, entering into
currency transactions, entering into equity
swaps and related transactions, entering into
securities transactions on a when-issued or
delayed delivery basis, entering into repurchase
agreements, selling securities short and lending
portfolio securities. See "Additional Investment
Activities," "Investment Objective and Policies
-- Other Investments," "Risk Factors and Special
Considerations -- Investment Practices" and
Appendix A.
Although the Fund has no present intention to do
so to any significant extent, the Fund may
utilize leverage by borrowing or by issuing
preferred stock or short-term debt securities in
an amount up to 25% of the Fund's total assets.
Leverage by the Fund creates an opportunity for
increased return but, at the same time, creates
special risks. For example, leverage may
exaggerate changes in the net asset value of the
Common Stock and in the return on the Fund's
portfolio. Although the principal of any
leverage will be fixed, the Fund's assets may
change in value during the time the leverage is
outstanding. Leverage will create expenses for
the Fund which can exceed the income from the
assets acquired with the proceeds of the
leverage. Furthermore, an increase in interest
rates could reduce or eliminate the benefits of
leverage and could reduce the value of the
Fund's Common Stock.
The Fund is classified as a "non-diversified"
investment company under the Investment Company
Act of 1940 (the "1940 Act"), which means that
the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in
the securities of a single issuer. However, the
Fund has complied and intends to continue to
comply with the diversification requirements
imposed by the Code for qualification as a
regulated investment company. As a
non-diversified investment company, the Fund may
invest a greater proportion of its assets in the
securities of a smaller number of issuers and,
as a result, will be subject to greater risk of
loss with respect to its portfolio securities.
Income and capital gains on securities held by the
Fund may be subject to withholding and other
taxes imposed by Hong Kong or other Asian
Countries, which would reduce the return to the
Fund on those securities. The imposition of such
taxes and the rates imposed are subject to
changes. The Fund intends to elect, when
eligible, to "pass through" to the Fund's
shareholders, as a deduction or credit, the
amount of foreign taxes paid by the Fund. The
taxes passed through to shareholders will be
included in each shareholder's income. Certain
shareholders, including non-U.S. shareholders,
will not be entitled to the benefit of a
deduction or credit with respect to foreign
taxes paid by the Fund. Other foreign taxes,
such as transfer taxes, may be imposed on the
Fund, but would not give rise to a credit, or be
eligible to be passed through to shareholders.
See "Taxation."
The Fund's Articles of Incorporation contain
certain anti-takeover provisions that may have
the effect of inhibiting the Fund's possible
conversion to open-end status and limiting the
ability of other persons to acquire control of
the Fund. In certain circumstances, these
provisions might also inhibit the ability of
holders of Common Stock to sell their shares at
a premium over prevailing
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6
<PAGE>
- --------------------------------------------------------------------------------
market prices. The Fund's Board of Directors has
determined that these provisions are in the best
interests of shareholders generally. See "Risk
Factors and Special Considerations."
Shares of closed-end investment companies
frequently trade at a discount from net asset
value. This characteristic is a risk separate
and distinct from the risk that the Fund's net
asset value will decrease as a result of its
investment activities. To date, shares of the
Fund have generally traded at a discount to net
asset value. See "Trading History" for
information regarding the relative net asset and
share price of the Fund's Common Stock since
inception of the Fund. The Fund cannot predict
whether its shares will trade at, above or below
net asset value in the future. The Fund is
intended primarily for long-term investors and
should not be considered as a vehicle for
trading purposes. See "Risk Factors and Special
Considerations."
Investors should carefully consider their ability
to assume the foregoing risks before making an
investment in the Fund. An investment in shares
of Common Stock of the Fund may not be
appropriate for all investors and should not be
considered as a complete investment program. See
"Risk Factors and Special Considerations."
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7
<PAGE>
SUMMARY OF EXPENSES
Shareholder Transaction Expenses
Sales Load (as a percentage of offering price)........................... None1
Annual Expenses (as a percentage of net assets attributable to common shares)2
Management and Administrative Fees....................................... 1.20%
Other Expenses .......................................................... 0.45%
------
Total Annual Expenses ................................................... 1.65%
======
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1 Prices for shares of Common Stock traded in the OTC market will reflect
ordinary dealer markups.
2 "Other Expenses" are based upon expenses actually incurred for the fiscal year
ended October 31, 1995.
The purpose of this table is to assist the investor in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly.
Example
An investor would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return, (2) reinvestment of all dividends and
distributions at net asset value, and (3) payment by the Fund of operating
expenses at the level set forth in the table above.
1 Year 3 Years 5 Years 10 Years
- ------- ------- ------- --------
$78.70 $107.59 $138.57 $226.21
This example as well as the information set forth in the table above should
not be considered a representation of the future expenses of the Fund, and
actual expenses may be greater or less than those shown. Moreover, while the
example assumes a 5% annual return, the Fund's performance will vary and may
result in a return greater or less than 5%. In addition, while the example
assumes reinvestment of all dividends and distributions at net asset value, this
may not be the case for participants in the Plan. See "Dividends and
Distributions; Dividend Reinvestment and Cash Purchase Plan."
8
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth selected per share data and ratios for a share
of Common Stock outstanding for the periods shown. This information is
supplemented by the financial statements and accompanying notes appearing in the
Fund's Annual Report to Shareholders for the fiscal year ended October 31, 1995,
and the Fund's Semiannual Report to shareholders for the six-month period ended
April 30,1996, which are incorporated by reference and can be obtained by
stockholders upon request. The financial statements and notes and the financial
information in the table below for the periods ended October 31, 1995 and 1994,
have been audited by Price Waterhouse LLP, the Fund's independent accountants,
whose report thereon also is included in the Annual Report to Shareholders.
For a share outstanding throughout each period
<TABLE>
<CAPTION>
For the Period
November 29, 1993
For the Six (Commencement
Months Ended For the of Operation)
April 30, 1996 Year Ended Through
(Unaudited) October 31, 1995 October 31, 1994
-------------- ---------------- -----------------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period ....................... $ 12.08 $ 13.89 $ 13.97(1)
-------- -------- --------
Net investment income ...................................... 0.03 0.09 0.05
Net realized and unrealized loss on investments, foreign
currency holdings, and other assets and liabilities
denominated in foreign currencies ..................... 1.59 (1.67) (0.11)
-------- -------- --------
Net decrease from investment operations .................... 1.62 (1.58) (0.06)
-------- -------- --------
Less distributions:
Dividends from net investment income .................. (0.08) (0.06) (0.02)
-------- -------- --------
Distributions from net realized gains ................. -- (0.17) --
Total dividends and distributions .......................... (0.08) (0.23) (0.02)
-------- -------- --------
Net asset value, end of period ............................. $ 13.62 $ 12.08 $ 13.89
======== ======== ========
Per share market value, end of period ...................... $ 12.00 $ 10.38 $ 12.38
Total Investment Return Based on Market Value (2)........... (16.29)% (14.17)% (11.65)%(4)
Ratios/Supplemental Data:
Net assets, end of period (in 000's) .................. $279,434 $247,761 $284,910
Ratios of expenses to average net asset .................... 1.61%(3) 1.65% 1.60%(3)
Ratios of net investment income to average net asset .. 0.42%(3) 0.71% 0.38%(3)
Portfolio turnover .................................... 38.88% 77.88% 45.51%
Average commision rate paid ........................... $ 0.0069 -- --
</TABLE>
- ----------
1 Initial public offering price $15.00 per share less underwriting discount
of $0.98 per share and offering expense of $0.05 per share.
2 Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of each period reported, except that for the
period ended October 31, 1994, total investment return is based on a
beginning of period price of $14.02 (initial offering price of $15.00 less
sales load of $0.98). Dividends and distributions, if any, are assumed, for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Total investment return does not reflect
brokerage commissions or sales charges and is not annualized.
3 Annualized.
4 Not annualized.
9
<PAGE>
THE FUND
The Fund, incorporated in Maryland on September 23, 1993, is a
non-diversified, closed-end management investment company registered under the
1940 Act. The Fund commenced investment operations on November 29, 1993. The
Fund's investment objective is long-term capital appreciation, which it seeks to
achieve by investing primarily in equity securities of "Asian Companies" (as
defined below). No assurance can be given that the Fund's investment objective
will be realized. Due to the risks inherent in international investments
generally, the Fund should be considered as a vehicle for investing a portion of
an investor's assets in foreign securities markets and not as a complete
investment program.
The Fund's principal office is located at Oppenheimer Tower, 38th floor,
One World Financial Center, 200 Liberty Street, New York, New York 10281.
Periodically, updated information regarding the markets in which the Fund
invests and the Fund's investments is available by calling 1-800-421-4777.
THE OFFERING
The Common Stock may be offered pursuant to this Prospectus from time to
time in order to effect OTC secondary market sales by Oppenheimer & Co., Inc.,
in its capacity as a dealer and secondary market-maker at negotiated prices
related to prevailing market prices on the NYSE at the time of sale. Costs
incurred in connection with this offering will be paid by Oppenheimer & Co.,
Inc., whose principal offices are located at Oppenheimer Tower, One World
Financial Center, 200 Liberty Street, New York, New York. Advantage Advisers,
Inc., the Fund's investment manager, is a wholly-owned subsidiary of Oppenheimer
& Co., Inc.
USE OF PROCEEDS
The Fund will not receive any proceeds from the sale of any Common Stock
offered pursuant to this Prospectus. Proceeds received by Oppenheimer & Co.,
Inc., as a result of its OTC secondary market sales of the Common Stock will be
utilized by Oppenheimer & Co., Inc., in connection with its secondary market
operations and for general corporate purposes.
10
<PAGE>
TRADING HISTORY
The Common Stock is listed and traded on the NYSE under the symbol "GRR".
The following table sets forth for the Common Stock for each quarterly period
since commencement of the Fund's operations: (a) the per share high and low
sales prices as reported by the NYSE; (b) the per share net asset values, based
on the Fund's computation as of 4:00 p.m. on the last NYSE business day for the
week corresponding to the dates on which the respective high and low sales
prices were recorded; and (c) the discount or premium to net asset values
represented by the high and low sales prices shown. The range of net asset
values and of premiums and discounts for the Common Stock during the periods
shown may be broader than is shown in this table. The Fund's Common Stock has
historically traded at a discount to its net asset value. On September 20,1996,
the closing price per share of Common Stock was $10.875, the Fund's net asset
value per share was $12.62 and the discount to net asset value was (13.83)%.
<TABLE>
<CAPTION>
(Discount) or
Premium to
Net Asset Net Asset
Quarter Sales Prices Values Value
Ended High Low High Low High Low
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1/31/94* $16.375 $15.000 $14.88 $13.68 13.07% 7.89%
4/30/94 14.875 11.375 14.55 12.05 5.27 (9.51)
7/31/94 13.125 11.375 13.03 12.11 2.70 (8.86)
10/31/94 14.125 12.375 14.26 13.44 (0.18) (11.50)
1/31/95 12.125 9.375 13.74 10.41 (9.94) (21.09)
4/30/95 10.250 9.250 11.47 10.83 (7.99) (16.82)
7/31/95 12.000 9.875 12.71 11.49 (4.08) (14.06)
10/31/95 11.250 10.250 12.45 12.05 (6.64) (17.07)
1/31/96 13.625 9.625 13.21 11.42 4.89 (16.11)
4/30/96 13.375 11.625 13.65 12.97 (1.44) (12.75)
7/31/96 12.125 10.250 13.61 12.38 (9.99) (17.21)
</TABLE>
*For the period November 29, 1993, (commencement of operations) to January 31,
1994.
See "Description of Capital Stock -- Future Actions Relating to a Discount in
the Price of the Fund's Shares of Common Stock" as to methods that may be
undertaken by the Fund to reduce any discount.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term capital appreciation,
which it seeks to achieve by investing primarily in equity securities of Asian
Companies. Equity securities include common and preferred stock, American,
Global or other types of Depositary Receipts ("ADRs"), convertible bonds, notes
and debentures, equity interests in trusts, partnerships, joint ventures or
similar enterprises and common stock purchase warrants and rights. Most of the
equity securities purchased by the Fund are expected to be traded on a foreign
stock exchange or in a foreign over-the-counter market.
The Fund's investment objective and its policy to invest, under normal
market conditions, at least 65% of its assets in equity securities of Asian
Companies are fundamental policies of the Fund which may not be changed without
the approval of a "majority of the Fund's outstanding voting securities" (as
defined herein).
Portfolio Structure
Under normal market conditions, at least 65% of the Fund's total assets
will be invested in equity securities of Asian Companies. Asian Companies are
companies that (i) are organized under the laws of China, Hong Kong, India,
Indonesia, Korea, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka,
Taiwan, or Thailand, or any other country in the Asian region (other than Japan)
that in the future permits foreign investors to participate in its stock markets
(collectively, "Asian Countries"), (ii) regardless of where organized, derive at
least 50% of their revenues from goods produced or sold, investments made, or
services performed in or with Asian Countries, or (iii) have securities which
are traded principally on a stock exchange in an Asian Country.
11
<PAGE>
Up to 35% of the Fund's total assets may be invested, subject to certain
restrictions, in (i) equity securities of companies (other than companies
meeting the definition of Asian Companies as defined above), regardless of where
organized, which the Investment Adviser believes derive, or will derive, at
least 25% of their revenues from business in or with Asian Countries; (ii) debt
securities denominated in the currency of an Asian Country or issued or
guaranteed by an Asian Company or the government of an Asian Country ("Asian
Debt Securities"), provided, that, as a matter of nonfundamental policy, (A) not
more than 10% of the Fund's total assets may be invested in Asian Debt
Securities rated less than A by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S & P ") or, if unrated, of comparable quality
as determined by the Investment Adviser and (B) none of the Fund's assets may be
invested in Asian Debt Securities rated below investment grade or, if unrated,
of comparable quality as determined by the Investment Adviser; and (iii) debt
securities of the type described under "Investment Objective and Policies --
Temporary Investments." See "Risk Factors and Special Considerations." The
Fund's assets may be invested in debt securities (other than Temporary
Investments) when the Investment Adviser believes that, based upon factors such
as relative interest rate levels and foreign exchange rates, such securities
offer opportunities for long-term capital appreciation.
The Fund may invest in investment funds which invest principally in
securities in which the Fund is authorized to invest. See "Risk
Factors--Investment and Repatriation Restrictions." The Fund may invest in
investment funds as a means of investing in other equity securities in which the
Fund is authorized to invest when the Investment Adviser believes that such
investments may be more advantageous to the Fund than a direct market purchase
of such securities. From time to time, such investment funds may be the sole or
most effective available means by which the Fund may invest in equity securities
of certain Asian Companies. Under the 1940 Act, the Fund is restricted in the
amount it may invest in such funds. See "Additional Investment Activities --
Investment Funds." For a discussion of possible consequences under U.S. federal
income tax laws of the Fund's investment in foreign investment funds, see
"Taxation -- The Fund."
The Fund may invest its assets in a broad spectrum of industries. In
selecting industries and companies for investment, the Investment Adviser
considers overall growth prospects, financial condition, competitive position,
technology, research and development, productivity, labor costs, raw material
costs and sources, profit margins, return on investment, structural changes in
local economies, capital resources, the degree of government regulation or
deregulation, management and other factors. The Fund has not invested, and does
not presently intend to invest, more than 25% of its total assets in securities
of issuers conducting their principal business activities in the same industry,
but has retained limited flexibility to do so in the future, provided certain
conditions are met. See "Investment Restrictions."
There are no prescribed limits on geographic asset distributions among
Asian Countries and, from time to time, a significant portion of the Fund's
assets may be invested in Asian companies in as few as three Asian Countries. To
the extent that a significant portion of the Fund's assets is invested in a
particular country or a small number of countries, the Fund will be subject, to
a greater extent than if the Fund's assets were less geographically
concentrated, to the risks of adverse changes in the markets and to political,
social or economic events in those countries. The Fund invests in established
markets and companies with large capitalizations as well as newer markets and
smaller companies, and the portion of the Fund's assets invested in each will
vary from time to time.
Temporary Investments
The Fund may hold and/or invest its assets in cash and/or Temporary
Investments (as defined below) for cash management purposes, pending investment
in accordance with the Fund's investment objective and policies and to meet
operating expenses. In addition, the Fund may take a temporary defensive posture
and invest without limitation in Temporary Investments. The Fund may assume a
temporary defensive posture when, due to political, market or other factors
broadly affecting markets in one or more Asian Countries, the Investment Adviser
determines that either opportunities for capital appreciation in those markets
may be significantly limited or that significant diminution in value of the
securities traded in those markets may occur. To the extent that the Fund
invests in Temporary Investments, it may not achieve its investment objective.
Temporary Investments are debt securities denominated in U.S. dollars or in
another freely convertible currency including: (1) short-term (less than 12
months to maturity) and medium-term (not greater than five years to maturity)
obligations issued or guaranteed by (a) the U.S. government or the government of
an Asian Country, their agencies or instrumentalities or (b) international
organizations designated or supported by multiple foreign governmental entities
to promote economic reconstruction or development ("supranational entities");
(2) finance company obligations, corporate commercial paper and other short-term
commercial obligations, in each case rated, or issued by companies with similar
securities outstanding that are rated, Prime-1 or A or better by Moody's or A-1
or A or better by
12
<PAGE>
S&P or, if unrated, of comparable quality as determined by the Investment
Adviser; (3) obligations (including certificates of deposit, time deposits,
demand deposits and bankers' acceptances) of banks, subject to the restriction
that the Fund may not invest more than 25% of its total assets in bank
securities; and (4) repurchase agreements with respect to securities in which
the Fund may invest. The banks whose obligations may be purchased by the Fund
and the banks and broker-dealers with which the Fund may enter into repurchase
agreements include any member bank of the Federal Reserve System and any
broker-dealer or any foreign bank that has been determined by the Investment
Adviser to be creditworthy.
Repurchase agreements are contracts pursuant to which the seller of a
security agrees at the time of sale to repurchase the security at an agreed upon
price and date. When the Fund enters into a repurchase agreement, the seller
will be required to maintain the value of the securities subject to the
repurchase agreement, marked to market daily, at not less than their repurchase
price. Repurchase agreements may involve risks in the event of insolvency or
other default by the seller, including possible delays or restrictions upon the
Fund's ability to dispose of the underlying securities.
Other Investments
Illiquid Securities. The Fund may invest up to 20% of its total assets in
illiquid securities for which there may be no or only a limited trading market
and for which a low trading volume of a particular security may result in abrupt
and erratic price movements. The Fund may be unable to dispose of its holdings
in illiquid securities at then current market prices and may have to dispose of
such securities over extended periods of time. See "Risk Factors and Special
Considerations -- Market Characteristics" and "-- Illiquid Investments." In many
cases, illiquid securities will be subject to contractual or legal restrictions
on transfer. In addition, issuers whose securities are not publicly traded may
not be subject to the disclosure and other investor protection requirements that
may be applicable if their securities were publicly traded.
Rule 144A Securities. The Fund may purchase certain restricted securities
("Rule 144A securities") for which there is a secondary market of qualified
institutional buyers, as contemplated by Rule 144A under the Securities Act of
1933 (the "Securities Act"). Rule 144A provides an exemption from the
registration requirements of the Securities Act for the resale of certain
restricted securities to qualified institutional buyers. One effect of Rule 144A
is that certain restricted securities may be liquid, though there is no
assurance that a liquid market for Rule 144A securities will develop or be
maintained. In promulgating Rule 144A the SEC stated that the ultimate
responsibility for liquidity determinations is that of an investment company's
board of directors. However, the SEC stated that the board may delegate the
day-to-day function for determining liquidity to a fund's investment adviser,
provided that the board retains sufficient oversight. The Board of Directors has
adopted policies and procedures for the purpose of determining whether
securities that are eligible for resale under Rule 144A are liquid or illiquid
securities. Pursuant to those policies and procedures, the Board of Directors
has delegated to the Investment Adviser the determination as to whether a
particular security is liquid or illiquid.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest generally paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Convertible securities have
several unique investment characteristics such as (1) higher yields than common
stocks, but lower yields than comparable nonconvertible securities, (2) a lesser
degree of fluctuation in value than the underlying stock since they have fixed
income characteristics, and (3) the potential for capital appreciation if the
market price of the underlying common stock increases.
A convertible security might be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Fund is called for redemption,
the Fund may be required to permit the issuer to redeem the security, convert it
into the underlying common stock or sell it to a third party.
Warrants. The Fund may invest in warrants, which are securities permitting,
but not obligating, their holder to subscribe for other securities. Warrants do
not carry with them the right to dividends or voting rights with respect to the
securities that they entitle their holder to purchase, and they do not represent
any rights in the assets of the issuer. As a result, an investment in warrants
may be considered more speculative than certain other types of investments. In
addition, the value of a 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 its expiration date.
13
<PAGE>
Equity-Linked Debt Securities. The Fund may invest in equity-linked debt
securities. The amount of interest and/or principal payments which the issuer of
equity-linked debt securities is obligated to make is linked to the performance
of a specified index of equity securities and may be significantly greater or
less than payment obligations in respect of other types of debt securities. As a
result, an investment in equity-linked debt securities may be considered more
speculative than other types of debt securities.
ADDITIONAL INVESTMENT ACTIVITIES
Derivatives
The Fund is authorized to use various hedging and investment strategies
described below to hedge various market risks (such as broad or specific market
movements and interest rates and currency exchange rates), to manage the
effective maturity or duration of debt instruments held by the Fund, or to seek
to increase the Fund's income or gain. Although these strategies are regularly
used by some investment companies and other institutional investors, few of
these strategies can practicably be used to a significant extent by the Fund at
the present time and may not become available for extensive use in the future.
Techniques and instruments may change, however, over time as new instruments and
strategies are developed or regulatory changes occur. Limitations on the portion
of the Fund's assets that may be used in connection with the investment
strategies described below are set out in Appendix A to this Prospectus.
Subject to the constraints described above, the Fund may purchase and sell
interest rate, currency or stock index futures contracts and enter into currency
forward contracts and currency swaps, it may purchase and sell (or write)
exchange listed and over-the-counter put and call options on debt and equity
securities, currencies, futures contracts, fixed income and stock indices and
other financial instruments and it may enter into interest rate transactions,
equity swaps and related transactions and other similar transactions which may
be developed to the extent the Investment Adviser determines that they are
consistent with the Fund's investment objective and policies and applicable
regulatory requirements (collectively, these transactions are referred to in
this Prospectus as "Hedging"). The Fund may enter into futures contracts or
options thereon for purposes other than bona fide hedging if, immediately
thereafter, the sum of the amount of its initial margin and premiums on open
contracts and options would not exceed 5% of the liquidation value of the Fund's
portfolio; provided, that in the case of an option that is in-the-money at the
time of the purchase, the in-the-money amount may be excluded in calculating the
5% limitation. The Fund's interest rate transactions may take the form of swaps,
caps, floors and collars, currency forward contracts, currency futures
contracts, currency swaps and options on currency or currency futures contracts.
Derivatives may be used to attempt to protect against possible changes in
the market value of securities held in or to be purchased for the Fund's
portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of those securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular debt or equity securities. The ability of
the Fund to utilize Derivatives successfully depends on the Investment Adviser's
ability to predict pertinent market movements, which cannot be assured. These
skills are different from those needed to select portfolio securities. The use
of Hedging in certain circumstances will require that the Fund segregate cash or
other liquid assets to the extent the Fund's obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency.
A detailed discussion of Derivatives, including applicable requirements of
the Commodity Futures Trading Commission, the requirement to segregate assets
with respect to these transactions and special risks associated with such
strategies, appears as Appendix A to this Prospectus. See also "Risk Factors and
Special Considerations -- Investment Practices."
The degree of the Fund's use of Derivatives may be limited by certain
provisions of the Code. See "Taxation."
When-Issued and Delayed Delivery Securities
The Fund may purchase securities on a when-issued or delayed delivery
basis. Securities purchased on a when-issued or delayed delivery basis are
purchased for delivery beyond the normal settlement date at a stated price. No
income accrues to the purchaser of a security on a when-issued or delayed
delivery basis prior to delivery. Such securities are recorded as an asset and
are subject to changes in value based upon changes in market prices.
14
<PAGE>
Purchasing a security on a when-issued or delayed delivery basis can involve a
risk that the market price at the time of delivery may be lower than the
agreed-upon purchase price, in which case there could be an unrealized loss at
the time of delivery. The Fund will only make commitments to purchase securities
on a when-issued or delayed delivery basis with the intention of actually
acquiring the securities but may sell them before the settlement date if it is
deemed advisable. The Fund generally will establish a segregated account in
which it will maintain liquid assets in an amount at least equal in value to the
Fund's commitments to purchase securities on a when-issued or delayed delivery
basis. If the value of these assets declines, the Fund will place additional
liquid assets in the account on a daily basis so that the value of the assets in
the account is equal to the amount of such commitments. As an alternative, the
Fund may elect to treat when-issued or delayed delivery securities as senior
securities representing indebtedness, which are subject to asset coverage
requirements under the 1940 Act. See "Investment Restrictions."
Loans of Portfolio Securities
The Fund intends to lend portfolio securities from time to time in an
amount up to 331/3% of the Fund's total assets. By doing so, the Fund attempts
to increase its income through the receipt of interest on the loan. In the event
of the bankruptcy of the other party to a securities loan, the Fund could
experience delays in recovering the securities it lent. To the extent that, in
the meantime, the value of the securities the Fund lent has increased, the Fund
could experience a loss.
Any securities that the Fund may receive as collateral will not become a
part of its portfolio at the time of the loan and, in the event of a default by
the borrower, the Fund will, if permitted by law, dispose of such collateral
except for such part thereof that is a security in which the Fund is permitted
to invest. During the time securities are on loan, the borrower will pay the
Fund any accrued income on those securities, and the Fund may invest the cash
collateral and earn additional income or receive an agreed-upon fee from a
borrower that has delivered cash equivalent collateral. Cash collateral received
by the Fund will be invested in securities in which the Fund is permitted to
invest. The value of securities loaned will be marked to market daily. Portfolio
securities purchased with cash collateral are subject to possible depreciation.
Loans of securities by the Fund will be subject to termination at the Fund's or
the borrower's option. The Fund may pay reasonable negotiated fees in connection
with loaned securities, so long as such fees are set forth in a written contract
and approved by the Fund's Board of Directors.
Investment Funds
The Fund may invest in investment funds other than those for which the
Investment Manager or the Investment Adviser serves as investment adviser or
sponsor and which invest principally in securities in which the Fund is
authorized to invest. Under the 1940 Act, the Fund may invest a maximum of 10%
of its total assets in the securities of other investment companies. In
addition, under the 1940 Act, not more than 5% of the Fund's total assets may be
invested in the securities of any one investment company. To the extent the Fund
invests in other investment funds, the Fund's shareholders will incur certain
duplicative fees and expenses, including investment advisory fees. The Fund's
investment in certain investment funds will result in special U.S. federal
income tax consequences described below under "Taxation."
Short Sales
The Fund may from time to time sell securities short without limitation. A
short sale is a transaction in which the Fund would sell securities it does not
own (but has borrowed) in anticipation of a decline in the market price of the
securities. When the Fund makes a short sale, the proceeds it receives from the
sale will be held on behalf of a broker until the Fund replaces the borrowed
securities. To deliver the securities to the buyer, the Fund will need to
arrange through a broker to borrow the securities and, in so doing, the Fund
will become obligated to replace the securities borrowed at their market price
at the time of replacement, whatever that price may be. The Fund may have to pay
a premium to borrow the securities and must pay any dividends or interest
payable on the securities until they are replaced.
The Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by collateral deposited with the broker that
consists of cash or other liquid assets. In addition, the Fund will place in a
segregated account with its custodian, or designated sub-custodian, an amount of
cash or other liquid assets equal to the difference, if any, between (1) the
market value of the securities sold at the time they were sold short and (2) any
cash or other liquid assets deposited as collateral with the broker in
connection with the short sale (not including the
15
<PAGE>
proceeds of the short sale). Until it replaces the borrowed securities, the Fund
will maintain the segregated account daily at a level so that the amount
deposited in the account plus the amount deposited with the broker (not
including the proceeds from the short sale) will equal the current market value
of the securities sold short.
Short sales by the Fund involve certain risks and special considerations.
Possible losses from short sales differ from losses that could be incurred from
a purchase of a security, because losses from short sales may be unlimited,
whereas losses from purchases can equal only the total amount invested.
Leverage
Although the Fund has no present intention to do so to any significant
extent, the Fund may utilize leverage by borrowing or by issuing preferred stock
or short-term debt securities in an amount up to 25% of the Fund's total assets.
Borrowings may be secured by the Fund's assets. Temporary borrowings in an
additional amount of up to 5% of the Fund's total assets may be made without
regard to the foregoing limitation for temporary or emergency purposes such as
clearance of portfolio transactions, share repurchases and payment of dividends.
Leverage by the Fund creates an opportunity for increased return but, at
the same time, creates special risks. For example, leverage may exaggerate
changes in the net asset value of the Common Stock and in the return on the
Fund's portfolio. Although the principal of any leverage will be fixed, the
Fund's assets may change in value during the time the leverage is outstanding.
Leverage will create expenses for the Fund which can exceed the income from the
assets acquired with the proceeds of the leverage. Furthermore, an increase in
interest rates could reduce or eliminate the benefits of leverage and could
reduce the value of the Fund's Common Stock.
INVESTMENT RESTRICTIONS
The following restrictions, along with the Fund's investment objective and
its policy to invest at least 65% of the Fund's total assets in equity
securities of Asian Companies under normal market conditions, are the Fund's
only fundamental policies, that is, policies that cannot be changed without the
approval of the holders of a majority of the Fund's outstanding voting
securities. As used in this Prospectus, a "majority of the Fund's outstanding
voting securities" means the lesser of (i) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are represented or (ii)
more than 50% of the outstanding shares. The other policies and investment
restrictions referred to in this Prospectus are not fundamental policies of the
Fund and may be changed by the Fund's Board of Directors without shareholder
approval. If a percentage restriction set forth below is adhered to at the time
a transaction is effected, later changes in percentage resulting from any cause
other than actions by the Fund will not be considered a violation. Under its
fundamental restrictions, the Fund may not:
(1) purchase any securities which would cause more than 25% of the
value of its total assets at the time of such purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to (a) investment in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, or (b) the purchase of
securities of issuers whose primary business activity is in the
telecommunications, real estate or banking industries, so long as the
Fund's Board of Directors determines, on the basis of factors such as
liquidity, availability of investments and anticipated returns, that the
Fund's ability to achieve its investment objective would be materially
adversely affected if the Fund were not permitted to invest more than 25%
of its total assets in those securities, and so long as the Fund notifies
its shareholders of any decision by the Board of Directors to permit or
cease to permit the Fund to invest more than 25% of its total assets in
those securities, such notice to include a discussion of any increased
investment risks to which the Fund may be subjected as a result of the
Board's determination;
(2) issue senior securities or borrow money, except for (a) senior
securities (including borrowing money, including on margin if margin
securities are owned, entering into reverse repurchase agreements and
entering into similar transactions) not in excess of 25% of its total
assets (including the amount borrowed), and (b) borrowings up to 5% of its
total assets (including the amount borrowed) for temporary or emergency
purposes (including for clearance of transactions, repurchase of its shares
or payment of dividends), without regard to the amount of senior securities
outstanding under clause (a) above; provided, however, that the Fund's
obligations under when-issued and delayed delivery transactions and similar
transactions and reverse repurchase agreements are not treated as senior
securities if covering assets are appropriately segregated, and the use of
Hedging shall not be deemed to involve the issuance of a "senior security"
or a "borrowing"; for purposes of clauses (a) and (b) above, the term
"total assets" shall be calculated after giving effect to the net proceeds
of senior securities issued by the Fund
16
<PAGE>
reduced by any liabilities and indebtedness not constituting senior
securities except for such liabilities and indebtedness as are excluded
from treatment as senior securities by this item (2). The Fund's
obligations under interest rate, currency and equity swaps are not treated
as senior securities;
(3) purchase or sell commodities or commodity contracts, including
futures contracts and options thereon, except that the Fund may engage in
Derivatives;
(4) make loans, except that the Fund may (a) purchase and hold debt
instruments (including bonds, debentures or other obligations and
certificates of deposit, bankers' acceptances and fixed time deposits) in
accordance with its investment objective and policies, (b) enter into
repurchase agreements with respect to portfolio securities, and (c) make
loans of portfolio securities, as described under "Additional Investment
Activities -- Loans of Portfolio Securities" in this Prospectus;
(5) underwrite the securities of other issuers, except to the extent
that, in connection with the disposition of portfolio securities, it may be
deemed to be an underwriter;
(6) purchase real estate, real estate mortgage loans or real estate
limited partnership interests (other than securities secured by real estate
or interests therein or securities issued by companies that invest in real
estate or interests therein);
(7) purchase securities on margin (except as provided in (2) above and
except for delayed delivery or when-issued transactions, such short-term
credits as are necessary for the clearance of transactions, and margin
deposits in connection with transactions in futures contracts, options on
futures contracts, options on securities and securities indices and
currency transactions); or
(8) invest for the purpose of exercising control over management of
any company.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investors should recognize that investing in foreign securities involves
certain risks and special considerations, including those set forth below, which
are not typically associated with investing in securities of U.S. companies.
Further, certain investments that the Fund may purchase and investment
techniques in which the Fund may engage, involve risks, including those set
forth below.
Market Characteristics
Most of the securities markets of the Asian Countries have substantially
less volume than the NYSE, and equity securities of most companies in the Asian
Countries are less liquid and more volatile than equity securities of U.S.
companies of comparable size. Some of the stock exchanges in the Asian
Countries, such as those in China, are in the early stages of their development.
Many companies traded on securities markets in Asian Countries are smaller,
newer and less seasoned than companies whose securities are traded on securities
markets in the United States. Investments in smaller companies involve greater
risk than is customarily associated with investing in larger companies. Smaller
companies may have limited product lines, markets or financial or managerial
resources and may be more susceptible to losses and risks of bankruptcy.
Additionally, market making and arbitrage activities are generally less
extensive in such markets, which may contribute to increased volatility and
reduced liquidity of such markets. Accordingly, each of these markets may be
subject to greater influence by adverse events generally affecting the market,
and by large investors trading significant blocks of securities, than is usual
in the United States. To the extent that any of the Asian Countries experiences
rapid increases in its money supply and investment in equity securities for
speculative purposes, the equity securities traded in any such country may trade
at price-earning multiples higher than those of comparable companies trading on
securities markets in the United States, which may not be sustainable.
Brokerage commissions and other transaction costs on securities exchanges
in the Asian Countries are generally higher than in the United States.
Settlement procedures in certain Asian Countries are less developed and reliable
than those in the United States and in other developed markets, and the Fund may
experience settlement delays or other material difficulties. For example,
significant delays are common in registering the transfer of securities in
India, and such transfers can take a year or longer. Indian securities
regulations would normally preclude the Fund from selling such securities until
the completion of the registration process. Securities trading in certain Asian
securities markets may also be subject to risks due to a lack of experience of
securities brokers, a lack of modern technology and a possible lack of
sufficient capital to expand market operations. The foregoing factors could
impede the ability of the Fund to effect portfolio transactions on a timely
basis and could have an adverse effect on the net asset value of shares of the
Fund's Common Stock and the price at which the shares trade.
17
<PAGE>
There is also less government supervision and regulation of foreign
securities exchanges, brokers, and listed companies in the Asian Countries than
exists in the United States. In addition, existing laws and regulations are
often inconsistently applied. As legal systems in Asian Countries develop,
foreign investors may be adversely affected by new laws and regulations, changes
to existing laws and regulations and preemption of local laws and regulations by
national laws. In circumstances where adequate laws exist, it may not be
possible to obtain swift and equitable enforcement of the law. Less information
will, therefore, be available to the Fund than in respect of investments in the
United States. Further, in certain Asian Countries, less information may be
available to the Fund than to local market participants. Brokers in Asian
Countries may not be as well capitalized as those in the United States, so that
they are more susceptible to financial failure in times of market, political, or
economic stress.
Political, Social and Economic Factors
Many of the Asian Countries may be subject to a greater degree of economic,
political and social instability than is the case in the United States and
Western European countries. Such instability may result from, among other
things, the following: (i) authoritarian governments or military involvement in
political and economic decision-making, including changes in government through
extra-constitutional means; (ii) popular unrest associated with demands for
improved political, economic and social conditions; (iii) internal insurgencies;
(iv) hostile relations with neighboring countries; and (v) ethnic, religious and
racial disaffection. Such social, political and economic instability could
significantly disrupt the principal financial markets in which the Fund invests
and adversely affect the value of the Fund's assets.
Few of the Asian Countries have western-style or fully democratic
governments. Some governments in the region are authoritarian in nature and
influenced by security forces. For example, during the course of the last
twenty-five years, governments in the region have been installed or removed as a
result of military coups, while others have periodically demonstrated their
repressive police state nature. Disparities of wealth, among other factors, have
also led to social unrest in some of the Asian Countries accompanied, in certain
cases, by violence and labor unrest. Ethnic, religious and racial disaffection,
as evidenced in India, Pakistan and Sri Lanka, have created social, economic and
political problems.
Several of the Asian Countries have or in the past have had hostile
relationships with neighboring nations or have experienced internal insurgency.
For example, Thailand experienced border battles with Laos in 1988, and India is
engaged in border disputes with several of its neighbors, including China and
Pakistan. An uneasy truce exists between North Korea and South Korea.
Reunification of North Korea and South Korea could have a detrimental effect on
the economy of South Korea. China continues to claim sovereignty over Taiwan. In
Hong Kong, British proposals to extend limited democracy have caused a political
rift with China, which assumes sovereignty over the colony in 1997.
The economies of most of the Asian Countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Union. The enactment by the United States
or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian Countries. In addition, the economies
of some of the Asian Countries, Indonesia and Malaysia, for example, are
vulnerable to weakness in world prices for their commodity exports, including
crude oil. There may be the possibility of expropriations, confiscatory
taxation, political, economic or social instability or diplomatic developments
which would adversely affect assets of the Fund held in foreign countries.
Governments in certain of the Asian Countries participate to a significant
degree, through ownership interests or regulation, in their respective
economies. Action by these governments could have a significant adverse effect
on market prices of securities and payment of dividends.
Financial Information and Standards
Issuers in Asian Countries generally are subject to accounting, auditing
and financial standards and requirements that differ, in some cases
significantly, from those applicable to U.S. issuers. In particular, the assets
and profits appearing on the financial statements of an Asian Country issuer may
not reflect its financial position or results of operations in the way they
would be reflected had the financial statements been prepared in accordance with
U.S. generally accepted accounting principles. In addition, for an issuer that
keeps accounting records in local currency, inflation accounting rules may
require, for both tax and accounting purposes, that certain assets and
liabilities be restated on the issuer's balance sheet in order to express items
in terms of currency or constant purchasing power. Inflation accounting may
indirectly generate
18
<PAGE>
losses or profits. Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the real condition of
those issuers and securities markets. Substantially less information may be
publicly available about issuers in Asian Countries than is available about U.S.
issuers.
Foreign Currency and Exchange Rates
The Fund's assets are invested in foreign securities and substantially all
income is received by the Fund in foreign currencies. However, the Fund computes
and distributes its income in dollars, and the computation of income is made on
the date of its receipt by the Fund at the foreign exchange rate in effect on
that date. Therefore, if the value of the foreign currencies in which the Fund
receives its income falls relative to the dollar between receipt of the income
and the making of Fund distributions, the Fund will be required to liquidate
securities in order to make distributions if the Fund has insufficient cash in
dollars to meet distribution requirements.
The value of the assets of the Fund as measured in dollars also may be
affected favorably or unfavorably by fluctuations in currency rates and exchange
control regulations. Further, the Fund may incur costs in connection with
conversions between various currencies. Foreign exchange dealers realize a
profit based on the difference between the prices at which they are buying and
selling various currencies. Thus, a dealer normally will offer to sell a foreign
currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire immediately to resell that currency to the dealer. The
Fund conducts its foreign currency exchange transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or through entering into forward, futures or options contracts to purchase or
sell foreign currencies.
Investment and Repatriation Restrictions
Foreign investments in the securities markets of several of the Asian
Countries is restricted or controlled to varying degrees. These restrictions may
limit investment in certain of the Asian Countries and may increase expenses of
the Fund. For example, certain countries may require governmental approval or
may restrict investment opportunities in issuers or industries deemed important
to national interests. In addition, the repatriation of both investment income
and capital from several of the Asian Countries is subject to restrictions such
as the need for certain government consents or waiting periods. Although these
restrictions may in the future make it undesirable to invest in the countries to
which they apply, the Investment Adviser does not believe that any current
repatriation restrictions would affect its decision to invest in such countries.
If, because of restrictions on repatriation or conversion, the Fund were
unable to distribute substantially all of its net investment income and
long-term capital gains within applicable time periods, the Fund could be
subject to adverse tax consequences. See "Taxation -- U.S. Income Taxes."
In Indonesia, Korea, Singapore, Malaysia, India, the Philippines and
Thailand, the Fund may be limited by government regulation or a company's
charter to a maximum percentage of equity ownership in any one company. In
China, the Fund may only invest in "B" shares of securities traded on The
Shanghai Securities Exchange and The Shenzhen Stock Exchange, currently the two
officially recognized securities exchanges in China. "B" shares traded on The
Shanghai Securities Exchange are settled in U.S. dollars and those traded on The
Shenzhen Stock Exchange are generally settled in Hong Kong dollars.
From time to time, pooled investment funds may be the most effective
available means by which the Fund may invest in equity securities of certain
Asian Countries. For example, prior to January 3, 1992, foreign investment in
Korea was limited to a few investment funds that had been granted a license from
the government of Korea. Since January 3, 1992, direct foreign investment in
individual stocks in Korea has been officially permitted within specified
limits. Investment in such investment funds may involve the payment of
management expenses and payment of substantial premiums above the value of such
companies' portfolio securities and is subject to limitation under the 1940 Act
and market availability. The Fund does not intend to invest in such funds
unless, in the judgment of the Investment Adviser, the potential benefits of
such investment outweigh the payment of any applicable premium and expenses. In
addition, the Fund's investments in such funds may result in special U.S.
federal income tax consequences described below under "Taxation -- U.S. Income
Taxes."
Investment Practices
The risks and special considerations of certain of the investment practices
in which the Fund may engage are described above under "Investment Objective and
Policies" and "Additional Investment Activities." Hedging involves
19
<PAGE>
special risks, including possible default by the other party to the transaction,
illiquidity and, to the extent the Investment Adviser's view as to certain
market movements is incorrect, the risk that the use of Hedging could result in
losses greater than if they had not been used. Use of put and call options could
result in losses to the Fund, force the sale or purchase of portfolio securities
at inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, or cause the
Fund to hold a security it might otherwise sell. The use of currency
transactions could result in the Fund's incurring losses as a result of the
imposition of exchange controls, suspension of settlements, or the inability to
deliver or receive a specified currency. The use of options and futures
transactions entails certain special risks. In particular, the variable degree
of correlation between price movements of futures contracts and price movements
in the related portfolio position of the Fund could create the possibility that
losses on the hedging instrument will be greater than gains in the value of the
Fund's position. In addition, futures and options markets could be illiquid in
some circumstances and certain over-the-counter options could have no markets.
As a result, in certain markets, the Fund might not be able to close out a
position without incurring substantial losses. To the extent the Fund utilizes
futures and options transactions for Derivatives, such transactions should tend
to minimize the risk of loss due to a decline in the value of the hedged
position and, at the same time, limit any potential gain to the Fund that might
result from an increase in value of the position. Finally, the daily variation
margin requirements for futures contracts create a greater ongoing potential
financial risk than would purchases of options, in which case the exposure is
limited to the cost of the initial premium and transaction costs. Losses
resulting from the use of Derivatives will reduce the Fund's net asset value,
and possibly income, and the losses can be greater than if Derivatives had not
been used. Additional information regarding the risks and special considerations
associated with Derivatives appears in Appendix A to this Prospectus.
Illiquid Investments
The Fund may invest up to 20% of its total assets in illiquid securities
for which there may be no or may be a limited trading market. Investment of the
Fund's assets in relatively illiquid securities may restrict the ability of the
Fund to dispose of its investments in a timely fashion and for a fair price as
well as its ability to take advantage of market opportunities. The risks
associated with illiquidity will be particularly acute in situations in which
the Fund's operations require cash, such as when the Fund repurchases shares or
pays dividends or distributions, and could result in the Fund borrowing to meet
short-term cash requirements or incurring capital losses on the sale of illiquid
investments. Further, companies whose securities are not publicly traded are not
subject to the disclosure and other investor protection requirements which would
be applicable if their securities were publicly traded.
Foreign Subcustodians and Securities Depositories
Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and
securities depositories. Certain banks in foreign countries may not be eligible
subcustodians for the Fund under such rules, in which event the Fund may be
precluded from purchasing securities in which it would otherwise invest, and
other banks that are eligible foreign subcustodians may be recently organized or
otherwise lack extensive operating experience. In addition, in certain countries
there may be legal restrictions or limitations on the ability of the Fund to
recover assets held in custody by foreign subcustodians in the event of the
bankruptcy of the subcustodian.
Leverage
Although the Fund has no present intention to do so to any significant
extent, the Fund may utilize leverage by borrowing or by issuing preferred stock
or short-term debt securities in an amount up to 25% of the Fund's total assets.
Leverage by the Fund creates an opportunity for increased return but, at the
same time, creates special risks. For example, leverage may exaggerate changes
in the net asset value of the Common Stock and in the return on the Fund's
portfolio. Although the principal of any leverage will be fixed, the Fund's
assets may change in value during the time the leverage is outstanding. Leverage
will create expenses for the Fund which can exceed the income from the assets
acquired with the proceeds of the leverage. Furthermore, an increase in interest
rates could reduce or eliminate the benefits of leverage and could reduce the
value of the Fund's securities.
Withholding and Other Taxes
Income and capital gains on securities held by the Fund may be subject to
withholding and other taxes imposed by Hong Kong or other Asian Countries, which
would reduce the return to the Fund on those securities. The Fund
20
<PAGE>
intends to elect, when eligible, to "pass-through" to the Fund's shareholders,
as a deduction or credit, the amount of foreign taxes paid by the Fund. The
taxes passed through to shareholders will be included in each shareholder's
income. Certain shareholders, including non-U.S. shareholders, will not be
entitled to the benefit of a deduction or credit with respect to foreign taxes
paid by the Fund. Other taxes, such as transfer taxes, may be imposed on the
Fund, but would not give rise to a credit, or be eligible to be passed through
to shareholders.
Net Asset Value Discount; Non-Diversification
Shares of closed-end investment companies have in the past frequently
traded at a discount from their net asset values and initial offering price.
This characteristic of shares of a closed-end fund is a risk separate and
distinct from the risk that a fund's net asset value will decrease. To date,
shares of the Fund have generally traded at a discount to net asset value. See
"Trading History." The Fund cannot predict whether its shares will trade at,
below or above net asset value in the future.
The Fund is classified as a non-diversified investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the obligations of a single
issuer. The Fund, however, has complied with, and intends to continue complying
with, the diversification requirements imposed by the Code for qualification as
a regulated investment company. Thus, the Fund may invest a greater proportion
of its assets in the securities of a smaller number of issuers and, as a result,
will be subject to greater risk of loss with respect to its portfolio
securities. See "Taxation" and "Investment Restrictions."
Anti-Takeover Provisions
The Fund's Articles of Incorporation contain certain anti-takeover
provisions that may have the effect of inhibiting the Fund's possible conversion
to open-end status and limiting the ability of other persons to acquire control
of the Fund. In certain circumstances, these provisions might also inhibit the
ability of holders of Common Stock to sell their shares at a premium over
prevailing market prices. The Fund's Board of Directors has determined that
these provisions are in the best interests of shareholders generally.
Operating Expenses
The Fund's annual operating expenses are higher than those of many other
investment companies investing exclusively in the securities of U.S. issuers.
The operating expenses are, however, comparable to expenses of other closed-end
management investment companies that invest primarily in the securities of Asian
Countries.
21
<PAGE>
MANAGEMENT OF THE FUND
Directors and Officers
The names of the directors and principal officers of the Fund are set forth
below, together with their positions and their principal occupations during the
past five years and, in the case of the directors, their positions with certain
other international organizations and publicly held companies.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name and Address Position With Fund Age Principal Occupations and Other Affiliations
- ---------------- ------------------ --- --------------------------------------------
*Alan Rappaport Chairman of the Board, 43 Executive Vice President, Oppenheimer & Co.,
Advantage Advisers, Inc. President and Director Inc. (1994-present); Managing Director,
Oppenheimer Tower Oppenheimer & Co., Inc. (1986-1994);
World Financial Center President and Director, Advantage Advisers, Inc.
200 Liberty Street (1993-present); Executive Vice President,
New York, NY 10281 Advantage Advisers, Inc. (1990- 1993); Chair-
man of the Board, President and Director, The
India Fund, Inc. and The Mexico Equity and
Income Fund, Inc.; Chairman of the Board and
Director, The Czech Republic Fund, Inc., The
Emerging Markets Income Fund II Inc and The
Emerging Markets Floating Rate Fund Inc.;
President and Director, Global Partners Income
Fund Inc and The Emerging Markets Income
Fund Inc; Director, Xiosinvest Management
Co., S.A.; Member, New York Stock Exchange
Advisory Committee on International
Capital Markets.
*Robert Blum Director and Assistant 35 Managing Director, Oppenheimer & Co., Inc.
Advantage Advisers, Inc. Secretary (1994-present); Senior Vice President, Oppen-
Oppenheimer Tower heimer & Co., Inc. (1991-1994); Vice President,
World Financial Center Oppenheimer & Co., Inc. (1989-1991); Associate,
200 Liberty Street Fulbright & Jaworski (1984-1989); Director and
New York, NY 10281 Assistant Secretary, The India Fund, Inc. and
The Czech Republic Fund, Inc.
Charles F. Barber Director 79 Consultant; former Chairman of the Board,
66 Glenwood Drive ASARCO Incorporated; Director, Global
Greenwich, CT 06830 Partners Income Fund Inc.; The
Emerging Markets Income Fund Inc, The
Emerging Markets Income Fund II Inc, The
Emerging Markets Floating Rate Fund
Inc., Salomon Brothers High Income Fund Inc.,
Municipal Partners Fund Inc, Municipal Partners
Fund II Inc., The Salomon Brothers Fund Inc,
Salomon Brothers Series Funds Inc, Salomon
Brothers Institutional Series Fund Inc, Salomon
Brothers Capital Fund Inc., Salomon Brothers
Investors Fund Inc, Salomon Brothers 2008
Worldwide Dollar Government Term Trust,
Salomon Brothers Worldwide Income Fund Inc,
Zenix Income Fund Inc., Municipal High Income
Fund Inc., Managed Municipals Portfolio Inc.
and Managed Municipals Portfolio II Inc.,
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name and Address Position With Fund Age Principal Occupations and Other Affiliations
- ---------------- ------------------ --- --------------------------------------------
Director, Min Ven Inc.; Trustee, Lehman
Brothers Institutional Funds Group Trust;
Member, Counsel on Foreign Relations, Inc.;
Director and Treasurer, Americas Society.
Leslie H. Gelb Director 58 President, The Council on Foreign Relations, Inc.
The Council on Foreign Relations (1993-Present); Columnist (1991-1993), Deputy
58 East 68th Street Editorial Page Editor (1986-1990), and Editor,
New York, New York 10021 Op-Ed Page (1988-1990), The New York Times;
Assistant Secretary of State, Department of State
(1977-1979); Director of Policy Planning and Arms
Control, International Security Affairs,
Department of Defense (1967-1969); Director, The
Czech Republic Fund, Inc., The India Fund, Inc.,
The Emerging Markets Income Fund Inc., The
Emerging Markets Income Fund II Inc., The
Emerging Markets Floating Rate Fund Inc. and
Global Partners Income Fund Inc.; Trustee, The
Carnegie Endowment for International Peace;
Trustee, Tufts University; Board Member, Columbia
University School of International and Public
Affairs; Member, International Institute for
Strategic Studies, Advisory Board Member, Center
on Press, Politics and Public Policy, Harvard
University John F. Kennedy School.
Jeswald W. Salacuse Director 57 Henry J. Braker Professor of Commercial
The Fletcher School of Law and formerly Dean, The Fletcher School
Law & Diplomacy of Law & Diplomacy, Tufts University;
Packard Avenue Director, Global Partners Income Fund Inc,
Medford, MA 02155 The Emerging Markets Income Fund
Inc, The Emerging Markets Income Fund II Inc and
The Emerging Markets Floating Rate Fund, Inc.;
Member, Council on Foreign Relations, Inc.,
author of numerous articles and other
publications on law, international relations and
multinational business.
Dennis E. Feeney Treasurer 44 Executive Vice President (1995-present),
Oppenheimer & Co., Inc. Chief Financial Officer (1994-present) and
Oppenheimer Tower Controller (1986-1994), Oppenheimer & Co.,
World Financial Center Inc.; Treasurer, The Czech Republic Fund, Inc.,
200 Liberty Street The India Fund, Inc. and The Mexico Equity
New York, NY 10281 and Income Fund, Inc.
Robert I. Kleinberg Secretary 58 General Counsel (1980-present), Secretary (1981-
Advantage Advisers, Inc. present) and Executive Vice President (1982-
Oppenheimer Tower present), Oppenheimer & Co., Inc.; Director
World Financial Center and Secretary, Advantage Advisers, Inc.
200 Liberty Street
</TABLE>
- -------------
* Director who is an "interested person" of the Fund within the meaning of the
1940 Act.
23
<PAGE>
Directors who are not "interested persons" (as defined in the 1940 Act) of
the Investment Manager or the Investment Adviser are paid a fee of $5,000 per
year, plus up to $700 for every meeting of the Board attended. All directors are
reimbursed for travel and out-of-pocket expenses incurred in connection with
meetings of the Board of Directors.
The following table provides information concerning the compensation paid
during the fiscal year ended October 31,1995 to each director of the Fund and
other funds advised by the Investment Manager or the Investment Adviser. Each of
the directors listed below are members of the Audit Committee of the Fund and
the audit and other committees of certain other investment companies advised by
the Investment Manager or the Investment Adviser and, accordingly, the amounts
provided in the table include compensation for service on such committees. The
Fund does not provide any pension or retirement benefits to directors. In
addition, no remuneration is paid by the Fund to Messrs. Rappaport or Blum, who
as officers of Advantage Advisers, Inc., and Oppenheimer & Co., Inc., are
interested persons as defined under the 1940 Act.
<TABLE>
<CAPTION>
Total Compensation Total
from Other Funds Total Compensation
Co-Advised by Compensation from Other Funds
Aggregate Advantage and from Other Funds Advised by BZW
Compensation BZW Investment Advised by Investment Total
Name of Nominee from Fund Management Inc. Advantage Management Inc. Compensation
- --------------- ------------ ------------------ ----------------- ----------------- --------------
Directorships (A) Directorships (A) Directorships (A) Directorships (A)
<S> <C> <C> <C> <C> <C>
Leslie H. Gelb $8,700 $4,600 (1) $38,700 (5) $0 $52,000 (7)
Jeswald W. Salacuse 8,500 7,900 (1) 40,250 (5) 0 56,650 (7)
Charles F. Barber 8,600 8,100 (1) 51,400 (6) 0 68,100 (8)
</TABLE>
(A) The numbers in parentheses indicate the applicable number of U.S. registered
investment company directorships held by that director.
The officers of the Fund conduct and supervise the daily business
operations of the Fund, while the directors, in addition to their functions set
forth elsewhere under "Management of the Fund," review such actions and decide
on general policy.
The Fund's Board of Directors has an Executive Committee, which may
exercise the powers of the Board to conduct the current and ordinary business of
the Fund while the Board is not in session. The current members of the Executive
Committee are Alan Rappaport, Robert Blum and any one of Charles F. Barber,
Leslie H. Gelb and Jeswald W. Salacuse. The Fund also has an Audit Committee
composed currently of Charles F. Barber, Leslie H. Gelb and Jeswald W. Salacuse.
The Board of Directors is divided into three classes, having three-year
terms that expire at successive Annual Meetings of Stockholders. When the term
of each class of directors expires, directors are elected to a new three-year
term in that class.
The Articles of Incorporation and By-Laws of the Fund provide that the Fund
will indemnify its directors and officers and may indemnify employees or agents
of the Fund against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their offices with the Fund
to the fullest extent permitted by law. In addition, the Fund's Articles of
Incorporation provide that the Fund's directors and officers will not be liable
to shareholders for money damages, except in limited instances. However, nothing
in the Articles of Incorporation or By-Laws of the Fund protects or indemnifies
a director, officer, employee or agent against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
At September 1, 1996, directors and officers of the Fund as a group owned
beneficially less than 1% of the outstanding shares of the Fund. No person owned
of record, or to the knowledge of management owned beneficially, more than 5% of
the Fund's outstanding shares at that date, except that Cede & Co., a nominee
for participants in Depository Trust Company, held of record 20,042,409 shares,
equal to 97.7% of the outstanding shares of the Fund.
24
<PAGE>
Investment Manager and Investment Adviser
The Investment Manager is Advantage Advisers, Inc. and the Investment
Adviser is BZW Investment Management Inc. Pursuant to a management agreement
(the "Management Agreement") between the Fund and the Investment Manager, the
Investment Manager supervises the Fund's investment program, including advising
and consulting with the Investment Adviser regarding the Fund's overall
investment strategy and advising the Fund and the Investment Adviser with
respect to all matters relating to the Fund's use of leveraging techniques,
including the extent and timing of the Fund's use of such techniques. In
addition, the Investment Manager consults with the Investment Adviser on a
regular basis regarding the Investment Adviser's decisions concerning the
purchase, sale or holding of particular securities. The Investment Manager also
provides the Investment Adviser with access on a continuous basis to economic,
financial and political information, research and assistance concerning Asian
Countries and, as appropriate, is involved in the process of Asian Countries
selection. In addition to the foregoing, the Investment Manager monitors the
performance of the Fund's outside service providers, including the Fund's
administrator, transfer agent and custodian. The Investment Manager pays the
reasonable salaries and expenses of such of the Fund's officers and employees
and any fees and expenses of such of the Fund's directors who are directors,
officers or employees of the Investment Manager, except that the Fund bears
travel expenses or an appropriate portion thereof of directors and officers of
the Fund who are directors, officers or employees of the Investment Manager to
the extent that such expenses relate to attendance at meetings of the Board of
Directors or any committees thereof.
Pursuant to an investment advisory agreement (the "Advisory Agreement")
among the Investment Manager, the Investment Adviser and the Fund, the
Investment Adviser acts as the Fund's investment adviser and is responsible on a
day-to-day basis for investing the Fund's portfolio in accordance with its
investment objective and policies. The Investment Adviser has discretion over
investment decisions for the Fund and, in that connection, places purchase and
sale orders for the Fund's portfolio securities. In addition, the Investment
Adviser makes available research and statistical data to the Fund. The
Investment Adviser pays the reasonable salaries and expenses of such of the
Fund's officers and employees and any fees and expenses of such of the Fund's
directors who are directors, officers or employees of the Investment Adviser,
except that the Fund bears travel expenses or an appropriate portion thereof of
directors and officers of the Fund who are directors, officers or employees of
the Investment Adviser to the extent that such expense relate to attendance at
meetings of the Board of Directors or any committees thereof.
Ronald Gould has been primarily responsible for the day-to-day management
of the Fund's portfolio since March 1995. Mr. Gould is Vice Chairman of BZW
Asset Management Limited.
Investment Manager. The Investment Manager is a subsidiary of Oppenheimer &
Co., Inc. Oppenheimer & Co., Inc., has been engaged in the management of
investment funds for more than 35 years. As of June 30, 1996, total assets under
management by Oppenheimer & Co., Inc., and its affiliates were approximately $50
billion for investment company, corporate, pension, profit-sharing and other
accounts. The Investment Manager serves as investment adviser for 12 registered
investment companies. The Investment Manager is a registered investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). The
business address of the Investment Manager is Oppenheimer Tower, World Financial
Center, New York, New York 10281.
Investment Adviser. The Investment Adviser is a subsidiary of BZW US
Holdings Inc., which itself is an indirect wholly owned subsidiary of Barclays
Bank PLC. Barclays Bank is one of the world's largest financial institutions and
is among the largest banks in the United Kingdom. The Investment Adviser is part
of the BZWAM Group, which includes BZW Investment Management Limited, one of the
largest British based fund management houses. The BZWAM Group is responsible for
institutional asset management in the Barclays Group around the world. Assets
under management are approximately $360 billion, and global asset management
services are provided from 13 primary investment management locations world-wide
including San Francisco, London, Hong Kong, Tokyo, Sydney, Paris, Madrid,
Toronto, New York, Munich, Wellington and Bangkok. The Investment Adviser is
registered as an investment adviser under the Advisers Act and is a member of
the Investment Management Regulatory Organization in the United Kingdom
("IMRO"). The BZWAM Group is a major global investment manager with investment
teams located in all the world's major capital markets. The BZWAM Group has over
100 staff in Asia providing specialized investment management to both local and
international investors. Barclays Bank PLC is a wholly owned subsidiary of
Barclays PLC. The business address of the Investment Adviser is Tower 49, 12
East 49th Street, New York, New York 10017.
Compensation and Expenses
As compensation for their services, the Investment Manager receives from
the Fund monthly fees at an annual rate of 1.00% of the Fund's average weekly
net assets and the Investment Adviser receives from the Investment Manager
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monthly fees at an annual rate of 0.50% of the Fund's average weekly net assets.
For the year ended October 31, 1995, and the period ended October 31, 1994, the
Investment Manager received fees of $2,453,731 and $2,498,815, respectively, of
which $1,226,845 and $1,249,408, respectively, was to be remitted to the
Investment Manager. The Fund pays or causes to be paid all of its expenses,
except for the expenses borne by the Investment Manager and the Investment
Adviser pursuant to the Management Agreement and the Advisory Agreement,
respectively, including, among other things: expenses for legal, accounting and
auditing services; taxes and governmental fees; dues and expenses incurred in
connection with membership in investment company organizations; fees and
expenses incurred in connection with listing the Fund's shares on any stock
exchange; costs of printing and distributing shareholder reports, proxy
materials, prospectuses, stock certificates and distributions of dividends;
charges of the Fund's custodians, sub-custodians, registrars, transfer agents,
dividend disbursing agents and dividend reinvestment plan agents; payment for
portfolio pricing services to a pricing agent, if any; registration and filing
fees of the SEC; expenses of registering or qualifying securities of the Fund
for sale in the various states; freight and other charges in connection with the
shipment of the Fund's portfolio securities; fees and expenses of non-interested
directors; salaries of shareholder relations personnel; costs of shareholders
meetings; insurance; interest; brokerage costs; and litigation and other
extraordinary or nonrecurring expenses. For the fiscal year ended October 31,
1995, and for the fiscal period ended October 31, 1994, the Fund's total
expenses, stated as a percentage of net assets, were 1.65% and 1.60%,
respectively.
Duration and Termination; Non-Exclusive Services
Unless earlier terminated as described below, each of the Management
Agreement and the Advisory Agreement remains in effect until November 17, 1996
and from year to year thereafter if approved annually (i) by a majority of the
non-interested directors of the Fund and (ii) by the Board of Directors of the
Fund or by a majority of the outstanding voting securities of the Fund. The
Management Agreement may be terminated without penalty by the Fund's Board of
Directors or by vote of a majority of the outstanding voting securities of the
Fund or upon 60 days' written notice by the Investment Manager and will
terminate in the event it is assigned (as defined in the 1940 Act). The Advisory
Agreement may be terminated without penalty by the Fund's Board of Directors or
by vote of a majority of the outstanding voting securities of the Fund or upon
60 days' written notice by the Investment Manager or the Investment Adviser and
will terminate in the event it is assigned (as defined in the 1940 Act).
The services of the Investment Manager and the Investment Adviser are not
deemed to be exclusive, and nothing in the relevant service agreements will
prevent any of them or their affiliates from providing similar services to other
investment companies and other clients (whether or not their investment
objectives and policies are similar to those of the Fund) or from engaging in
other activities.
Administrator
Oppenheimer & Co., Inc., serves as the Fund's Administrator (the
"Administrator") pursuant to an agreement with the Fund (the "Administration
Agreement"). As compensation for its services, the Administrator receives from
the Fund monthly fees at an annual rate of 0.20% of the Fund's average weekly
net assets. For the year ended October 31, 1995, and the period ended October
31, 1994, the Administrator received fees of $490,746 and $499,763,
respectively. The Administrator is located at Oppenheimer Tower, World Financial
Center, 200 Liberty Street, New York, New York 10281.
The Administrator performs various administrative services, including
providing the Fund with the services of persons to perform administrative and
clerical functions, maintenance of the Fund's books and records, preparation of
various filings, reports, statements and returns filed with government
authorities, and preparation of financial information for the Fund's proxy
statements and semiannual and annual reports to shareholders. The Administrator
has subcontracted certain of these services to PFPC Inc., 400 Bellevue Parkway,
Wilmington, Delaware 19809.
PORTFOLIO TRANSACTIONS
The Fund has no obligation to deal with any brokers or dealers in the
execution of transactions in portfolio securities. Subject to policy established
by the Fund's Board of Directors, the Investment Adviser is primarily
responsible for the Fund's portfolio decisions and the placing of the Fund's
portfolio transactions.
In placing orders, it is the policy of the Fund to obtain the best results
taking into account the general execution and operational facilities of the
broker or dealer, the type of transaction involved and other factors such as the
risk of the broker or dealer in positioning the securities involved. While the
Investment Adviser generally seeks the best price in placing its orders, the
Fund may not necessarily pay the lowest price available. Securities firms which
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provide supplemental research to the Investment Adviser may receive orders for
transactions by the Fund. In these circumstances, as contemplated by Section
28(e) of the Securities Exchange Act of 1934, the commissions paid may be higher
than those which the Fund might otherwise have paid to another broker if those
services had not been provided. Information so received will be in addition to
and not in lieu of the services required to be performed by the Investment
Adviser under the Advisory Agreement, and the expenses of the Investment Adviser
will not necessarily be reduced as a result of the receipt of such supplemental
information. Research services furnished to the Investment Adviser by brokers
who effect securities transactions for the Fund may be used by the Investment
Adviser in servicing other investment companies and accounts which it manages.
Similarly, research services furnished to the Investment Adviser by brokers who
effect securities transactions for other investment companies and accounts which
the Investment Adviser manages may be used by the Investment Adviser in
servicing the Fund. Not all of these research services are used by the
Investment Adviser in managing any particular account, including the Fund.
Affiliated persons (as such term is defined in the 1940 Act) of the Fund,
or affiliated persons of such persons, may from time to time be selected to
perform brokerage services for the Fund, subject to the considerations discussed
above, but are prohibited by the 1940 Act from dealing with the Fund as
principal in the purchase or sale of securities. In order for such an affiliated
person to be permitted to effect any portfolio transactions for the Fund, the
commissions, fees or other remuneration received by such affiliated person must
be reasonable and fair compared to the commissions, fees or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. This standard would allow such an affiliated person
to receive no more than the remuneration which would be expected to be received
by an unaffiliated broker in a commensurate arm's-length transaction. The Fund
is prohibited by the 1940 Act from purchasing securities in offerings in which
Oppenheimer & Co., Inc. or BZW Securities Inc. or any of their respective
affiliates acts as an underwriter unless certain conditions established under
the 1940 Act are satisfied.
Investment decisions for the Fund are made independently from those for
other funds and accounts advised or managed by the Investment Adviser. Such
other funds and accounts may also invest in the same securities as the Fund. If
those funds or accounts are prepared to invest in, or desire to dispose of, the
same security at the same time as the Fund, however, transactions in such
securities will be made, insofar as feasible, for the respective funds and
accounts in a manner deemed equitable to all. In some cases, this procedure may
adversely affect the size of the position obtained for or disposed of by the
Fund or the price paid or received by the Fund. In addition, because of
different investment objectives, a particular security may be purchased for one
or more funds or accounts when one or more funds or accounts are selling the
same security.
Although the Advisory Agreement contains no restrictions on portfolio
turnover, it is not the Fund's policy to engage in transactions with the
objective of seeking profits from short-term trading. It is expected that the
annual portfolio turnover rate of the Fund will not exceed 150%. The portfolio
turnover rate is calculated by dividing the lesser of sales or purchases of
portfolio securities by the average monthly value of the Fund's portfolio
securities. For purposes of this calculation, portfolio securities exclude all
securities having a maturity when purchased of one year or less. The Fund's
portfolio turnover rate for the fiscal periods ended October 31, 1995 and 1994,
was 79% and 46%, respectively. For the fiscal periods ended October 31, 1995 and
1994, the Fund paid $1,834,331 and $2,250,835 in brokerage commissions for the
excution of portfolio transactions, no portion of which was paid to the
Investment Manager or the Investment Adviser.
DIVIDENDS AND DISTRIBUTIONS;
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Fund intends to distribute annually to shareholders substantially all
of its net investment income, and to distribute any net realized capital gains
at least annually. Net investment income for this purpose is income other than
net realized long and short-term capital gains net of expenses.
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
shareholders whose shares of Common Stock are registered in their own names will
be deemed to have elected to have all distributions automatically reinvested by
PFPC Inc. (the "Plan Agent") in Fund shares pursuant to the Plan, unless such
shareholders elect to receive distributions in cash. Shareholders who elect to
receive distributions in cash will receive all distributions in cash paid by
check in dollars mailed directly to the shareholder by PFPC Inc., as dividend
paying agent. In the case of shareholders, such as banks, brokers or nominees,
that hold shares for others who are beneficial owners, the Plan Agent
administers the Plan on the basis of the number of shares certified from time to
time by the shareholders as representing
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the total amount registered in such shareholders' names and held for the account
of beneficial owners that have not elected to receive distributions in cash.
Investors that own shares registered in the name of a bank, broker or other
nominee should consult with such nominee as to participation in the Plan through
such nominee, and may be required to have their shares registered in their own
names in order to participate in the Plan.
The Plan Agent serves as agent for the shareholders in administering the
Plan. If the directors of the Fund declare an income dividend or a capital gains
distribution payable either in the Fund's Common Stock or in cash,
nonparticipants in the Plan will receive cash and participants in the Plan will
receive Common Stock, issued by the Fund or purchased by the Plan Agent in the
open market, as provided below. If the market price per share on the valuation
date equals or exceeds net asset value per share on that date, the Fund will
issue new shares to participants at net asset value; provided, however, if the
net asset value is less than 95% of the market price on the valuation date, then
such shares will be issued at 95% of the market price. The valuation date will
be the dividend or distribution payment date or, if that date is not a New York
Stock Exchange trading day, the next preceding trading day. If net asset value
exceeds the market price of Fund shares at such time, or if the Fund should
declare an income dividend or capital gains distribution payable only in cash,
the Plan Agent will, as agent for the participants, buy Fund shares in the open
market, on the NYSE or elsewhere, for the participants' accounts on, or shortly
after, the payment date. If, before the Plan Agent has completed its purchases,
the market price exceeds the net asset value of a Fund share, the average per
share purchase price paid by the Plan Agent may exceed the net asset value of
the Fund's shares, resulting in the acquisition of fewer shares than if the
distribution had been paid in shares issued by the Fund on the dividend payment
date. Because of the foregoing difficulty with respect to open-market purchases,
the Plan provides that if the Plan Agent is unable to invest the full dividend
amount in open-market purchases during the purchase period or if the market
discount shifts to a market premium during the purchase period, the Plan Agent
will cease making open-market purchases and will receive the uninvested portion
of the dividend amount in newly issued shares at the close of business on the
last purchase date.
Participants have the option of making additional cash payments to the Plan
Agent, annually, in any amount from $100 to $3,000, for investment in the Fund's
Common Stock. The Plan Agent will use all such funds received from participants
to purchase Fund shares in the open market on or about February 15. Any
voluntary cash payment received more than 30 days prior to this date will be
returned by the Plan Agent, and interest will not be paid on any uninvested cash
payment. To avoid unnecessary cash accumulations, and also to allow ample time
for receipt and processing by the Plan Agent, participants should send in
voluntary cash payments to be received by the Plan Agent approximately ten days
before an applicable purchase date specified above. A participant may withdraw a
voluntary cash payment by written notice, if the notice is received by the Plan
Agent not less than 48 hours before such payment is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in an account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in the name of the
participant, and each shareholder's proxy will include those shares purchased
pursuant to the Plan.
There is no charge to participants for reinvesting dividends or capital
gains distributions or voluntary cash payments. The Plan Agent's fees for the
reinvestment of dividends and capital gains distributions and voluntary cash
payments will be paid by the Fund. There will be no brokerage charges with
respect to shares issued directly by the Fund as a result of dividends or
capital gains distributions payable either in stock or in cash. However, each
participant will pay a pro rata share of brokerage commissions incurred with
respect to the Plan Agent's open market purchases in connection with the
reinvestment of dividends and capital gains distributions and voluntary cash
payments made by the participant. Brokerage charges for purchasing small amounts
of stock for individual accounts through the Plan are generally less than the
usual brokerage charges for such transactions, because the Plan Agent is
purchasing stock for all participants in blocks and prorating the lower
commission thus attainable.
The receipt of dividends and distributions under the Plan will not relieve
participants of any income tax which may be payable on such dividends or
distributions. See "Taxation -- Shareholders."
The Fund and the Plan Agent reserve the right to terminate the Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to notice of the termination sent to members of the Plan at
least 30 days before the record date for such dividend or distribution. The Plan
also may be amended by the Fund or the Plan Agent, but (except when necessary or
appropriate to comply with applicable law, rules or policies of a regulatory
authority) only by at least 30 days' written notice to participants in the Plan.
All correspondence concerning the Plan should be directed to the Plan Agent at
400 Bellevue Parkway, Wilmington, Delaware 19809.
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TAXATION
The following is a general summary of certain United States federal income
tax considerations affecting the Fund and U.S. shareholders. No attempt is made
to present a detailed explanation of all federal, state, local and foreign
income tax considerations, and this discussion is not intended as a substitute
for careful tax planning. Accordingly, potential investors are urged to consult
their own tax advisors regarding an investment in the Fund.
The Fund
The Fund intends to qualify and elect to be treated as a "regulated
investment company" for federal income tax purposes under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). In order to so qualify,
the Fund must, among other things, (a) derive in each taxable year at least 90%
of its gross income from dividends, interest, payments with respect to loans of
securities, gains from the sale or other disposition of stock or securities, or
foreign currencies, or other income derived with respect to its business of
investing in such stock, securities or currencies (including, but not limited
to, gains from options, futures or forward contracts); (b) derive in each
taxable year less than 30% of its gross income from the sale or other
disposition of any of the following that are held for less than three months
(the "30% limitation"): (i) stock or securities, (ii) options, futures or
forward contracts, or (iii) foreign currencies (or foreign currency options,
futures or forward contracts) that are not directly related to its principal
business of investing in stock or securities (or options and futures with
respect to stocks or securities); and (c) diversify its holdings so that, at the
end of each quarter of each taxable year, (i) at least 50% of the value of the
Fund's assets is represented by cash, cash items, U.S. Government securities,
securities of other regulated investment companies, and other securities which,
with respect to any one issuer, do not represent more than 5% of the value of
the Fund's assets nor more than 10% of the voting securities of such issuer, and
(ii) not more than 25% of the value of the Fund's assets is invested in the
securities of any issuer (other than U.S. Government securities or the
securities of other regulated investment companies).
If the Fund qualifies as a regulated investment company and distributes to
its shareholders at least 90% of its net investment income (i.e., its investment
company taxable income as that term is defined in the Code, determined without
regard to the deduction for dividends paid), then the Fund will not be subject
to federal income tax on the net investment income and "net capital gain" (the
excess of the Fund's net long-term capital gains over net short-term capital
losses) which it distributes. However, the Fund would be subject to corporate
income tax at a rate of 35% on any undistributed net investment income and net
capital gain. If in any year the Fund should fail to qualify as a regulated
investment company, the Fund would be subject to federal tax in the same manner
as an ordinary corporation, and distributions to shareholders would be taxable
to such holders as ordinary income to the extent of the earnings and profits of
the Fund. Distributions in excess of earnings and profits will be treated as a
tax-free return of capital, to the extent of a holder's basis in its shares, and
any excess, as a long-or short-term capital gain. In addition, the Fund will be
subject to a nondeductible 4% excise tax on the amount by which the aggregate
income it distributes in any calendar year is less than the sum of: (a) 98% of
the Fund's ordinary income for such calendar year; (b) 98% of the excess of
capital gains over capital losses for the one-year period ending on October 31
of each year; and (c) 100% of the undistributed ordinary income and gains from
prior years.
The Fund intends to distribute sufficient income so as to avoid both
corporate income tax and the excise tax.
The Fund may engage in hedging involving foreign currencies, forward
contracts, options and futures contracts (including options and futures
contracts of foreign currencies). See "Additional Investment Activities --
Derivatives." Such transactions will be subject to special provisions of the
Code that, among other things, may affect the character of gains and losses
realized by the Fund (that is, may affect whether gains or losses are ordinary
or capital), accelerate recognition of income to the Fund and defer recognition
of certain of the Fund's losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. In addition,
these provisions (1) will require the Fund to "mark-to-market" certain types of
positions in its portfolio (that is, treat them as if they were closed out) and
(2) may cause the Fund to recognize income without receiving cash with which to
pay dividends or make distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise taxes. The extent to
which the Fund may be able to use such hedging techniques and continue to
qualify as a regulated investment company may be limited by the 30% limitation
discussed above. The Fund intends to monitor its transactions, make the
appropriate tax elections and make the appropriate entries in its books and
records when it acquires any forward contracts, option, futures contract, or
hedged investment in order to mitigate the effect of these rules and prevent
disqualification of the Fund as a regulated investment company.
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The Fund will maintain accounts and calculate income by reference to the
U.S. dollar for U.S. federal income tax purposes. Investments generally will be
maintained and income therefrom calculated by reference to certain foreign
currencies and such calculations will not necessarily correspond to the Fund's
distributable income and capital gains for U.S. federal income tax purposes as a
result of fluctuations in currency exchange rates.
Furthermore, exchange control regulations may restrict the ability of the
Fund to repatriate investment income or the proceeds of sales of securities.
These restrictions and limitations may limit the Fund's ability to make
sufficient distributions to satisfy the 90% distribution requirement and avoid
the 4% excise tax.
The tax treatment of certain investments of the Fund is not free from doubt
and it is possible that an Internal Revenue Service (the "IRS") examination of
the issuers of such securities or of the Fund could result in adjustments to the
income of the Fund. An upward adjustment by the IRS to the income of the Fund
may result in the failure of the Fund to satisfy the 90% distribution
requirement described in the Prospectus necessary for the Fund to maintain its
status as a regulated investment company under the Code. In such event, the Fund
may be able to make a "deficiency dividend" distribution to its shareholders
with respect to the year under examination to satisfy this requirement. Such
distribution will be taxable as a dividend to the shareholders receiving the
distribution (whether or not the Fund has sufficient current or accumulated
earnings and profits for the year in which such distribution is made) in the
taxable year in which such dividends are received. A downward adjustment by the
IRS to the income of the Fund may cause a portion of the previously made
distribution with respect to the year under examination not to be treated as a
dividend. In such event, the portion of distributions to each shareholder not
treated as a dividend would be recharacterized as a return of capital and reduce
the shareholder's basis in the shares held at the time of the previously made
distributions. Accordingly, this reduction in basis could cause a shareholder to
recognize additional gain upon the sale of such shareholder's shares.
The Fund intends to make investments which may, for federal income tax
purposes, constitute investments in shares of foreign corporations. If the Fund
purchases shares in certain foreign investment entities, called "passive foreign
investment companies" ("PFICs"), the Fund may be subject to U.S. federal income
tax on a portion of any "excess distribution" or gain from the disposition of
the shares even if the income is distributed as a taxable dividend by the Fund
to its shareholders. Additional charges in the nature of interest may be imposed
on either the Fund or its shareholders with respect to deferred taxes arising
from the distributions or gains. If the Fund were to invest in a PFIC and (if
the Fund received the necessary information available from the PFIC, which may
be difficult to obtain) elected to treat the PFIC as a "qualified electing fund"
(a "QEF") under the Code, in lieu of the foregoing requirements, the Fund might
be required to include in income each year a portion of the ordinary earnings
and net capital gains of the PFIC, even if not distributed to the Fund, and the
amounts would be subject to the 90% and calendar year distribution requirements
described above.
In the case of PFIC stock owned by a regulated investment company, proposed
Treasury regulations, not currently in effect, provide a mark-to-market election
for regulated investment companies that would permit a regulated investment
company to elect to mark-to-market stock in the PFIC annually and thereby avoid
the need for the company to make a QEF election. These proposed regulations
would be effective for taxable years ending after promulgation of the
regulations as final regulations.
U.S. Shareholders
Distributions. Distributions to shareholders of net investment income will
be taxable as ordinary income whether paid in cash or reinvested in additional
shares. It is not anticipated that such dividends, if any, will qualify for the
dividends-received deduction generally available for corporate shareholders
under the Code. Shareholders receiving distributions from the Fund in the form
of additional shares pursuant to the dividend reinvestment plan will be treated
for federal income tax purposes as receiving a distribution in an amount equal
to the fair market value of the additional shares on the date of such a
distribution. Consequently, if the number of Shares distributed reflects a
market premium, the amount distributed to shareholders participating in the plan
would exceed the amount of the cash distributed to nonparticipating
shareholders.
Distributions to shareholders of net capital gain that are designated by
the Fund as "capital gains dividends" will be taxable as long-term capital
gains, whether paid in cash or reinvested in additional shares, regardless of
how long the shares have been held by such shareholders. Capital gain dividends
will not be eligible for the dividends received deduction. The current maximum
federal income tax rate imposed on individuals with respect to long-term
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capital gains is limited to 28%, whereas the current maximum federal income tax
rate imposed on individuals with respect to ordinary income (and short-term
capital gains, which are taxed at the same rates as ordinary income) is 39.6%.
With respect to corporate taxpayers, long-term capital gains are currently taxed
at the same federal income tax rates as ordinary income and short-term capital
gains.
Under H.R. 2491, as passed by Congress and vetoed by President Clinton,
individual taxpayers would have been permitted a 50% deduction for any capital
gains that they recognized, and corporations would have been taxed at a 28% rate
on capital gains, in lieu of the regular corporate rate. It is unclear whether
similar legislation will ultimately be adopted.
Dividends and distributions by the Fund are generally taxable to the
shareholders at the time the dividend or distribution is made (even if paid or
reinvested in additional shares). Any dividend declared by the Fund in October,
November or December of any calendar year, however, which is payable to
shareholders of record on a specified date in such a month and which is not paid
on or before December 31 of such year will be treated as received by the
Shareholders as of December 31 of such year, provided that the dividend is paid
during January of the following year.
A notice detailing the tax status of dividends and distributions paid by
the Fund will be mailed annually to the shareholders of the Fund.
Dispositions and Repurchases. Gain or loss, if any, recognized on the sale
or other disposition of shares of the Fund will be taxed as capital gain or loss
if the shares are capital assets in the shareholder's hands. Generally, a
shareholder's gain or loss will be a long-term gain or loss if the shares have
been held for more than one year. If a shareholder sells or otherwise disposes
of a share of the Fund before holding it for more than six months, any loss on
the sale or other disposition of such share shall be treated as a long-term
capital loss to the extent of any capital gain dividends received by the
shareholder with respect to such share. A loss realized on a sale or exchange of
shares may be disallowed if other shares are acquired (whether under the Plan or
otherwise) within a 61-day period beginning 30 days before and ending 30 days
after the date that the shares are disposed of.
A repurchase by the Fund of shares generally will be treated as a sale of
the shares by a shareholder provided that after the repurchase the shareholder
does not own, either directly or by attribution under Section 318 of the Code,
any shares. If, after a repurchase a shareholder continues to own, directly or
by attribution, any shares, it is possible that any amounts received in the
repurchase by such shareholder will be taxable as a dividend to such
shareholder, and there is a risk that shareholders who do not have any of their
shares repurchased would be treated as having received a dividend distribution
as a result of their proportionate increase in the ownership of the Fund.
Foreign Taxes. The Fund may be subject to certain taxes imposed by foreign
countries with respect to dividends, interest, capital gains and other income.
The imposition of such taxes and the rates imposed are subject to change. For
example, it is believed that the Korean tax authorities are reconsidering the
application of the U.S.-Korea Tax Treaty to investment companies that have a
substantial percentage of the shares of which are held by non-U.S. shareholders.
It is not clear whether the Korean tax authorities will take the position that
the Treaty is inapplicable to such investment companies or, if they do, whether
the Fund could demonstrate that it would qualify for favorable tax treatment
under the Treaty. The Fund does not currently expect that a substantial
percentage of its shares will be held by non-U.S. shareholders. However, if the
U.S.-Korea Tax Treaty were not available to the Fund, increased withholding tax
rates could reduce Korea's attractiveness as a place for investment in relation
to other Asian countries. Withholding tax rates on gross capital gains (computed
without reduction for capital losses and without adding any transaction charges,
commissions, fees or taxes paid at the time of acquisition to the acquisition
cost of any security sold), dividends and interest would, in general, increase
from 0%, 16.125% and 12.9%, respectively, to 26.875% on all three types of
income (or, in the case of capital gains, 10.75% of the gross sales proceeds, if
less than the tax computed at the 26.875% rate or if the Fund cannot provide
satisfactory evidence of the acquisition cost). Such foreign taxes would reduce
the Fund's return on its investments.
If the Fund qualifies as a regulated investment company, if certain
distribution requirements are satisfied and if more than 50% in value of the
Fund's total assets at the close of any taxable year consists of stocks or
securities of foreign corporations, which for this purpose should include
obligations issued by foreign governmental issuers, the Fund may elect to treat
any foreign income taxes paid by it (if such taxes are treated as income taxes
under U.S. income tax principles) that can be treated as income taxes under U.S.
income tax regulations as paid by its shareholders. The Fund expects to qualify
for and may make this election. For any year that the Fund makes such an
election, an amount equal to the foreign income taxes paid by the Fund that can
be treated as income taxes under U.S. income tax principles will be included in
the income of its shareholders and each shareholder will be entitled (subject to
certain limitations) to credit the amount included in his income against his
U.S. tax liabilities, if any, or to deduct such amount from his U.S. taxable
income, if any. Shortly after any year for which it makes such an election, the
Fund will report to its
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shareholders, in writing, the amount per share of such foreign income taxes that
must be included in each shareholder's gross income and the amount that will be
available for deductions or credit. In general, a shareholder may elect each
year whether to claim deductions or credits for foreign taxes. No deductions for
foreign taxes may be claimed, however, by non-corporate shareholders (including
certain foreign shareholders as described below) who do not itemize deductions.
If a shareholder elects to credit foreign taxes, the amount of credit that may
be claimed in any year may not exceed the same proportion of the U.S. tax
against which such credit is taken that the shareholder's taxable income from
foreign sources (but not in excess of the shareholder's entire taxable income)
bears to his entire taxable income. For this purpose, the Fund expects that the
capital gains it distributes to its shareholders, whether dividends or capital
gains distributions, will not be treated as foreign source taxable income. If
the Fund makes this election, a shareholder will be treated as receiving foreign
source income in an amount equal to the sum of his proportionate share of
foreign income taxes paid by the Fund and the portion of dividends paid by the
Fund representing income earned from foreign sources. This limitation must be
applied separately to certain categories of income and the related foreign
taxes.
Backup Withholding. The Fund may be required to withhold federal income tax
at a rate of 31% ("backup withholding") from dividends and redemption proceeds
paid to non-corporate shareholders. This tax may be withheld from dividends if
(i) the shareholder fails to furnish the Fund with the shareholder's correct
taxpayer identification number, (ii) the IRS notifies the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (iii) when required to
do so, the shareholder fails to certify that he or she is not subject to backup
withholding. Redemption proceeds may be subject to withholding under the
circumstances described in (i) above. Backup withholding is not an additional
tax. Any amounts withheld under the backup withholding rules from payments made
to a shareholder may be credited against such shareholder's federal income tax
liability.
Foreign Shareholders
U.S. taxation of a shareholder who, as to the United States, is a
non-resident alien individual, a foreign trust or estate, a foreign corporation,
or a foreign partnership ("foreign shareholder"), depends on whether the income
from the Fund is "effectively connected" with a U.S. trade or business carried
on by such shareholder. Ordinarily, income from the Fund will not be treated as
so "effectively connected."
Income Not Effectively Connected. If the income from the Fund is not
"effectively connected" with a U.S. trade or business carried on by the foreign
shareholder, distributions of net investment income will be subject to a U.S.
tax of 30% (or lower treaty rate), which tax is generally withheld from such
distributions. Furthermore, foreign shareholders may be subject to U.S. tax at
the rate of 30% (or lower treaty rate) of the income resulting from the Fund's
election to treat any foreign taxes paid by it as paid by its shareholders, but
will not be able to claim a credit or deduction for the foreign taxes as having
been paid by them.
Distributions of capital gain dividends to a non-resident alien who is
present in the United States for fewer than one hundred eighty-three days during
the taxable year will not be subject to the 30% U.S. withholding tax. An alien
individual who is physically present in the United States for 183 days or more
during the taxable year generally is treated as a resident for U.S. federal
income tax purposes, in which case he or she will be subject to U.S. federal
income tax on his or her worldwide income including ordinary income and capital
gain dividends at the graduated rates applicable to U.S. citizens, rather than
the 30% U.S. withholding tax. In the case of a foreign shareholder who is a
non-resident alien individual, the Fund may be required to withhold U.S. federal
income tax at a rate of 31% of distributions of capital gain dividends under the
backup withholding system unless the foreign shareholder makes required
certifications to the Fund on a properly completed U.S. Internal Revenue Service
Form W-8. The amount so withheld could be applied as a credit against any U.S.
tax due from the shareholder or, if no tax is due, refunded pursuant to a claim
therefor properly filed on an income tax return.
Income Effectively Connected. If the income from the Fund is "effectively
connected" with a U.S. trade or business carried on by a foreign shareholder,
then distributions of net investment income and net capital gains and any gains
realized upon the sale of Shares or the Fund, will be subject to U.S. federal
income tax at the graduated rates applicable to U.S. citizens, residents and
domestic corporations. Such shareholders may also be subject to the 30% branch
profits tax.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
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Hong Kong Taxes
Taxation of the Fund. The Fund will be subject to Hong Kong profits tax at
the current rate of 17.5% if (i) it carries on business in Hong Kong and (ii)
its profits are derived from a Hong Kong source. Profits or capital gains
derived from the sale of shares or other securities of, or dividends received
from, companies which are listed on an exchange outside Hong Kong are not
subject to Hong Kong profits tax.
If the Fund converts to an open-end investment company, it may be necessary
for it to apply for authorization under the Hong Kong Securities Ordinance. If
the current state of the law still prevails at that time, the Fund will upon
receiving such authorization be exempt from Hong Kong profits tax of its gains
from trading in securities listed outside Hong Kong.
Taxation of Shareholders. There is no tax in Hong Kong on capital gains
arising from the sale by an investor of shares of the Fund. However, in the case
of certain investors (principally, share traders, financial institutions and
insurance companies carrying on business in Hong Kong), such gains may be
considered to be part of the investor's normal business profits and in such
circumstances will be subject to Hong Kong profits tax at the current rate of
17.5% for corporations and 15% for individuals.
Dividends which the Fund pays to its shareholders are not taxable in Hong
Kong (whether through withholding or otherwise) under current legislation and
practice.
No Hong Kong stamp duty will be payable in respect of transactions in the
Fund's shares of Common Stock provided that the register of shareholders is
maintained outside of Hong Kong.
Notices
Shareholders will be notified annually by the Fund of the dividends,
distributions and deemed distributions made by the Fund to its shareholders.
Furthermore, shareholders will be sent, if appropriate, various written notices
after the close of the Fund's taxable year regarding certain dividends,
distributions and deemed distributions that were paid (or that were treated as
having been paid) by the Fund to its shareholders during the preceding taxable
year.
NET ASSET VALUE
Net asset value is determined no less frequently than weekly, on the last
business day of each week and at such other times as the Board of Directors may
determine, by dividing the value of the net assets of the Fund (the value of its
assets less its liabilities including borrowings, exclusive of capital stock and
surplus) by the total number of shares of Common Stock outstanding. In valuing
the Fund's assets, all securities for which market quotations are readily
available are valued (i) at the last sale price prior to the time of
determination if there was a sale on the date of determination, (ii) at the mean
between the last current bid and asked prices if there was no sales price on
such date and bid and asked quotations are available, and (iii) at the bid price
if there was no sales price on such date and only bid quotations are available.
Publicly traded government debt securities are typically traded internationally
on the over-the-counter market, and are valued at the mean between the last
current bid and asked price as at the close of business of that market. In
instances where a price determined above is deemed not to represent fair market
value, the price is determined in such manner as the Board of Directors may
prescribe. Securities may be valued by independent pricing services which use
prices provided by market-makers or estimates of market values obtained from
yield data relating to instruments or securities with similar characteristics.
Short-term investments having a maturity of 60 days or less are valued at
amortized cost, unless the Board of Directors determines that such valuation
does not constitute fair value. In valuing assets, prices denominated in foreign
currencies are converted to U.S. dollar equivalents at the current exchange
rate. Securities for which reliable quotations or pricing services are not
readily available and all other securities and assets are valued at fair value
as determined in good faith by, or under procedures established by, the Board of
Directors.
DESCRIPTION OF CAPITAL STOCK
Common Stock
The authorized capital stock of the Fund is 100,000,000 shares of Common
Stock ($0.001 par value). All shares of Common Stock are equal as to dividends,
distributions and voting privileges. There are no conversion, preemptive
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or other subscription rights. In the event of liquidation, each share of Common
Stock is entitled to its proportion of the Fund's assets after debts and
expenses. There are no cumulative voting rights for the election of directors.
The Fund has no present intention of offering additional shares of its
Common Stock. Other offerings of its Common Stock, if made, will require
approval of the Fund's Board of Directors. Any additional offering will be
subject to the requirements of the 1940 Act that shares of Common Stock may not
be sold at a price below the then current net asset value (exclusive of
underwriting discounts and commissions) except in connection with an offering to
existing shareholders or with the consent of a majority of the Fund's
outstanding Common Stock. The Board of Directors has authorized the officers of
the Fund in their discretion, subject to compliance with the 1940 Act and other
applicable law, to purchase in the open market up to 5% of the outstanding
Common Stock in the event that the Common Stock trades at a discount to net
asset value. There is no assurance that any such open market purchases will be
made and such authorization may be terminated at any time.
The following chart indicates the shares of the Common Stock outstanding as
of September 30, 1996:
Amount
Outstanding
Exclusive of
Amount Held by Amount Held by
Amount Registrant or for Registrant or for
Title of Class Authorized its Own Account its Own Account
- -------------- ---------- ----------------- -----------------
Common Stock 100,000,000 0 20,514,984
Preferred Stock
The Fund's Articles of Incorporation provide that the Board of Directors
may classify or reclassify any unissued shares of capital stock into one or more
additional or other classes or series, with rights as determined by the Board of
Directors, by action by the Board of Directors without the approval of the
holders of Common Stock. Holders of Common Stock have no preemptive right to
purchase any shares of preferred stock that might be issued. The terms of any
preferred stock, including its dividend rate, liquidation preference and
redemption provisions will be determined by the Board of Directors (subject to
applicable law and the Fund's Articles of Incorporation). No shares of preferred
stock are issued or outstanding and the Fund has no present intention of
offering shares of preferred stock.
Future Actions Relating to a Discount in the Price of the Fund's Shares of
Common Stock
Shares of closed-end investment companies frequently trade at discounts
from net asset value. The Fund's shares have historically traded at a discount
from net asset value. The Fund cannot predict whether its shares of Common Stock
will trade above, at or below net asset value in the future. The market price of
the Fund's shares of Common Stock in the future will be determined by, among
other things, the supply and demand for the Fund's shares, the Fund's investment
performance and investor perception of the Fund's overall attractiveness as an
investment as compared with alternative investments. If, at any time, shares of
the Fund's Common Stock publicly trade for a substantial period of time at a
substantial discount from the Fund's then current net asset value per share, the
Fund's Board of Directors will consider, at its next regularly scheduled
meeting, authorizing various actions designed to eliminate the discount. The
actions considered by the Board of Directors may include periodic repurchases of
shares or recommending to shareholders amendments to the Fund's Articles of
Incorporation to convert the Fund to an open-end investment company. The Board
of Directors will consider all relevant factors in determining whether to take
any such actions, including the effect of such actions on the Fund's status as a
regulated investment company under the Code and the availability of cash to
finance these repurchases in view of the restrictions on the Fund's ability to
borrow. No assurance can be given that the Fund will convert to an open-end
investment company or that share repurchases will be made or that, if made, they
will reduce or eliminate market discount. Should any such repurchases be made in
the future, it is expected that they would be made at prices at or below the
current net asset value per share. Any such repurchases would cause the Fund's
net assets to decrease, which may have the effect of increasing the Fund's
expense ratio.
In considering whether to recommend to shareholders the conversion of the
Fund to an open-end investment company, the Fund's Board of Directors would
consider a number of factors including whether the Fund's ability to operate in
accordance with its investment policies, such as its authority to invest in
illiquid securities, may be impaired
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as a result. In light of the position of the SEC that illiquid securities may
not exceed 15% of the total assets of a registered open-end investment company,
any attempt to convert the Fund to such a company would have to take into
account the percentage of such securities in the Fund's portfolio at the time,
and other factors. The Fund cannot predict whether on this basis it would be
able to effect any such conversion or whether relief from the SEC's position, if
sought, could be obtained. Under certain circumstances, a shareholder vote may
be required to authorize periodic repurchases of the Fund's shares of Common
Stock. In considering whether to recommend to shareholders such authorization,
the Board of Directors similarly would consider a number of factors including
limitations that may be placed on the Fund's investment policies as a
consequence of such repurchase policy.
Any amendment to the Fund's Articles of Incorporation that would convert
the Fund to an open-end investment company would require the approval of the
holders of the outstanding Common Stock. See "Description of Capital
Stock-Special Voting Provisions" for a discussion of voting requirements
applicable to conversion of the Fund to an open-end investment company. If the
Fund converted to an open-end investment company, it could be required to
liquidate its portfolio investments to meet requests for redemption, and the
Common Stock would no longer be listed on the NYSE. Shareholders of an open-end
investment company may require the company to redeem their shares at any time
(except in certain circumstances as authorized by or under the 1940 Act) at the
net asset value, less such redemption charge, if any, as might be in effect at
the time of redemption.
Special Voting Provision
The Fund presently has provisions in its Charter and By-Laws (commonly
referred to as "anti-takeover" provisions) which may have the effect of limiting
the ability of other entities or persons to acquire control of the Fund, to
cause it to engage in certain transactions or to modify its structure.
First, a director may be removed from office only for cause by vote of at
least 75% of the Shares entitled to be voted on the matter. Second, the
affirmative vote of 75% of the entire Board of Directors is required to
authorize the conversion of the Fund from a closed-end to an open-end investment
company. The conversion also requires the affirmative vote of holders of at
least 75% of the Common Stock unless it is approved by a vote of 75% of the
Continuing Directors (as defined below), in which event such conversion requires
the approval of the holders of a majority of the Common Stock. A "Continuing
Director" is any member of the Board of Directors of the Fund who (i) is not a
person or affiliate of a person who enters or proposed to enter into a Business
Combination (as defined below) with the Fund (an "Interested Party") and (ii)
who has been a member of the Board of Directors for a period of at least 12
months, or is a successor of a Continuing Director who is unaffiliated with an
Interested Party and is recommended to succeed a Continuing Director by a
majority of the Continuing Directors then on the Board of Directors of the Fund.
Third, the Board of Directors is classified into three classes, each with a
term of three years with only one class of directors standing for election in
any year. Such classification may prevent replacement of a majority of the
directors for up to a two year period. The affirmative vote of at least 75% of
the Shares will be required to amend the Charter or By-Laws to change any of the
provisions in the preceding two paragraphs.
Additionally, the affirmative vote of 75% of the entire Board of Directors
and the holders of at least (i) 80% of the Common Stock and (ii) in the case of
a Business Combination (as defined below), 662/3% of the Common Stock other than
Common Stock held by an Interested Party who is (or whose affiliate is) a party
to a Business Combination (as defined below) or an affiliate or associate of the
Interested Party, are required to authorize any of the following transactions:
(i) merger, consolidation or statutory share exchange of the Fund with
or into any other person;
(ii) issuance or transfer by the Fund (in one or a series of
transactions in any 12 month period) of any securities of the Fund to any
person or entity for cash, securities or other property (or combination
thereof) having an aggregate fair market value of $1,000,000 or more,
excluding issuances or transfers of debt securities of the Fund, sales of
securities of the Fund in connection with a public offering, issuances of
securities of the Fund pursuant to a dividend reinvestment plan adopted by
the Fund and issuances of securities of the Fund upon the exercise of any
stock subscription rights distributed by the Fund and portfolio
transactions effected by the Fund in the ordinary course of its business;
(iii) sale, lease, exchange, mortgage, pledge, transfer or other
disposition by the Fund (in one or a series of transactions in any 12 month
period) to or with any person or entity of any assets of the Fund having an
aggregate fair market value of $1,000,000 or more except for portfolio
transaction (including pledges of portfolio securities in connection with
borrowings) effected by the Fund in the ordinary course of its business
(transactions within clauses (i), (ii) and (iii) above being known
individually as a "Business Combination");
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(iv) the voluntary liquidation or dissolution of the Fund, or an
amendment to the Fund's Charter to terminate the Fund's existence; or
(v) unless the 1940 Act or federal law requires a lesser vote, any
stockholder proposal as to specific investment decisions made or to be made
with respect to the Fund's assets as to which stockholder approval is
required under federal or Maryland law.
However, the stockholder vote described above will not be required with
respect to the foregoing transactions (other than those set forth in (v) above)
if they are approved by a vote of 75% of the Continuing Directors. In that case,
if Maryland law requires, the affirmative vote of a majority of the votes
entitled to be cast thereon shall be required. The Fund's By-Laws contain
provisions the effect of which is to prevent matters, including nominations of
directors, from being considered at a stockholders' meeting where the Fund has
not received notice of the matters at least 60 days prior to the meeting (or 10
days following the date notice of such meeting is given by the Fund if less than
70 days' notice of such meeting is given by the Fund).
Reference is made to the Articles of Incorporation and By-Laws of the Fund,
on file with the Commission, for the full text of these provisions. See "Further
Information." The percentage of votes required under these provisions, which are
greater than the minimum requirements under Maryland law absent the elections
described above or in the 1940 Act, will make more difficult a change in the
Fund's business or management and may have the effect of depriving stockholders
of an opportunity to sell shares at a premium over prevailing market prices by
discouraging a third party from seeking to obtain control of the Fund in a
tender offer or similar transaction. The Fund's Board of Directors, however, has
considered these anti-takeover provisions and believes they are in the best
interests of stockholders.
In addition, in the opinion of the Investment Manager and the Investment
Adviser, these provisions offer several advantages. They may require persons
seeking control of the Fund to negotiate with its management regarding the price
to be paid for the shares required to obtain such control, they promote
continuity and stability and they enhance the Fund's ability to pursue long-term
strategies that are consistent with its investment objective.
CUSTODIAN, TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
The Chase Manhattan Bank, Chase MetroTech Center, Brooklyn, New York 11245,
serves as custodian for the Fund's assets. PNC Bank, National Association, 103
Bellevue Parkway, Wilmington, Delaware 19809, serves as the transfer agent,
dividend paying agent and registrar for the Fund's Common Stock.
EXPERTS
The financial statements of the Fund included in the Fund's Annual Report
to Shareholders as of October 31, 1995, have been incorporated by reference in
this Prospectus in reliance on the report of Price Waterhouse LLP, 1177 Avenue
of the Americas, New York, New York, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
FURTHER INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports, proxy statements
and other information with the Commission. Such reports, proxy statements and
other information filed by the Fund can be inspected and copied at public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; Seven World Trade Center, 13th Floor, New York, New York
10048; and 500 West Madison Street, Chicago, Illinois 60661. The Fund's Common
Stock is listed on the New York Stock Exchange. Reports, proxy statements and
other information concerning the Fund can be inspected and copied at the Library
of the New York Stock Exchange at 20 Broad Street, New York, New York 10005.
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APPENDIX A
GENERAL CHARACTERISTICS AND RISKS OF DERIVATIVES
A detailed discussion of the Derivatives (as defined below) that may be
done by the Investment Adviser on behalf of the Fund follows below. The Fund is
not obligated, however, to do any Derivatives and makes no representation as to
the availability of these techniques at this time or at any time in the future.
"Derivatives," as used in this Appendix A, refers to entering into interest
rate, currency or stock index futures contracts, currency forward contracts and
currency swaps, the purchase and sale (or writing) of exchange listed and
over-the-counter ("OTC") put and call options on debt and equity securities,
currencies, interest rate, currency or stock index futures and fixed income and
stock indices and other financial instruments, entering into various interest
rate transactions such as swaps, caps, floors, collars, entering into equity
swaps, caps, floors or trading in other types of derivatives.
The Fund's ability to pursue certain of these strategies may be limited by
the U.S. Commodity Exchange Act, as amended, applicable regulations of the
Commodity Futures Trading Commission ("CFTC") thereunder and the federal income
tax requirements applicable to regulated investment companies which are not
operated as commodity pools.
Put and Call Options on Securities and Indices
The Fund may purchase and sell put and call options on debt and equity
securities and indices based upon the prices of debt or equity securities. A put
option on a security gives the purchaser of the option the right to sell and the
writer the obligation to buy the underlying security at the exercise price
during the option period. The Fund may also purchase and sell options on indices
based upon the prices of debt or equity securities ("index options"). Index
options are similar to options on securities except that, rather than taking or
making delivery of securities underlying the option at a specified price upon
exercise, an index option gives the holder the right to receive cash upon
exercise of the option if the level of the index upon which the option is based
is greater, in the case of a call, or less in the case of a put, than the
exercise price of the option. The purchase of a put option on a security would
be designed to protect against a substantial decline in the market value of a
security held by the Fund. A call option on a security gives the purchaser of
the option the right to buy and the writer the obligation to sell the underlying
security at the exercise price during the option period. The purchase of a call
option on a security would be intended to protect the Fund against an increase
in the price of a security that it intended to purchase in the future. In the
case of either put or call options that it has purchased, if the option expires
without being sold or exercised, the Fund will experience a loss in the amount
of the option premium plus any related commissions. When the Fund sells put and
call options, it receives a premium as the seller of the option. The premium
that the Fund receives for writing the option will serve as a partial hedge, in
the amount of the option premium, against changes in the value of the securities
in its portfolio. During the term of the option, however, a covered call seller
has, in return for the premium on the option, given up the opportunity for
capital appreciation above the exercise price of the option if the value of the
underlying security increases, but has retained the risk of loss should the
price of the underlying security decline. Conversely, a secured put seller
retains the risk of loss should the market value of the underlying security
decline below the exercise price of the option, less the premium received on the
sale of the option. The Fund is authorized to purchase and sell exchange listed
options and over-the-counter options ("OTC Options") which are privately
negotiated with the counterparty to such contract. Listed options are issued by
the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options.
All such call options sold (written) by the Fund will be "covered" as long
as the call is outstanding (i.e., the Fund will own the instrument subject to
the call or other securities or assets acceptable under applicable segregation
and coverage rules). All such put options sold (written) by the Fund will be
secured by segregated assets consisting of cash or liquid high grade debt
securities having a value not less than the exercise price.
The Fund's ability to close out its position as a purchaser or seller of an
exchange listed put or call option is dependent upon the existence of a liquid
secondary market. Among the possible reasons for the absence of a liquid
secondary market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities; (iv)
interruption of the normal operations on an exchange; (v) inadequacy of the
facilities of an exchange or the OCC to handle current trading volume; or (vi) a
decision by one or more exchanges to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options on that exchange that had been listed by the OCC as
a result of trades on that exchange would generally continue to be exercisable
in accordance with their terms. OTC Options are purchased from or sold to
dealers, financial
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institutions or other counterparties which have entered into direct agreements
with the Fund. With OTC Options, such variables as expiration date, exercise
price and premium will be agreed upon between the Fund and the counterparty,
without the intermediation of a third party such as the OCC. If the counterparty
fails to make or take delivery of the securities underlying an option it has
written, or otherwise settle the transaction in accordance with the terms of
that option as written, the Fund would lose the premium paid for the option as
well as any anticipated benefit of the transaction. As the Fund must rely on the
credit quality of the counterparty rather than the guarantee of the OCC, it will
only enter into OTC Options with counterparties with the highest long-term
credit ratings, and with primary United States government securities dealers
recognized by the Federal Reserve Bank of New York.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying markets that cannot be
reflected in the option markets.
Futures Contracts and Options on Futures Contracts
Characteristics. The Fund may purchase and sell futures contracts on
interest rates and indices of debt and equity securities and purchase and sell
(write) put and call options on such futures contracts traded on recognized
domestic exchanges as a hedge against anticipated interest rate changes or
movements in equity markets. The sale of a futures contract creates an
obligation by the Fund, as seller, to deliver the specific type of financial
instrument called for in the contract at a specified future time for a specified
price. Options on futures contracts are similar to options on securities except
that an option on a futures contract gives the purchaser the right in return for
the premium paid to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put).
Margin Requirements. At the time a futures contract is purchased or sold,
the Fund must allocate cash or securities as a deposit payment ("initial
margin"). It is expected that the initial margin that the Fund will pay may
range from approximately 1% to approximately 5% of the value of the instruments
underlying the contract. In certain circumstances, however, such as during
periods of high volatility, the Fund may be required by an exchange to increase
the level of its initial margin payment. Additionally, initial margin
requirements may be increased in the future pursuant to regulatory action. An
outstanding futures contract is valued daily and the payment in cash of
"variation margin" may be required, a process known as "marking to the market."
Transactions in listed options and futures are usually settled by entering into
an offsetting transaction, and are subject to the risk that the position may not
be able to be closed if no offsetting transaction can be arranged.
Limitations on Use of Futures Contracts and Options on Futures Contracts.
The Fund's use of futures contracts and options on futures contracts will in all
cases be consistent with applicable regulatory requirements and in particular,
the rules and regulations of the CFTC.
The Fund will not engage in transactions in futures contracts or options
thereon for speculative purposes but only as a hedge against changes resulting
from market conditions in the values of securities in its portfolio; provided,
however, that the Fund may enter into futures contracts or options thereon for
purposes other than bona fide hedging if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open contracts and options would
not exceed 5% of the liquidation value of the Fund's portfolio; provided,
further, that in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. Also, when required, a segregated account of cash or cash
equivalents will be maintained and marked to market in an amount equal to the
market value of the contract. The Investment Adviser reserves the right to
comply with such different standards as may be established from time to time by
CFTC rules and regulations with respect to the purchase and sale of futures
contracts and options thereon.
Currency Transactions
The Fund may engage in currency transactions with counterparties to hedge
the value of portfolio securities denominated in particular currencies against
fluctuations in relative value. Currency transactions include currency forward
contracts, exchange listed currency futures contracts, exchange listed and OTC
Options on currencies and currency swaps. A forward currency contract involves a
privately negotiated obligation to purchase or sell (with delivery generally
required) a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. A currency swap is an agreement to exchange cash flows
based on the notional difference among two or more currencies and operates
similarly to an interest rate swap, which is described below. The Fund may enter
into currency transactions with counterparties that
38
<PAGE>
have received (or the guarantors of the obligations of that have received) a
credit rating of P-1 or A-1 by Moody's or S&P, respectively, or that have an
equivalent rating from an NRSRO or (except for OTC currency options) are
determined to be of equivalent credit quality by the Investment Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures contracts, options, options on futures contracts
and swaps will be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is entering into a currency transaction
with respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of the Fund's portfolio securities
or the receipt of income from them. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency. The Fund will not enter into a transaction to
hedge currency exposure to an extent greater, after netting all transactions
intended wholly or partially to offset other transactions, than the aggregate
market value (at the time of entering into the transaction) of the securities
held in the Fund's portfolio that are denominated or generally quoted in or
currently convertible into the currency, other than with respect to proxy
hedging as described below.
The Fund may cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure. To reduce the effect of currency fluctuations on the
value of existing or anticipated holdings of portfolio securities, the Fund may
also engage in proxy hedging. Proxy hedging is often used when the currency to
which the Fund's portfolio is exposed is difficult to hedge or to hedge against
the dollar. Proxy hedging entails entering into a forward contract to sell a
currency, the changes in the value of which are generally considered to be
linked to a currency or currencies in which some or all of the Fund's portfolio
securities are or are expected to be denominated, and to buy dollars. The amount
of the contract would not exceed the value of the Fund's securities denominated
in linked currencies. Currency hedging involves some of the same risks and
considerations as other transactions with similar instruments. Currency
transactions can result in losses to the Fund if the currency being hedged
fluctuates in value to a degree or in a direction that is not anticipated.
Further, the risk exists that the perceived linkage between various currencies
may not be present or may not be present during the particular time that the
Fund is engaging in proxy hedging. If the Fund enters into a currency hedging
transaction, the Fund will comply with the asset segregation requirements
described below.
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be adversely affected by
government exchange controls, limitations or restrictions on repatriation of
currency, and manipulations or exchange restrictions imposed by governments.
These forms of governmental actions can result in losses to the Fund if it is
unable to deliver or receive currency or monies in settlement of obligations and
could also cause hedges it has entered into to be rendered useless, resulting in
full currency exposure as well as incurring transaction costs. Buyers and
sellers of currency futures are subject to the same risks that apply to the use
of futures generally. Further, settlement of a currency futures contract for the
purchase of most currencies must occur at a bank based in the issuing nation.
Trading options on currency futures is relatively new, and the ability to
establish and close out positions on these options is subject to the maintenance
of a liquid market that may not always be available. Currency exchange rates may
fluctuate based on factors extrinsic to that country's economy.
Interest Rate Transactions
The Fund may enter into interest rate swaps and may purchase or sell
interest rate caps and floors. The Fund would enter into these transactions
primarily to preserve a return or spread on a particular investment or portion
of its portfolio, to manage the duration of its portfolio or to protect against
any increase in the price of the securities the Fund anticipates purchasing at a
later date. The Fund will not sell interest rate caps or floors that it does not
own.
The Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending on whether it is hedging its
assets or liabilities, and will usually enter into interest rate swaps on a net
basis, i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments on the
payment date. The Fund will not enter into any interest rate swap, cap or floor
transaction unless the unsecured senior debt or the claims-paying ability of the
other party thereto is rated in the highest rating category of at least one
nationally recognized rating organization at the time of entering into such
transaction. If there is a default by the other party to such a transaction, the
Fund will have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. Caps and floors are more
recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps.
39
<PAGE>
Equity Swaps and Related Transactions
The Fund may enter into equity swaps and may purchase or sell equity caps
and floors. The Fund would enter into these transactions primarily to preserve a
return or spread on a particular investment or portion of its portfolio, or to
protect against any increase in the price of the securities the Fund anticipates
purchasing at a later date. The Fund will not sell equity caps or floors that it
does not own.
The Fund may enter into equity swaps, caps and floors on either an
asset-based or liability-based basis, depending on whether it is hedging its
assets or liabilities, and will usually enter into equity swaps on a net basis,
i.e., the two payment streams are netted out, with the Fund receiving or paying,
as the case may be, only the net amount of the two payments on the payment date.
The Fund will not enter into any equity swap, cap or floor transaction unless
the unsecured senior debt or the claims-paying ability of the other party
thereto is rated in the highest rating category of at least one nationally
recognized rating organization at the time of entering into such transaction. If
there is a default by the other party to such a transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. Caps and floors are more recent innovations for
which standardized documentation has not yet been developed and, accordingly,
they are less liquid than swaps.
Risks of Derivatives
Derivatives involves special risks, including possible default by the other
party to the transaction, illiquidity and, to the extent the Investment
Adviser's view as to certain market movements is incorrect, the risk that the
use of Derivatives could result in losses greater than if such investment
strategies had not been used. Use of put and call options could result in losses
to the Fund, force the sale or purchase of portfolio securities at an
inopportune time or for prices higher than (in the case of put options) or lower
than (in the case of call options) current market values, or cause the Fund to
hold a security it might otherwise sell. The use of currency transactions could
result in the Fund's incurring losses as a result of the imposition of exchange
controls, suspension of settlements, or the inability to deliver or receive a
specified currency. The use of options and futures transactions entails certain
special risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of the Fund could create the possibility that losses on the hedging
instrument are greater than gains in the value of the Fund's position. In
addition, futures and options markets could be illiquid in some circumstances
and certain over-the-counter options could have no markets. As a result, in
certain markets, the Fund might not be able to close out a position without
incurring substantial losses. Although the Fund's use of futures and options
transactions for hedging purposes should tend to minimize the risk of loss due
to a decline in the value of the hedged position at the same time it will tend
to limit any potential gain to the Fund that might result from an increase in
value of the position. Finally, the daily variation margin requirements for
futures contracts create a greater ongoing potential financial risk than would
purchases of options, in which case the exposure is united to the cost of the
initial premium and transaction costs. Losses resulting from Derivatives will
reduce the Fund's net asset value, and possibly income, and the losses can be
greater than if the Derivatives had not been used.
When conducted outside the United States, Derivatives may not be regulated
as rigorously as in the United States, may not involve a clearing mechanism and
related guarantees, and will be subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of positions taken as part of non-U.S. Derivatives also
could be adversely affected by: (1) other complex foreign political, legal and
economic factors; (2) lesser availability of data on which to make trading
decisions than in the United States; (3) delays in the Fund's ability to act
upon economic events occurring in foreign markets during non-business hours in
the United States; (4) the imposition of different exercise and settlement terms
and procedures and margin requirements than in the United States; and (5) lower
trading volume and liquidity.
Segregation and Cover Requirements
Much of the Derivatives which may be entered into by the Fund is subject to
segregation and coverage requirements established by either the CFTC or the SEC,
with the result that, if the Fund does not hold the instrument underlying the
futures contract or option, the Fund will be required to segregate on an ongoing
basis with its custodian, cash or other liquid assets in an amount at least
equal to the Fund's obligations with respect to such instruments. Such amounts
will fluctuate as the market value of the obligations increases or decreases.
The segregation requirement can result in the Fund maintaining positions it
would otherwise liquidate and consequently segregating assets
40
<PAGE>
with respect thereto at a time when it might be disadvantageous to do so. In
addition, with respect to futures contracts purchased by the Fund, the Fund will
also be subject to the segregation requirements with respect to the value of the
instruments underlying the futures contract.
Other Limitations
The degree of the Fund's use of Derivatives may be limited by certain
provisions of the Code. See "Taxation" in the Prospectus.
41
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Prospectus, and, if given or made, such information or representation must
not be relied upon as having been authorized by the Fund, the Fund's investment
manager or adviser or Oppenheimer & Co., Inc. This Prospectus does not
constitute an offer to sell or solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
----------
TABLE OF CONTENTS
Page
----
Prospectus Summary ........................................................ 2
Summary of Expenses ....................................................... 8
The Fund .................................................................. 10
Use of Proceeds ........................................................... 10
Investment Objective and Policies ......................................... 11
Additional Investment Activities .......................................... 14
Investment Restrictions ................................................... 16
Risk Factors and Special Considerations ................................... 17
Management of the Fund .................................................... 22
Portfolio Transactions .................................................... 26
Dividends and Distributions; Dividend Reinvestment
and Cash Purchase Plan ................................................. 27
Taxation .................................................................. 29
Net Asset Value ........................................................... 33
Description of Capital Stock .............................................. 33
Custodian, Transfer Agent, Dividend-Paying Agent
and Registrar .......................................................... 36
Experts ................................................................... 36
Further Information ....................................................... 36
Appendix A: General Characteristics and
Risks of Hedging ....................................................... 37
================================================================================
================================================================================
THE ASIA TIGERS
FUND, INC.
Common Stock
---------------
PROSPECTUS
---------------
Oppenheimer & Co., Inc.
October 9, 1996
================================================================================
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements
Parts A & B The Asia Tigers Fund, Inc.
(i) Schedule of Investments as of April 30, 1996 (unaudited)*
(ii) Statement of Assets and Liabilities as of April 30, 1996
(unaudited)*
(iii) Statement of Operations for the six months ended April 30, 1996
(unaudited)*
(iv) Statement of Changes in Net Assets for six months ended April 30,
1996 (unaudited)*
(v) Notes to Unaudited Financial Statements*
(vi) Schedule of Investments as of October 31, 1995**
(vii) Statement of Assets and Liabilities as of October 31, 1995 **
(viii) Statement of Operations for the year ended October 31, 1995**
(ix) Statement of Changes in Net Assets for the year ended October 31,
1995, and for the period November 29, 1993 (commencement of
operations) to October 31, 1994**
(x) Financial Highlights**
(xi) Notes to Audited Financial Statements**
(xiii) Report of Independent Auditors**
- -----------------------
*Incorporated by reference to the Fund's Semiannual Report to Shareholders for
the six months ended April 30, 1996, filed with the Securities and Exchange
Commission.
**Incorporated by reference to the Fund's Annual Report to Shareholders for the
fiscal year ended October 31, 1995, filed with the Commission.
(2) Exhibits
(a) Articles of Incorporation(1)
(b) By-Laws(2)
(c) Not applicable.
(d) Not applicable.
1 Incorporated by reference to exhibit (b) to the Registrant's
initial Registration Statement on Form N-2, filed September 24,
1993 (File No. 33-69366).
2 Incorporated by reference to exhibit (b) to the Registrant's
initial Registration Statement on Form N-2, filed September 24,
1993 (File No. 33-69366).
C-1
<PAGE>
(e) Dividend Reinvestment and Cash Purchase Plan.(3)
(f) Not applicable.
(g)(A) Management Agreement between the Fund and Advantage Advisers,
Inc.(4)
(g)(B) Investment Advisory Agreement among the Fund, BZW Investment
Management Inc. and Advantage Advisers, Inc.(5)
(g)(C) Form of Administration Agreement between the Fund and
Oppenheimer & Co., Inc.(6)
(h) Underwriting Agreement.(7)
(i) Not applicable.
(j) Form of Custodian Agreement between the Fund and The Chase
Manhattan Bank, N.A.(8)
(k)(A) Form of Transfer Agency Services Agreement between the Fund and
PNC Bank, National Association.(9)
(l)(A) Opinion and Consent of Simpson Thacher & Bartlett.(10)
(l)(B) Opinion and Consent of Piper & Marbury.(11)
(m) Not applicable.
(n) Consent of Price Waterhouse LLP, independent accountants (filed
herewith).
(o) Not applicable.
(p) Form of Share Purchase Agreement between the Fund, BZW
Investment Management Inc. and Oppenheimer & Co., Inc.(12)
(q) Not applicable.
(r) Financial Data Schedules.
(s) Powers of Attorney (to be filed by amendment).
- ---------------------------
3 Incorporated by reference to exhibit (e) to Pre-Effective Amendment No. 2
to the Registrant's Registration Statement on Form N-2, filed November 12,
1993 (File No. 33-69366).
4 Incorporated by reference to exhibit (g)(A) to Pre-Effective Amendment No.
2 to the Registrant's Registration Statement on Form N-2, filed November
12, 1993 (File No. 33-69366).
5 Incorporated by reference to exhibit (g)(B) to Pre-Effective Amendment No.
2 to the Registrant's Registration Statement on Form N-2, filed November
12, 1993 (File No. 33-69366).
6 Incorporated by reference to exhibit (g)(C) to Pre-Effective Amendment No.
2 to the Registrant's Registration Statement on Form N-2, filed November
12, 1993 (File No. 33-69366).
7 The Shares offered by the Prospectus will be offered in order to effect
over-the-counter secondary market transactions by Oppenheimer & Co., Inc.
("Oppenheimer") in its capacity as a dealer and secondary market maker and
not pursuant to any agreement with the Fund. Shares were originally issued
in a public offering pursuant to an Underwriting Agreement, incorporated by
reference to exhibit (h)(A) to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form N-2, filed November 12, 1993
(File No. 33-69366), and related documents, exhibits (h)(B) and (h)(C) to
Pre-Effective Amendment No. 2.
8 Incorporated by reference to exhibit (j) to Pre-Effective Amendment No. 2
to the Registrant's Registration Statement on Form N-2, filed November 12,
1993 (File No. 33-69366).
9 Incorporated by reference to exhibit (k)(A) to Pre-Effective Amendment No.
2 to the Registrant's Registration Statement on Form N-2, filed November
12, 1993 (File No. 33-69366).
10 Incorporated by reference to exhibit (l)(A) to Pre-Effective Amendment No.
3 to the Registrant's Registration Statement on Form N-2, filed November
18, 1993 (File No. 33-69366).
11 Incorporated by reference to exhibit (l)(B) to Pre-Effective Amendment No.
3 to the Registrant's Registration Statement on Form N-2, filed November
18, 1993 (File No. 33-69366).
12 Incorporated by reference to exhibit (p) to Pre-Effective Amendment No. 2
to the Registrant's Registration Statement on Form N-2, filed November 12,
1993 (File No. 33-69366).
13 Incorporated by reference to exhibit (s) to Pre-Effective Amendment No. 2
to the Registrant's Registration Statement on Form N-2, filed November 12,
1993 (File No. 33-69366).
C-2
<PAGE>
Item 25. Marketing Arrangements
Inapplicable. See note accompanying Item 24.2.h.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses expected to be incurred in
connection with the offering described in this Registration Statement:
Registration fees................................... $100
Printing and mailing................................ *
Accounting fees and expenses........................ *
Legal fees and expenses............................. *
Miscellaneous....................................... *
-----
Total ............................................. $ *
=====
- -------------
* To be completed by amendment.
Item 27. Persons Controlled by or under Common Control with Registrant
None.
Item 28. Number of Holders of Securities
As of September 30, 1996:
(2)
Number of
(1) Record
Title of Class Holders
- -------------- ---------
Common Stock, par value $0.001 ..........................................851
Item 29. Indemnification
Incorporated by reference to Item 29 of Part C to Pre-Effective Amendment
No. 13 to the Registration Statement on Form N-2, filed November 18, 1993 (File
No. 33-69366).
Item 30. Business and Other Connections of the Investment Adviser
Incorporated herein by reference to Item 30 of Part C to Pre-Effective
Amendment No. 3 to the Registration Statement on Form N-2, filed November 18,
1993 (File No. 33-69366).
Item 31. Location of Accounts and Records
Certain accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules promulgated thereunder are
maintained by Advantage Advisers, Inc. (the "Investment Manager"), Oppenheimer
Tower, World Financial Center, 200 Liberty Street, New York, New York 10281; BZW
Investment Management, Inc. (the "Investment Adviser"), Tower 49, 12 East 49th
Street - 33rd Fl., New York, New York 10017; Oppenheimer & Co., Inc.,
Oppenheimer Tower, World Financial Center, 200 Liberty Street, New York, New
York 10281; and PFPC Inc., 103 Bellevue Parkway, Wilmington, Delaware 19809.
Records relating to the duties of the Registrant's custodian are maintained by
The Chase Manhattan Bank, N.A., Chase MetroTech Center, Brooklyn, New York
11245, and records relating to the duties of the Registrant's transfer agent are
maintained by PNC Bank, National Association, 103 Bellevue Parkway, Wilmington,
Delaware 19809.
Item 32. Management Services
Not applicable.
C-3
<PAGE>
Item 33. Undertakings
The undertakings of the Registrant as set forth in the Fund's Pre-Effective
Amendment No. 3 to its Registration Statement on Form N-2, filed November 18,
1993 (File No. 33-69366) are hereby revised as follows:
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the Act, each
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) To send by first class mail or other means designed to ensure equally
prompt delivery, within two business days of receipt of a written or oral
request, any Statement of Additional Information.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement and Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, and State of New York, on the 8th day
of October, 1996.
THE ASIA TIGERS FUND, INC.
(Registrant)
By: /s/ Alan Rappaport
---------------------------------------
Alan Rappaport
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
/s/ Alan Rappaport Chairman of the Board, October 9, 1996
- ----------------------- Director and President
Alan Rappaport (Principal Executive Officer)
/s/ Dennis E. Feeney Treasurer (Principal Financial October 9, 1996
- ----------------------- and Accounting Officer)
Dennis E. Feeney
/s/ Robert Blum Director October 9, 1996
- -----------------------
Robert Blum
/s/ Charles F. Barber Director October 9, 1996
- -----------------------
Charles F. Barber
/s/ Leslie H. Gelb Director October 9, 1996
- -----------------------
Leslie H. Gelb
/s/ Jeswald W. Salacuse Director October 9, 1996
- -----------------------
Jeswald W. Salacuse
C-5
