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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
REGISTRATION NO. 33-70374
811-8082
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 5 [x]
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 7 [x]
(CHECK APPROPRIATE BOX OR BOXES)
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FIRST EAGLE INTERNATIONAL FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
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1345 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10105
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 698-3000
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JOHN P. ARNHOLD
1345 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10105
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
WILLIAM H. BOHNETT, ESQ.
FULBRIGHT & JAWORSKI L.L.P.
666 FIFTH AVENUE
NEW YORK, NEW YORK 10103
------------------------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE
BOX):
[x] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b);
[ ] ON (DATE) PURSUANT TO PARAGRAPH (b);
[ ] 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(i);
[ ] ON (DATE) PURSUANT TO PARAGRAPH (a)(i);
[ ] 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(ii);
[ ] ON (DATE) PURSUANT TO PARAGRAPH (a)(ii) OF RULE 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[ ] THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A
PREVIOUSLY FILED POST-EFFECTIVE
AMENDMENT.
------------------------------
PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT OF 1940, REGISTRANT
HAS PREVIOUSLY REGISTERED AN INDEFINITE NUMBER OF SHARES OF ITS COMMON STOCK,
PAR VALUE $.01 PER SHARE. THE REGISTRANT LAST FILED A RULE 24f-2 NOTICE ON
FEBRUARY 20, 1997.
________________________________________________________________________________
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PROSPECTUS
Dated April 30, 1997
FIRST EAGLE INTERNATIONAL FUND, INC.
First Eagle International Fund, Inc. (the 'Fund') is an open-end,
non-diversified management investment company, or mutual fund, whose investment
objective is to achieve capital appreciation. The Fund believes that there is
substantial opportunity for capital appreciation from a professionally managed
portfolio of securities selected primarily from foreign, and to a lesser extent
domestic, equity and debt markets. Under normal circumstances, at least 65% of
the Fund's total assets will be invested in securities of foreign issuers. The
Fund's securities will be selected by the Fund's investment adviser, Arnhold and
S. Bleichroeder Advisers, Inc. (the 'Adviser'), on the basis of their appearing
to be undervalued in their respective trading markets relative to the issuer's
overall financial and managerial strength as measured by certain quantitative
and qualitative indicators. The Adviser believes that the Fund's exposure to
loss may be limited by investing in securities which, in the Adviser's opinion,
appear to be undervalued by the market relative to their 'intrinsic value' as
determined by the Adviser. The Fund also may invest in equity and debt
securities selected on other bases and engage in transactions involving other
types of investment instruments, including investment in high yield bonds,
borrowing for investment purposes, short sales and derivative transactions. See
'Highlights -- Risk Factors,' 'Investment Objective and Policies and Risk
Factors -- Debt Securities' and 'Investment Techniques' in the Prospectus and
'Additional Investment Information' in the Statement of Additional Information.
Investments in some of these other investment instruments and techniques are
considered speculative and investors should carefully read the Prospectus to
determine if an investment in the Fund meets their needs. There is no assurance
that the Fund's investment objective will be attained.
The Fund's shares are sold on a no-load basis. This Prospectus sets forth
concisely the information about the Fund that a prospective investor should know
before investing. Additional information about the Fund has been filed with the
Securities and Exchange Commission in a Statement of Additional Information,
dated April 30, 1997, which information is incorporated herein by reference and
may be obtained without charge by writing to the Fund's Transfer Agent, BISYS
Fund Services, Inc. P.O. Box 182497, Columbus, Ohio 43218-2497, or telephoning
BISYS Fund Services, Inc., at (800) 451-3623.
------------------------
Investors are urged to read this Prospectus and retain it for future reference.
------------------------
[Logo]
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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HIGHLIGHTS
<TABLE>
<S> <C>
Investment Objective The Fund is an open-end, non-diversified management investment company, or mutual
fund, registered under the Investment Company Act of 1940 (the 'Investment Company
Act'). The Fund's investment objective is to seek capital appreciation by pursuing a
flexible investment strategy emphasizing investment in foreign, and to a lesser
extent domestic, equity and debt securities believed by the Fund's investment
adviser to be undervalued in their respective trading markets. There is no assurance
that the Fund's investment objective will be attained. See 'Investment Objective and
Policies and Risk Factors.'
Risk Factors Investing in securities of foreign companies and governments may involve certain risks
in addition to those arising when investing in domestic securities. These risks
include the possibility of currency exchange rate fluctuations and revaluation of
currencies which may adversely affect the Fund's net asset value per share, the
existence of less publicly available information about issuers, different
accounting, auditing and financial reporting standards, less stringent securities
regulation, non-negotiable brokerage commissions, different tax provisions,
political or social instability, war or expropriation. Moreover, foreign stock and
bond markets generally are not as developed and efficient as those in the U.S. and,
therefore, the volume and liquidity in those markets may be less, and the volatility
of prices may be greater, than in U.S. markets. Settlement of transactions on
foreign markets may be delayed beyond what is customary in U.S. markets. These risks
generally are of greater concern in developing countries. See 'Investment Objective
and Policies and Risk Factors' in the Prospectus and 'Additional Investment
Information' in the Statement of Additional Information. To attempt to limit these
risks, the Fund may use some of the hedging opportunities described under
'Investment Techniques.'
To augment its investment return and limit its investment risk, the Fund may purchase
and sell financial and currency futures contracts and related options as well as
enter into other types of derivative transactions. Similarly, the Fund may purchase
call and put options and sell covered call and put options on equity and debt
securities and on stock indices. There are no limitations on the percentage of the
Fund's assets that may be invested in such securities and index options, provided
applicable coverage and collateral requirements are met. The Fund may invest in
securities on a when-issued basis, lend its portfolio securities, enter into
repurchase as well as reverse repurchase agreements, and engage in short sales of
securities and arbitrage transactions and may invest in high yield ('junk') bonds.
All these investment techniques and instruments involve special risks. See
'Investment Objective and Policies and Risk Factors' and 'Investment Techniques' in
the Prospectus and 'Additional Investment Information' in the Statement of
Additional Information.
The Fund may borrow for securities purchases and for temporary or emergency purposes.
The ability to borrow for securities purchases is called leveraging. Leveraging is a
speculative investment technique that carries certain risks and advantages which are
more fully disclosed in 'Investment Techniques.'
As a non-diversified investment company, the Fund's assets may be invested in a
limited number of issues. In that case, an investment in the Fund may present
greater risks than an investment in a diversified investment company. See
'Investment Objective and Policies and Risk Factors.'
Management Arnhold and S. Bleichroeder Advisers, Inc. (the 'Adviser'), a registered investment
adviser, serves as the Fund's investment adviser and is compensated for its services
to the Fund at the annual rate of 1.5% per annum of the Fund's average daily net
assets. The management fee is payable promptly after the close of each fiscal
quarter. The management fee paid by the Fund may be higher than the fees
</TABLE>
2
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<TABLE>
<S> <C>
paid by most other funds. The Adviser has agreed to waive its fee for, and to
reimburse expenses of, the Fund in an amount that operates to limit annual operating
expenses of the Fund for the year ending December 31, 1997 to not more than 2.25% of
daily net assets. Pursuant to a separate services agreement, Arnhold and S.
Bleichroeder, Inc., a registered broker-dealer, provides administrative and fund
accounting support services and liaison services to shareholders, including
assistance with subscriptions, redemptions and other shareholder questions, as well
as other services to shareholders and the Fund, for which it receives an annual fee
of up to .25% of the Fund's average daily net assets payable quarterly. See
'Management of the Fund -- Management and Services Fees.' Arnhold and
S. Bleichroeder, Inc. also serves as the Fund's Distributor and assumes the expenses
related to distributing the Fund's shares.
Purchase of Shares Shares of the Fund's common stock may be purchased through Arnhold and S.
Bleichroeder, Inc. at the net asset value next determined after receipt of an order
with complete information and meeting all the requirements discussed in this
Prospectus. There is no sales charge on purchases of the Fund's shares. The current
minimum initial investment is $5,000, except for employees of Arnhold and S.
Bleichroeder, Inc. who are subject to a $1,000 minimum initial investment, and
retirement plans which are subject to a $2,000 minimum initial investment. Also,
existing shareholders may establish or direct new accounts in the Fund with a
minimum initial investment amount of $1,000. All subsequent investments are subject
to a $1,000 minimum other than retirement accounts, for which there is no minimum
subsequent investment amount, and with respect to the Automatic Investment Plan,
which has a minimum subsequent investment of $100. All current minimum and
subsequent investment amounts may be changed or waived at any time. Shares of the
Fund may be purchased by submitting a completed Account Application and a check or
money order payable to First Eagle International Fund, Inc. to: First Eagle Funds,
P.O. Box 182497, Columbus, Ohio 43218-2497. See 'How to Purchase Shares.'
Liquidity Shares of the Fund may be redeemed at the option of the stockholder at any time at the
net asset value next determined after receipt of a redemption request. See 'How to
Redeem Shares.'
Dividends and
Reinvestment The Fund plans to distribute annual dividends of its net investment income and
distribute annually any net capital gains. All dividends and distributions will be
reinvested in full and fractional shares of the Fund at net asset value, unless the
stockholder elects to receive dividends and distributions in cash. See 'Stockholder
Investment Account' and 'Dividends, Distributions and Taxes.'
</TABLE>
3
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SUMMARY OF FUND EXPENSES
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<S> <C>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees....................................................................................... 1.50%
----
Other Expenses:
Services fees.................................................................................... .25%
----
Other expenses (after expense reimbursement).......................................................... .50%
----
Total Other Expenses.................................................................................. .75%
----
Total Annual Fund Operating Expenses.................................................................. 2.25%
----
----
</TABLE>
<TABLE>
<CAPTION>
10
EXAMPLE 1 YEAR 3 YEARS 5 YEARS YEARS
------ ------- ------- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming a 5% annual return and a redemption
at the end of each time period................................................ $23 $70 $120 $258
------ ------- ------- -----
</TABLE>
------------------------
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. The Adviser has agreed to waive its fee for, and to reimburse
expenses of, the Fund in an amount that operates to limit annual operating
expenses of the Fund for the year ending December 31, 1997 to not more than
2.25% of daily net assets. The Adviser estimates that, absent the limitation,
other expenses of the Fund would be approximately 1.15% and the total annual
expenses of the Fund would be 2.90%. See 'Management of the Fund -- Management
and Services Fees' below and 'Adviser' in the Statement of Additional
Information. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
4
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FINANCIAL HIGHLIGHTS
FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT THE PERIODS INDICATED
The following financial highlights have been audited by KPMG Peat Marwick
LLP, the Fund's auditors, and contain selected data for a share of common stock
outstanding, total return, ratio to average net assets and other supplemental
data for the periods indicated. This information should be read in conjunction
with the financial statements and the notes thereto and the independent
auditors' report thereon which appears in the Statement of Additional
Information.
Selected data for a share of common stock outstanding throughout each
period:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED FOR THE PERIOD FROM
DECEMBER 31, APRIL 4, 1994**
------------------- THROUGH
1996 1995 DECEMBER 31, 1994
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<S> <C> <C> <C>
Net asset value, beginning of year........................... $13.38 $12.37 $12.50
INCOME FROM INVESTMENT OPERATIONS
Net investment loss........................................ (0.16) (0.13) (0.02)
Net gains (losses) on investments (both realized and
unrealized)............................................. 2.29 1.57 (0.11)
------ ------ -------
Total from investment operations.............. 2.13 1.44 (0.13)
------ ------ -------
LESS DISTRIBUTIONS
Dividends (from net investment income)..................... -- -- --
Distributions (from capital gains)......................... (0.47) (0.43) --
------ ------ -------
Total distributions........................... (0.47) (0.43) --
------ ------ -------
Net asset value, end of year................................. $15.04 $13.38 $ 12.37
------ ------ -------
Total Return*................................................ 15.9% 11.6% (1.0)%`D'`D'
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year...................................... $32,105,280 $22,420,889 $20,152,024
Ratio of expenses to average net assets(1)................... 2.9% 3.1% 2.0%`D'
Ratio of net investment loss to average net assets........... (1.1)% (1.1)% (0.3)%`D'
Portfolio turnover rate...................................... 101% 166% 170%
Average commission rate paid on portfolio security purchases
and sales transactions(2).................................. $ 0.03 -- --
</TABLE>
* Past performance is not predictive of future performance
** Commencement of investment operations.
`D' Annualized
`D'`D' Total return not annualized
(1) During the year ended December 31, 1996, the Fund has earned credits from
the Custodian which reduce custodian fees incurred. If the credits are taken
into consideration, the ratio of expenses to average net assets would remain
at 2.9%.
(2) For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose the average commission rate per share for portfolio
security trades on which commissions are charged.
Further information regarding the Fund's performance is contained in the
annual report, a copy of which may be obtained without charge.
5
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INVESTMENT OBJECTIVE AND POLICIES AND RISK FACTORS
The investment objective of the Fund is to seek capital appreciation. The
Fund believes that there is substantial opportunity for capital appreciation
from a professionally managed portfolio of securities selected primarily from
foreign, and to a lesser extent domestic, equity and debt markets. The Fund
offers investors access to a geographically diverse portfolio, professional
research and analysis of issuers, markets and countries worldwide, and the
ability to invest in foreign securities without having to make individual
arrangements for brokers, safekeeping of securities and foreign currency
dealings. The Fund will invest internationally wherever the greatest
opportunities exist in accordance with the Fund's objective and policies as
discussed in this section.
The Fund will seek to achieve its investment objective by pursuing a
flexible investment strategy emphasizing investment in foreign, and to a lesser
extent domestic, equity and debt securities believed by the Adviser to be
undervalued in their respective trading markets relative to their 'intrinsic
value' as determined by the Adviser. The Adviser believes the Fund's exposure to
loss may be limited by investing part or all of its assets in undervalued
securities. The relative proportion of the Fund's assets invested in equity and
debt securities may vary depending on the Adviser's assessment of market
conditions and the market's relative valuations of such securities. The Fund may
also invest in permissible amounts of the other instruments described under
'Investment Techniques.' There is no assurance that the Fund's investment
objective will be achieved and that objective may be changed without the vote of
a majority of the Fund's outstanding voting securities.
A guiding principle in the Adviser's selection of investments for the
Fund's portfolio will be the consideration of common stocks as units of
ownership in a business. Debt securities will be considered if more attractive
than equity alternatives. The Adviser's evaluation of prospective equity and
debt investments generally will involve an analysis of the issuer's overall
financial and managerial strength as indicated by factors such as cash flow,
assets, earnings, market share, growth potential, stability and managerial
personnel. In addition to its analysis of a company's growth potential, the
Adviser also considers such factors as prospects for relative economic growth
among countries, regions, or geographic areas, expected levels of inflation,
government policies influencing business conditions and the outlook for currency
relationships. The Adviser will consider both large, well established and small,
unseasoned issuers. Investment income is of secondary importance in the
selection of investments for the Fund's portfolio but will be considered in
relation to the total expected return thereon. Under normal circumstances, at
least 65% of the Fund's total assets will be invested in securities of foreign
issuers.
The Fund is a non-diversified investment company and as such the Fund's
assets may be invested in a limited number of issues. An investment in the Fund
may therefore entail greater risks than an investment in a diversified
investment company.
INVESTMENT IN FOREIGN SECURITIES
Investing internationally provides the Fund with the flexibility to
diversify its portfolio geographically by analyzing the valuations of securities
in a variety of markets, including Europe, Latin America, the Pacific Basin and
to a lesser extent in the U.S., and investing wherever in the Adviser's opinion
the greatest opportunity for capital appreciation exists. Under normal
circumstances the Fund intends to invest in at least three different countries.
Although this investment flexibility may provide additional investment
opportunities for the Fund, investing in securities of foreign companies and
governments also presents certain risks in addition to those arising when
investing in domestic securities. These risks include the possibility of
currency exchange rate fluctuations and revaluation of currencies, the existence
of less publicly available information about issuers, different accounting,
auditing and financial reporting standards, less stringent securities
regulation, non-negotiable brokerage commissions, different tax provisions,
political or social instability, war or expropriation. Moreover, foreign stock
and bond markets generally are not as developed and efficient as those in
6
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the U.S. and, therefore, the volume and liquidity in those markets may be less,
and the volatility of prices may be greater, than in U.S. markets. Settlement of
transactions on foreign markets may be delayed beyond what is customary in U.S.
markets. The Fund may invest in developing countries considered to be emerging
market countries by the World Bank. The risks associated with investment in
foreign securities are generally greater in developing countries which may be
subject to adverse political, social or diplomatic developments. To attempt to
limit the risks of investing in foreign securities, the Fund may use some of the
hedging opportunities described under 'Investment Techniques' below.
DEBT SECURITIES
The Fund may invest in foreign and domestic money market instruments,
including commercial paper, certificates of deposit, bankers' acceptances and
other short-term debt obligations of foreign and domestic banks, provided those
obligations are of 'high quality' as determined by an unaffiliated nationally
recognized statistical rating service, or in the case of unrated obligations,
are of comparable quality as determined by the Fund's Board of Directors. The
Fund also may invest in corporate bonds of foreign and domestic issuers and
obligations issued or guaranteed by the United States Government, its
instrumentalities, or its agencies, or the government of any other nation
('fixed-income securities'). Various factors affect the price of fixed-income
securities. The rating (if any) which is associated with a particular issue may
cause price fluctuations and indicates generally the level of risk involved in
various rated fixed-income securities. Another factor which may cause price
fluctuations is the response of fixed-income securities to the general level of
interest rates. The price of fixed-income securities generally is inversely
correlated with interest rate movements. Additionally, the magnitude of the
effect of interest rate movements on the price of fixed-income securities is
positively correlated with the length of their maturities.
The Fund may invest in fixed-income securities rated below Baa by Moody's
Investors Service and BBB by Standard & Poor's Ratings Group, including those
rated C by Standard and Poor's and D by Moody's (the lowest rating categories),
only if in the opinion of the Adviser the financial condition of the issuer or
the protection afforded to the particular securities is stronger than would
otherwise be indicated by its lower rating. See 'Corporate Bond Ratings' in the
Appendix to the Prospectus. Since some issuers do not seek ratings for their
fixed-income securities, non-rated fixed-income securities will also be
considered for investment by the Fund, but only when the Adviser believes that
the financial condition of the issuer of those securities and/or the protection
afforded by the terms of the securities themselves limit the risk to the Fund to
a degree comparable to that of rated fixed-income securities which are
consistent with the Fund's investment objective and policies. Fixed-income
securities of the types described above are commonly referred to as 'high
yield,' 'high risk' or 'junk' bonds and generally are not meant for short-term
investing. The Fund has no current intention of investing more than 5% of its
net assets in high yield bonds.
Medium to lower rated and non-rated fixed-income securities are subject to
the risk of an issuer's inability to repay principal and interest payments on
the obligations. An economic downturn or a substantial period of rising interest
rates could severely affect the ability of certain highly leveraged issuers to
service their debt obligations or to repay their obligations upon maturity. The
risk of loss because of default by the issuers is significantly greater for
holders of these securities because such securities are generally unsecured and
often are subordinated to other creditors of the issuer. It is also possible
that the secondary market could contract, independent of any specific adverse
changes in the condition of a particular issuer. Prices realized upon the sale
of medium to lower rated or unrated securities, under those circumstances, may
be less than the prices used in calculating the Fund's net asset value. Certain
proposed and recently enacted federal laws could also adversely affect the
secondary market for these fixed-income securities as well as the financial
condition of issuers and the value of outstanding fixed-income securities. In
addition, overall credit quality of the Fund's portfolio may
7
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<PAGE>
decline if the Fund experiences unexpected net redemptions and is forced to sell
its higher rated securities. During the fiscal year ended December 31, 1996, the
Fund did not invest in debt obligations rated less than BBB/Baa or unrated by
any recognized statistical rating organizations.
The yields and prices of medium to lower rated and non-rated fixed-income
securities may fluctuate more than those for high rated fixed-income securities
because investors perceive greater risks to be associated with those securities.
In the lower quality and non-rated segments of the fixed-income securities
market, changes in perceptions of the issuers' creditworthiness may occur more
frequently and in a more pronounced manner relative to the high quality segments
of that market. This may result in greater yield and price volatility for lower
rated and non-rated fixed-income securities. See 'Additional Investment
Information' in the Statement of Additional Information. For further information
concerning debt securities in which the Fund may invest, see 'Investment in
Foreign Securities' above. The Fund may acquire debt securities pending
investment of proceeds from sales of Fund shares, or under market conditions
warranting a temporary defensive posture. If the Fund assumes a temporary
defensive posture, some of or all of its assets may be retained in cash or cash
equivalents.
WARRANTS
The Fund may invest in warrants (in addition to those that have been
acquired in units or attached to other securities) but does not currently intend
to invest more than 5% of the value of its net assets (at the time of
investment) in such warrants. A warrant is an option to purchase a specified
quantity of equity or debt securities at a set price within a specific period of
time. Warrants are speculative in nature because they have no voting rights, pay
no dividends and have no rights with respect to the assets of the corporation
issuing them. They do not represent ownership of the securities, but only the
right to buy them. The prices of warrants do not necessarily move parallel to
the prices of the underlying securities.
SPECIAL SITUATIONS
Many of the Fund's investments may be characterized as 'special
situations.' A special situation occurs when it appears that the market price of
a particular issue has the potential within an estimated time period to
appreciate significantly because of a development uniquely applicable to the
issuer, irrespective of general business conditions or market movements.
Special situations may arise from liquidations, reorganizations,
recapitalizations, or mergers, material litigation, technological breakthroughs,
new management or management policies, or other developments. Special situations
may, but do not necessarily, entail risks dissimilar to those involved in other
investment situations. Those risks are primarily attributable to the possibility
that the development anticipated in connection with the special situation may
occur later than expected or not at all, and that, even if it does occur, the
anticipated development may not have the desired effect on the market price of
the security involved in the special situation.
Special situations may also arise in connection with securities issued by
newly-formed or unseasoned companies without significant operating histories. It
may be more difficult to predict accurately the effect that certain developments
will have on the market prices for securities of those companies, and,
accordingly, to predict accurately when or whether special situations applicable
to their securities may come to fruition. The Fund's investments which may be
characterized as 'special situations' are not expected to exceed 10% of the
Fund's total assets.
PORTFOLIO TURNOVER
The portfolio turnover rate is, generally, the percentage computed by
dividing the lesser of portfolio purchases or sales (excluding all securities,
including options, whose maturities or expiration date at acquisition
8
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<PAGE>
were one year or less) by the monthly average value of the portfolio. The Fund's
portfolio turnover rates were 101%, 166% and 170%, respectively, in the fiscal
years ended December 31, 1996, December 31, 1995 and in the fiscal period from
April 4, 1994 through December 31, 1994. This rate of turnover is higher than
that normally associated with an investment company and is likely to result in
higher brokerage commissions and higher level of realized gains than if the
turnover were lower. In addition, investment in securities traded in non-U.S.
markets may involve higher brokerage, custody and settlement costs. See
'Dividends, Distributions and Taxes' below, and 'Portfolio Transactions and
Brokerage' in the Statement of Additional Information.
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets (determined at the time of
investment) in securities for which market quotations are not readily available,
in repurchase agreements which have a maturity longer than seven days and in
securities subject to restrictions on resale for which no adequate trading
market exists. For more information regarding repurchase agreements and
restricted securities, see 'Additional Investment Information -- Repurchase
Agreements' and ' -- Restricted Securities' in the Statement of Additional
Information.
INVESTMENT TECHNIQUES
At least 75% of the Fund's portfolio will ordinarily be comprised of equity
and debt securities as described above. To achieve its investment objective and
limit its exposure to risks, the Fund may also utilize the various investment
techniques described below.
CURRENCY FUTURES CONTRACTS/FORWARD CURRENCY CONTRACTS
The value in U.S. dollars of investments denominated in foreign currencies
will be affected by changes in currency exchange rates. Exchange rate
fluctuations may also affect the value of foreign government securities which
the Fund may hold pending investment in foreign securities. As one way of
managing currency exchange rate risk, the Fund may enter into currency futures
contracts, which are agreements to purchase or sell foreign currencies at a
specified price and date. Currency futures contracts are exchange-traded
contracts. The Fund may also engage in forward currency contracts, which are
agreements to purchase or sell foreign currencies at a specified price and date
in the over-the-counter market. The Fund will usually enter into these contracts
to fix the U.S. dollar value of a security it has agreed to buy or sell. The
Fund may also use these contracts to hedge the U.S. dollar value of a security
it already owns, particularly if it expects a decline in the value of the
currency in which the foreign security is denominated. The success of the Fund's
hedging strategy will depend on the Adviser's ability to predict accurately the
future exchange rate between foreign currencies and the U.S. dollar. The ability
to predict the direction of currency exchange rates involves skills different
from those used in selecting securities. See 'Futures Contracts' in the
Statement of Additional Information.
DERIVATIVE TRANSACTIONS
The Fund may invest in options, futures and swaps and related products
which are often referred to collectively as 'derivatives.' Derivatives may have
a return that is tied to a formula based upon an interest rate, index or other
measurement which may differ from the return of a simple security of the same
maturity. The Fund may use such investments in derivatives to augment its
investment return or to limit its investment risk, such as to hedge against,
among other things, declines in the prices of portfolio securities. The use of
derivatives for non-hedging purposes is speculative.
Derivative transactions require different investment skills of the Adviser
than is required when investing in individual stocks. For example, making an
investment in an option on a stock index requires consideration of possible
changes in the value of the entire index, which usually consists of many stocks,
as compared with the
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consideration of possible changes in the value of a particular stock in which an
investment is made. Derivative transactions also subject the Fund to special
considerations, such as the risk that the Fund will not be able to cancel its
derivative contract when it may be opportune to do so and that the counterparty
to the contract may not be able to fulfill its obligation thereunder. For
example, (i) should the Fund write (sell) a covered option, the Fund may not be
able to purchase an option in the same series so as to close out its position
when it would be opportune to do so, or (ii) should the Fund enter into an
interest rate swap contract, the Fund risks that the counterparty to the
transaction may become insolvent and unable to meet its obligations under the
contract. For more information regarding derivative transactions see 'Additional
Investment Information' in the Statement of Additional Information.
OTHER INVESTMENT TECHNIQUES
Other investment techniques available to the Fund, as noted below, are
expected to comprise a relatively small part of the Fund's investment program
when compared with its investment in equity and debt securities. These
techniques are described in greater detail in the Statement of Additional
Information under the caption 'Additional Investment Information.'
The Fund may lend its portfolio securities, invest in restricted
securities, acquire securities on a when-issued basis, engage in short sales and
in arbitrage transactions, and may enter into repurchase agreements and reverse
repurchase agreements. The Fund may borrow for temporary or emergency purposes
or to purchase portfolio securities. Borrowing to purchase portfolio securities
increases both investment opportunity and investment risk. As substantially all
the Fund's assets fluctuate in value, whereas the obligation resulting from the
borrowing is fixed, the net asset value per share of the Fund will tend to
increase more when portfolio assets increase in value, and decrease more when
portfolio assets decrease in value, than would otherwise be the case. This
factor is known as leverage.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which constitute
fundamental policies. Its fundamental policies cannot be changed without the
approval of the holder of a majority of the Fund's outstanding voting securities
as defined in the Investment Company Act. See 'Investment Restrictions' in the
Statement of Additional Information.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Directors.
ADVISER
Arnhold and S. Bleichroeder Advisers, Inc. is a wholly owned subsidiary of
Arnhold and S. Bleichroeder, Inc. which is a successor corporation to two German
banking houses -- Gebr. Arnhold (Arnhold Brothers), founded in Dresden in 1864,
and S. Bleichroeder, founded in Berlin in 1803. Arnhold and S. Bleichroeder,
Inc. moved its operations to New York City in 1937 and since then has used its
experience and worldwide contacts to provide asset management, global securities
research and trading, and investment banking services to institutional clients
both in the United States and abroad.
The Adviser manages the Fund and is registered as an investment adviser
under the Investment Advisers Act of 1940. Incorporated in 1987 under the laws
of the State of Delaware, its corporate offices are located at 1345 Avenue of
the Americas, New York, New York 10105. The Adviser also acts as the investment
adviser to First Eagle Fund of America, Inc., a registered open-end investment
company.
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The Investment Advisory Agreement between Arnhold and S. Bleichroeder, Inc.
and the Fund was assigned pursuant to an assignment agreement to Arnhold and S.
Bleichroeder Advisers, Inc. effective April 30, 1996. The assignment was
approved by the Board of Directors of Arnhold and S. Bleichroeder, Inc. and by
unanimous vote of the Board of Directors of the Fund. The Investment Advisory
Agreement provides that, subject to the direction of the Fund's Board of
Directors, the Adviser is responsible for the management of the Fund's
portfolio. Accordingly, the Adviser will furnish advice and recommendations with
respect to the Fund's portfolio of investments.
The Adviser is not dependent upon any other party in providing the
investment advisory services required in the management of the Fund. The Adviser
may, however, consider analyses from various sources, including broker-dealers
and futures commission merchants with which the Adviser does business.
Arthur F. Lerner and Allan R. Raphael each serve as Senior Vice President
of Arnhold and S. Bleichroeder, Inc. and are Portfolio Managers of the Adviser
and have been the portfolio managers of the Fund since its inception. Together,
they are responsible for the day-to-day management of the Fund's portfolio. Mr.
Lerner has worked at Arnhold and S. Bleichroeder, Inc. since 1969 and manages
various global and international portfolios, including a portion of the Arnhold
and S. Bleichroeder, Inc.'s profit sharing plan and trust. Mr. Raphael worked as
a securities analyst for firms including Lehman Brothers and Cowen and Company
from 1967 until 1980 when he joined Arnhold and S. Bleichroeder, Inc. as a
securities analyst specializing in international securities. From 1984 to 1988
Mr. Raphael worked at Soros Fund Management as a portfolio manager and from 1988
to December of 1992, he managed portfolios of international stocks for both
Steinhardt Management and Caxton Corporation. In December of 1992 Mr. Raphael
returned to Arnhold and S. Bleichroeder, Inc. and currently manages other
international portfolios.
MANAGEMENT AND SERVICES FEES
For the advisory services provided by the Adviser, the fee arrangement, set
forth in the Fund's Investment Advisory Agreement, requires the Fund to pay to
the Adviser an annual management fee of 1.5% of the Fund's average daily net
assets payable quarterly. The annual advisory fee is higher than that paid by
most other registered investment companies. The Adviser has agreed to waive its
fee for, and to reimburse expenses of, the Fund in an amount that operates to
limit annual operating expenses of the Fund for the year ending December 31,
1997 to not more than 2.25% of daily net assets.
Arnhold and S. Bleichroeder, Inc. receives an annual services fee of up to
0.25% of the Fund's average daily net assets payable quarterly, pursuant to a
separate Services Agreement which was approved by the Board of Directors, to
cover expenses incurred by Arnhold and S. Bleichroeder, Inc. for providing
administrative and fund accounting support services and shareholder liaison
services, including assistance with subscriptions, redemptions and other
shareholder questions. The Fund and Arnhold and S. Bleichroeder, Inc. are also
parties to separate services agreements with other broker-dealers and qualified
financial intermediaries for shareholder liaison services.
DISTRIBUTOR
Arnhold and S. Bleichroeder, Inc., a registered broker-dealer, investment
adviser and a member of the New York Stock Exchange and the National Association
of Securities Dealers, Inc., serves as the distributor of the Fund's common
stock pursuant to a Distribution Agreement with the Fund. Arnhold and S.
Bleichroeder, Inc. is engaged in the investment advisory and securities
underwriting and brokerage businesses. The address of the principal executive
offices of Arnhold and S. Bleichroeder, Inc. is 1345 Avenue of the Americas, New
York, New York 10105. The expenses related to distributing the Fund's shares are
assumed by Arnhold and S.
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Bleichroeder, Inc. Arnhold and S. Bleichroeder, Inc. may make payments to
dealers and other persons which distribute shares of the Fund. Such payments may
be calculated by reference to the net asset value of shares sold by such persons
or otherwise. Additionally, Arnhold and S. Bleichroeder, Inc. provides the
office space, facilities, equipment and personnel necessary to perform the
administrative duties provided for under the Services Agreement and the
Distribution Agreement.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for the selection of brokers, dealers and
futures commission merchants to effect the Fund's portfolio transactions and the
negotiation of brokerage commissions, if any. The foregoing entities may receive
compensation in connection with the Fund's portfolio transactions in securities,
options and futures. Orders may be directed to any broker, dealer or futures
commission merchant, including, to the extent and in the manner permitted by
applicable law, Arnhold and S. Bleichroeder, Inc. Commissions are generally
negotiable in the case of U.S. securities exchange transactions but are
generally fixed in the case of foreign exchange transactions and may be higher
than prevailing U.S. rates.
The Adviser, in placing orders for securities, options and futures for the
Fund's portfolio, is required to give primary consideration to obtaining the
most favorable price and efficient execution. The Adviser, to the extent
consistent with the foregoing, will consider the research and investment
services provided by brokers, dealers or futures commission merchants who effect
or are parties to portfolio transactions of the Fund, the Adviser or the
Adviser's other clients. Commission rates are established pursuant to
negotiations with the executing party based on the quantity and quality of
execution services provided in light of generally prevailing rates. The Adviser
is permitted to effect portfolio transactions for the Fund only if the
commissions, fees or other remuneration received by Arnhold and S. Bleichroeder,
Inc. are reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers or dealers in connection with comparable
transactions involving similar securities or options being purchased or sold on
an exchange during a comparable time period. The Fund's Board of Directors,
including a majority of the directors who are not 'interested' directors, has
adopted procedures which are reasonably designed to assure that any commissions,
fees or other remuneration received by Arnhold and S. Bleichroeder, Inc. for
effecting portfolio transactions on the Fund's behalf are consistent with the
foregoing standard.
Portfolio securities may not be purchased from any underwriting or selling
group of which Arnhold and S. Bleichroeder, Inc., during the existence of the
group, is a member, except in accordance with rules of the Securities and
Exchange Commission (the 'Commission'). The Fund's Board of Directors, including
a majority of the directors who are not 'interested' persons of the Fund, has
adopted procedures which are reasonably designed to assure compliance with those
rules. The limitations imposed by the foregoing procedures, in the opinion of
the Fund, will not significantly affect the Fund's ability to pursue its present
investment objective. However, in the future in other circumstances, the Fund
may be at a disadvantage because of those limitations in comparison to other
funds with similar objectives but not subject to such limitations.
NET ASSET VALUE
The net asset value per share is the net worth of the Fund (assets,
including securities at market value, minus liabilities) divided by the number
of shares outstanding. The Fund shall compute the net asset value of its shares
as of 15 minutes after the close of trading on the floor of the New York Stock
Exchange, which is currently 4:00 p.m., New York time, on each day the New York
Stock Exchange is open for business. The net asset value will not be computed on
days on which no orders to purchase, sell or redeem Fund shares have been
received or on days on which changes in the value of the Fund's portfolio
securities do not affect net asset value.
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The net asset value per share will not be determined on such federal and
non-federal holidays as are observed by the New York Stock Exchange, which
currently include: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Foreign securities are valued on the basis of quotations from the primary
market in which they are traded and translated from the local currency into U.S.
dollars using current exchange rates. Any security, foreign or domestic, for
which the primary market is on a U.S. exchange is valued at the last sale price
on such exchange on the day of valuation or, if there was no sale on such day,
the mean between the last bid and asked prices quoted on such day. NASDAQ
National Market System equity securities are valued at the last sale price or,
if there was no sale on such day, at the mean between the most recently quoted
bid and asked prices. Corporate bonds (other than convertible debt securities)
and U.S. Government securities that are actively traded in the over-the-counter
market, including listed securities for which the primary market is believed to
be over-the-counter, are valued on the basis of valuations provided by a pricing
service which uses information with respect to transactions in bonds, quotations
from bond dealers, market transactions in comparable securities and various
relationships between securities in determining value. Pricing based on market
transactions in comparable securities and various relationships between
securities is known as 'matrix' pricing. Other securities are valued at the mean
between the most recently quoted bid and asked prices. Short-term debt
instruments which mature in less than 60 days are valued at amortized cost,
unless the Board of Directors determines that such valuation does not represent
fair value. Securities which are otherwise not readily marketable or securities
for which market quotations are not readily available are valued in good faith
at fair value in accordance with procedures adopted by the Fund's Board of
Directors. The Board of Directors may, from time to time, use a pricing service
to value the Fund's holdings of illiquid securities, if any. See 'Investment
Objective and Policies and Risk Factors -- Illiquid Securities' above.
HOW TO PURCHASE SHARES
Shares of the Fund may be purchased through Arnhold and S. Bleichroeder,
Inc. at the net asset value next determined after receipt of an order with
complete information and meeting all the requirements discussed in this
Prospectus. The current minimum initial investment is $5,000, except for
employees of Arnhold and S. Bleichroeder, Inc. who are subject to a $1,000
minimum initial investment, and retirement plans which are subject to a $2,000
minimum initial investment. Also, existing shareholders may establish or direct
new accounts in the Fund with a minimum initial investment of $1,000. All
subsequent investments are subject to a $1,000 minimum, other than retirement
accounts for which there is no minimum subsequent investment amount, and with
respect to the Automatic Investment Plan for which there is a $100 minimum for
subsequent investments. The current minimum initial and subsequent investment
amount may be changed by the Board of Directors at any time. No commission or
sales charge is imposed upon the purchase of shares. Transactions in Fund shares
made through brokers and qualified financial intermediaries other than Arnhold
and S. Bleichroeder, Inc. may be subject to service charges imposed by the
brokers and financial intermediaries; Arnhold and S. Bleichroeder, Inc. does not
now impose such charges.
Investors should provide the information required by an IRS Form W-9 to
avoid backup withholding taxes. See 'Dividends, Distributions and Taxes.' Form
W-9 information is included as part of each application. Shares of the Fund may
be purchased by submitting a completed Account Application and a check or money
order payable to First Eagle International Fund, Inc. to: First Eagle Funds, P.O
Box 182497, Columbus, Ohio 43218-2497. To purchase shares with a Federal funds
wire for a new account: telefax a completed signed application to the Fund at
(614) 470-8702 and telephone First Eagle International Fund, Inc. for wire
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instructions. When purchases are made by check, redemptions will not be allowed
until clearance of the purchase check, which may take up to ten business days.
Subsequent investments in the Fund may be made by calling First Eagle Fund
International Fund, Inc. at (800) 451-3623 on each day the New York Stock
Exchange is open for business (a 'Business Day'). Shares will be purchased at
the net asset value per share next determined after receipt of an order by or on
behalf of the Fund with complete information and meeting all the requirements
discussed in this Prospectus. The Fund may, in its discretion, reject any
purchase order for shares. Payment for orders which are not received in good
order, paid for in a timely manner or are not accepted by the Fund, will be
returned after prompt notification to the sending stockholder.
AUTOMATIC INVESTMENT PLAN. With a minimum initial investment of $5,000, or
any other minimum initial investment amount otherwise applicable, regular
investments of $100 or more per transaction may be made through automatic
periodic deduction from bank savings or checking accounts. New shareholders
electing to start this plan should complete Section 6 of the account
application. Current shareholders may begin the plan at any time by sending a
signed letter with a signature guarantee and a deposit slip or a voided check to
the Fund.
Payment for shares may be made only in Federal funds or other funds
immediately available to the Fund and should be wired to The Bank of New York.
The Fund reserves the right to suspend the sale of shares to the public at
any time, in response to conditions in the securities markets or otherwise.
STOCKHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of shares of the Fund, a Stockholder Investment
Account (the 'Account') is established for each investor under which the shares
are held for the investor by BISYS Fund Services, Inc. Whenever a transaction
takes place in the Account, the stockholder will be mailed a statement showing
the transaction and the status of the Account. No certificates will be issued to
a stockholder unless the Transfer Agent specifically receives a request in
writing.
Automatic reinvestment of dividends and/or distributions is available to
Fund stockholders. Information regarding this privilege is set forth under
'Stockholder Investment Account' in the Statement of Additional Information.
HOW TO REDEEM SHARES
REDEMPTION
Shares of the Fund can be redeemed at any time for cash at net asset value.
If shares are held in non-certificate form, a written request for redemption
signed by the stockholder(s) exactly as the account is registered is required
unless the telephone redemption privilege has been activated, as set forth
below. If certificates are held by the stockholder(s), the certificates, signed
in the name(s) shown on the face of the certificates, must be returned to be
redeemed. The certificates may be signed either on their reverse side or on a
separate stock power. If redemption is requested by a corporation, partnership,
trust or fiduciary, written evidence of authority acceptable to the Fund's
Transfer Agent must be submitted before such request will be accepted. All
correspondence and documents concerning redemptions should be sent to the Fund.
Whether certificates or shares are held on deposit, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by a commercial bank, trust company, credit union, savings
association or qualified broker or dealer.
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The redemption price is the net asset value per share next determined after
the request for redemption is received in good order by the Fund's Transfer
Agent. See 'Net Asset Value.' The Fund may change the signature guarantee
requirements from time to time upon notice to stockholders, which may be given
by means of a new prospectus.
TELEPHONE REDEMPTION ORDERS for the Fund may also be made by calling the
Fund on each Business Day. The trade will be executed at the net asset value per
share next determined after receipt by or on behalf of the Fund of instructions
with complete information and meeting all the requirements discussed in this
prospectus. Stockholders will be required to provide proper identification, and
verification of account information. For redemptions over $100,000, it may be
necessary for other pertinent information to be verified to confirm the identity
of the stockholder.
Redemptions are effected at the net asset value per share next determined
after receipt of the order by or on behalf of the Fund. Payment for redeemed
shares will normally be wired in Federal funds on the next business day to the
payment instructions specified. Payment instructions may be given to the Fund
either on the account application, Telephone Purchase and Redemption Form or in
a letter to the Fund which is signature guaranteed for all redemptions of $5,000
or more. If you do not provide payment instructions for the proceeds of a
redemption, a check will be sent to the address of record.
Redemption of shares purchased through the Automatic Investment Plan will
not be allowed until clearance of the payment, which may take ten business days
or longer. In the event a check used to pay for shares is not honored by a bank,
the purchase order will be cancelled and the shareholder will be liable for any
losses or expenses incurred by the Fund.
The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Such procedures may include, among other
things, requiring verification of stockholders' account information prior to
acting upon telephone instructions. The Fund reserves the right to refuse a
telephone redemption if it believes it advisable to do so. Assuming the Fund's
security procedures are followed, neither the Fund nor the Transfer Agent will
be responsible for the authenticity of redemption instructions received by
telephone and believed to be genuine and any loss therefrom will be borne by the
investor. Please note that all telephone calls will be recorded for your
protection.
PAYMENT
Payment for shares presented for redemption will ordinarily be made by
check within seven days after receipt by the Fund's Transfer Agent of the
certificate and/or written request in proper order. Such payment may be
postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange (the 'Exchange') is closed for other than customary weekends and
holidays, (b) when trading on the Exchange is restricted, (c) when an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or (d) during any other period
when the Commission, by order, so permits; provided that applicable rules and
regulations of the Commission shall govern as to whether the conditions
prescribed in (b), (c) or (d) exist. No shares purchased by check may be
redeemed until the check has cleared, which may take up to ten business days.
The process to determine that the check will be honored may be expedited by
telephone or written assurance to the Fund from the bank upon which the purchase
check was drawn, which must be arranged for by the stockholder requesting
redemption.
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INVOLUNTARY REDEMPTION
In order to reduce expenses, the Fund may redeem all the shares of any
stockholder, including a stockholder which is an IRA, Keogh or other
tax-sheltered retirement plan, or who is an employee of Arnhold and S.
Bleichroeder, Inc., whose account has a net asset value of $1,000 or less. The
Fund will give stockholders whose shares are being so redeemed 60 days' prior
written notice in which to purchase sufficient additional shares to avoid
redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund expects to declare an annual dividend of net investment income and
an annual distribution of capital gains, but the Fund may make distributions on
a more frequent basis to comply with the distribution requirements of the
Internal Revenue Code of 1986, as amended (the 'Internal Revenue Code'), and in
all events in a manner consistent with the provisions of the Investment Company
Act of 1940. Dividends and distributions will be paid in additional Fund shares
based on the net asset value at the close of business on the record date, or
such other date as the Board of Directors may determine, unless the stockholder
elects in writing not less than five full business days prior to the record date
to receive such distributions in cash. The Fund will notify each stockholder
annually as to both the dollar amount and the taxable status of that year's
dividends and distributions.
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under the Internal Revenue Code. If so qualified,
the Fund will not be subject to federal income tax to the extent its earnings
are distributed in accordance with applicable provisions of the Internal Revenue
Code. In order to satisfy the requirements for qualification, the Fund may have
to restrict the extent to which it engages in short-term trading, short sales
and transactions in options and futures contracts. See 'Taxes' in the Statement
of Additional Information.
All dividends from net investment income, together with distributions of
short-term capital gains, will be taxable as ordinary income to the stockholder
whether or not reinvested. Net capital gains of the Fund (i.e., the excess of
net long-term capital gains over net short-term capital losses) will be taxable
to stockholders as long-term capital gains when they are distributed as capital
gains dividends to stockholders and designated as such in a written notice to
stockholders mailed within 60 days after the close of the taxable year of the
Fund, whether or not reinvested, and regardless of the length of time a
stockholder has owned his or her shares. Currently, capital gains dividends to
an individual shareholder are taxed at a maximum rate of 28% and ordinary income
is subject to a maximum rate of 39.6%.
Distributions of investment income will qualify for the 70% dividends
received deduction for corporate stockholders, to the extent that the Fund's
income is derived from qualified dividends received from domestic corporations.
The dividends received deduction for corporate stockholders of the Fund may be
reduced if the shares of the Fund with respect to which dividends are received
are treated as debt-financed or deemed to have been held for less than 46 days.
Tax-exempt stockholders generally will not be required to pay taxes on amounts
distributed to them.
Any gain or loss realized upon a a sale or redemption of Fund shares by a
stockholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year and
otherwise as short-term capital gain or loss. Any such loss, however, will be
treated as long-term capital loss to the extent of any capital gain
distributions received by the stockholder with respect to such shares. Moreover,
any loss realized on a sale or exchange will be disallowed to the extent the
shares disposed of are replaced within a period of 61 days beginning 30 days
before and ending 30 days after the disposition, such as pursuant
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to a dividend reinvestment in shares. In such a case the basis of the shares
acquired will be adjusted to reflect the disallowed loss.
The Fund will be subject to a non-deductible 4% excise tax in any calendar
year in which it does not distribute to its stockholders the sum of 98% of its
ordinary income for such calendar year and 98% of its capital gain net income
determined on the basis of a year ending on October 31 and 100% of any prior
undistributed amount from the previous excise tax reporting period. Dividends
and distributions generally are taxable to stockholders in the year in which
they are received or accrued. Dividends declared to stockholders of record on a
date in October, November or December are deemed to have been received on
December 31 of such year of declaration even though they are not paid until
January of the following calendar year.
Under U.S. Treasury Regulations, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividend, capital gain income and redemption
proceeds on the accounts of certain stockholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or who fail to furnish IRS Form W-8 in
the case of certain foreign stockholders) with the required certifications
regarding the stockholder's status under the Internal Revenue Code.
The Fund may qualify for and may make an election permitted under Section
853 of the Internal Revenue Code so that shareholders may be eligible to claim a
credit or deduction on their federal income tax returns for, and will be
required to treat as part of the amounts distributed to them, their pro rata
portion of qualified taxes paid or incurred by the Fund to foreign countries
(which taxes relate primarily to investment income). The Fund may make an
election under Section 853, provided that more than 50% of the value of the
Fund's total assets at the close of the taxable year consists of securities in
foreign corporations, and the Fund satisfied the applicable distribution
provisions of the Internal Revenue Code. The foreign tax credit available to
shareholders is subject to certain limitations imposed by the Internal Revenue
Code.
If the Fund invests in an equity interest in a foreign entity which is
classified as a 'passive foreign investment company' ('PFIC') for federal income
tax purposes, the operation of certain provisions of the Internal Revenue Code
applying to PFICs could result in the imposition of certain federal income taxes
on the Fund. Under Proposed Treasury Regulation Section 1.1291-8(a), the Fund
may under certain circumstances elect to mark-to-market gains (but not losses)
from PFIC securities in lieu of paying taxes on gain or distributions therefrom.
Such gains will be treated as ordinary income under Proposed Treasury Regulation
Section 1.1291-8(b)(2).
A stockholder who is a nonresident alien or foreign entity generally will
not be subject to federal income tax on capital distributions or on any capital
gain realized on a redemption of shares, provided that (i) such gains are not
effectively connected with the conduct by the stockholder of a trade or business
in the United States, (ii) in the case of an individual, the stockholder is not
physically present in the United States for 183 days or more during the taxable
year and (iii) the stockholder has furnished an IRS Form W-8 with the required
certifications regarding the stockholder's foreign status under the Internal
Revenue Code. Other distributions may be subject to United States tax. In
particular, other distributions which are not effectively connected with a trade
or business in the United States may be subject to a 30% United States
withholding tax under the existing provisions of the Internal Revenue Code
applicable to foreign individuals and entities unless a reduced rate of
withholding exemption is provided under an applicable treaty. Non-U.S.
stockholders are urged to consult their own tax advisers concerning the
applicability of United States tax. See 'Taxes' in the Statement of Additional
Information.
The foregoing discussion is intended only as a brief discussion of the
federal income tax consequences of an investment in shares of the Fund.
Distributions may also be subject to state and local taxes. Stockholders are
urged to consult their own tax advisers regarding specific questions as to
federal, state or local taxes.
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DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on October 7, 1993. The Fund is
authorized to issue one hundred million shares of its common stock. Shares of
the Fund, when issued, are fully paid, nonassessable, fully transferable and
redeemable at the option of the holder. Shares are also redeemable at the option
of the Fund under certain circumstances as described above under 'How to Redeem
Shares.' All Shares are equal as to earnings, assets and voting privileges.
There are no conversion, preemptive or other subscription rights. In the event
of liquidation each share of common stock of the Fund is entitled to its portion
of all the Fund's assets after all debt and expenses have been paid. The shares
of the Fund do not have cumulative voting rights for the election of directors.
HOW THE FUND CALCULATES PERFORMANCE
From time to time, the Fund may advertise its performance in terms of total
return. The Fund may further compare its performance to various published
indices which are widely used as benchmarks. The Fund may also compare its
performance to rankings prepared by Lipper Analytical Services, Inc. or
Morningstar, Inc., each a widely recognized independent service which monitors
and ranks the performance of mutual funds, and to rankings prepared by other
national financial publications. The Fund's total return shows how much an
investment in the Fund would have increased (decreased) over a specified period
of time assuming the reinvestment of all distributions and dividends on the
reinvestment dates during the period and deducting all recurring fees. The
aggregate total return reflects actual performance over a stated period of time.
The Fund's average annual total return demonstrates the hypothetical rate of
return of a hypothetical investment if performance had been constant over the
stated period of time. Total return information may be useful in reviewing the
Fund's performance and for providing a basis for comparison with other
investment alternatives. Fund performance figures are based upon historical
results and are not intended to indicate future performance. Further performance
information is contained in the Fund's annual report to stockholders, which may
be obtained without charge. See 'Reports to Stockholders' below and 'Performance
Information' in the Statement of Additional Information.
REPORTS TO STOCKHOLDERS
The Fund will send its stockholders annual, semi-annual and quarterly
reports, without charge. The Fund's annual reports will contain performance
information of the Fund, as well as financial statements audited by the Fund's
independent accountants.
The Transfer Agent will send each stockholder of record a statement showing
transactions in the Account, the total number of shares owned and any dividends
or distributions paid. These statements will normally be mailed within five
business days after a transaction occurs. The Transfer Agent will also send each
stockholder of record a quarterly statement of the stockholder's account.
Stockholder inquiries should be addressed to First Eagle Funds, P.O. Box
182497, Columbus, Ohio 43218-2497, or by telephoning (800) 451-3623.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
The Bank of New York, 48 Wall Street, New York, NY 10286, serves as
Custodian for the Fund's assets. BISYS Fund Services, Inc., 3435 Stelzer Road,
Columbus, Ohio 43219 serves as Transfer and Disbursing Agent for the Fund. In
those capacities, both The Bank of New York and BISYS Fund Services, Inc.
maintain certain books and records pursuant to agreements with the Fund.
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APPENDIX
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers '1,' '2' and '3' in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier '1' indicates that the security ranks in the higher end of its generic
rating category; the modifier '2' indicates a mid-range ranking; and the
modifier '3' indicates that the issue ranks in the lower end of its generic
rating category.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and may have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
STANDARD & POOR'S RATINGS GROUP'S CORPORATE BOND RATINGS:
AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA -- Capacity to pay principal and interest is very strong, and in the
majority of instances they differ from AAA issues only in a small degree.
A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the highest
degree of speculation.
Cl -- The rating Cl is reserved for income bonds on which no interest is
being paid.
D -- Bonds rated D are in default, and payment of interest and/or principal
is in arrears.
A-1
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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER
CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
FUND, THE ADVISER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER BY THE FUND, BY ITS INVESTMENT ADVISER OR BY ITS DISTRIBUTOR TO
SELL OR A SOLICITATION OF ANY OFFER TO BUY, ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER IN SUCH JURISDICTION.
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TABLE OF CONTENTS
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Highlights...................................... 2
Summary of Fund Expenses........................ 4
Financial Highlights............................ 5
Investment Objective and Policies and
Risk Factors.................................. 6
Investment Techniques........................... 9
Investment Restrictions......................... 10
Management of the Fund.......................... 10
Portfolio Transactions and Brokerage............ 12
Net Asset Value................................. 12
How to Purchase Shares.......................... 13
Stockholder Investment Account.................. 14
How to Redeem Shares............................ 14
Dividends, Distributions and Taxes.............. 16
Description of Common Stock..................... 18
How the Fund Calculates Performance............. 18
Reports to Stockholders......................... 18
Custodian and Transfer and Dividend Disbursing
Agent......................................... 18
Appendix........................................ A-1
</TABLE>
[Logo]
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PROSPECTUS
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APRIL 30, 1997
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FIRST EAGLE INTERNATIONAL FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL 30, 1997
First Eagle International Fund, Inc. (the 'Fund') is an open-end,
non-diversified management investment company, or mutual fund, whose investment
objective is to achieve capital appreciation. The Fund will seek to achieve that
objective by pursuing a flexible investment strategy emphasizing investment in
foreign, and to a lesser extent domestic, equity and debt securities in varying
proportions. Under normal circumstances at least 65% of the Fund's total assets
will be invested in securities of foreign issuers. The Fund's securities will be
selected by the Fund's investment adviser, Arnhold and S. Bleichroeder Advisers,
Inc. (the 'Adviser'), on the basis of their appearing to be undervalued in their
respective trading markets relative to the issuer's overall financial and
managerial strength as measured by certain quantative indicators. The Adviser
believes that the Fund's exposure to loss may be limited by investing in
securities which, in the Adviser's opinion, appear to be undervalued by the
market relative to their 'intrinsic value' as determined by the Adviser. The
Fund also may invest in equity and debt securities selected on other bases and
engage in transactions involving other types of investment instruments.
The Fund's address is 1345 Avenue of the Americas, New York, New York
10105, and its telephone number is (212) 698-3000 or (888) 482-5667.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus, dated April 30, 1997, a copy of
which may be obtained from BISYS Fund Services Inc., the Fund's Transfer Agent,
upon request by writing to P.O. Box 182497, Columbus, Ohio 43218-2497, or
telephoning (800) 451-3623.
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TABLE OF CONTENTS
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CROSS REFERENCE
TO PAGE IN
PAGE PROSPECTUS
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Additional Investment Information......................................................... 2 2
Investment Restrictions................................................................... 17 10
Directors, Officers and Principal Stockholders............................................ 19 10
Adviser................................................................................... 21 10
Distributor............................................................................... 22 11
Portfolio Transactions and Brokerage...................................................... 22 12
Stockholder Investment Account............................................................ 25 14
Taxes..................................................................................... 25 16
Performance Information................................................................... 27 18
Custodian, Transfer and Dividend Disbursing Agent and Independent Auditors................ 27 18
Organization and History of the Fund...................................................... 27
Statement of Assets and Liabilities....................................................... F-3
Independent Auditors' Report.............................................................. F-10
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ADDITIONAL INVESTMENT INFORMATION
The Fund's investment objective is to achieve capital appreciation by
pursuing a flexible investment strategy emphasizing investment in foreign, and
to a lesser extent domestic, equity and debt securities believed by the Adviser
to be undervalued in their respective trading markets. The Adviser believes the
Fund's exposure to loss may be limited by investing part or all of its assets in
securities believed by the Adviser to be undervalued by the market. The Fund is
a non-diversified investment company and as such the Fund's assets may be
invested in a limited number of issues; thus, there may be a greater risk in an
investment in the Fund when compared with an investment in a diversified
investment company. See 'Highlights -- Risk Factors' and 'Investment Objective
and Policies and Risk Factors' in the Prospectus.
FOREIGN SECURITIES
The Fund may invest in foreign securities issued by companies of any nation
regardless of its level of development. The risks involved in investing in
foreign securities include political or economic instability in the country of
issue, the difficulty of predicting international trade patterns, the
possibility of imposition of exchange controls and the risk of currency
fluctuations. Foreign securities may be subject to greater fluctuations in price
than securities issued by U.S. corporations or issued or guaranteed by the U.S.
Government, its instrumentalities or agencies. Additionally, there may be less
publicly available information about a foreign company than about a domestic
company. Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
domestic companies. There is generally less government regulation of securities
exchanges, brokers and listed companies abroad than in the U.S., and, with
respect to certain foreign countries, there is a possibility of expropriation,
confiscatory taxation or diplomatic developments which could affect investment
in those countries. Investment in securities subject to a foreign country's
repatriation restrictions of more than seven days will be considered illiquid
securities and will be subject to the Fund's overall 15% limitation on
investment in illiquid securities. See 'Illiquid Securities' below. Finally, in
the event of a default of any foreign debt obligation, it may be more difficult
for the Fund to obtain or to enforce a judgment against the issuers of those
securities. Foreign currency denominated securities may be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations,
and costs may be incurred in connection with conversions between currencies.
Foreign currency held by the Fund for foreign denominated securities purchases
also may be subject to similar risks. The Fund's foreign securities and
currencies will be held by its Custodian, an 'eligible foreign custodian' or a
'qualified U.S. bank,' as those terms are defined in the Investment Company Act
and the rules and regulations thereunder. The Custodian will hold the Fund's
foreign securities pursuant to such arrangements as are permitted by applicable
foreign and domestic law.
HIGH YIELD SECURITIES
The economy and interest rates affect high yield securities differently
from other securities. The prices of high yield bonds, sometimes called 'junk
bonds,' have been found to be less sensitive to interest rate changes than
higher-rated investments, but more sensitive to adverse economic changes or
individual corporate developments. During an economic downturn or substantial
period of rising interest rates, highly leveraged issuers will likely experience
financial stress which would adversely affect their ability to service their
principal and interest payment obligations, to meet projected business goals,
and to obtain additional financing. If the issuer of a bond owned by the Fund
defaults, the Fund may incur additional expenses in seeking recovery.
Additionally, periods of economic uncertainty and changes can be expected to
result in increased volatility of market prices of high yield bonds and the
Fund's net asset value. Furthermore, to the extent the Fund purchases high yield
bonds structured as zero coupon or pay-in-kind securities, their market prices
are affected to a greater
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extent by interest rate changes and thereby are more volatile than securities
which pay interest periodically and in cash.
High yield bonds present risks based on payment expectations. For example,
high yield bonds may contain redemption or call provisions. If an issuer
exercises those provisions in a declining interest rate market and the Fund
replaces the security with a lower yielding security, the Fund's income will be
reduced. Also, if interest rates increase, declines in the value of high yield
bonds held by the Fund will decrease its net asset value. If the Fund
experiences unexpected net redemptions, it may be forced to sell its high yield
bonds when independent investment judgment may indicate otherwise. In that case,
the asset base upon which the Fund's expenses can be spread will be decreased,
the Fund's expense ratio will be increased and its rate of return decreased.
It is likely that there will be thin trading markets for high yield bonds.
It may, therefore, be difficult to value accurately the high yield bonds, if
any, in the Fund's portfolio and judgment will play a greater role in valuation
because there may be less reliable objective data available. The Fund also may
have difficulty selling the high yield bonds. Adverse publicity and investor
perceptions may decrease the values and liquidity of high yield bonds,
especially in a thinly traded market. If the Fund acquires illiquid or
restricted high yield bonds, those securities may involve special registration
requirements, liabilities, costs, and liquidity and valuation difficulties.
Federal laws require the divestiture by federally insured savings and loan
associations of their investments in high yield bonds and limit the
deductibility of interest by certain corporate issuers of high yield bonds.
These laws could adversely affect the Fund's net asset value and investment
practices, the secondary market for high yield securities, the financial
condition of issuers of these securities and the value of outstanding high yield
securities.
If the Fund invests in zero coupon or pay-in-kind securities, it will be
subject to special tax considerations related to those securities. The Fund will
have to report the interest on those securities as income even though it
receives no cash interest until the security's maturity or payment date.
Shareholders will be taxed on that interest even if the Fund does not distribute
cash to them. In order to pay taxes on that interest, shareholders may have to
redeem some of their shares to pay tax or the Fund may have to sell some of its
assets to distribute cash to shareholders or borrow to satisfy distribution
requirements. Those actions would be likely to reduce the Fund's assets and
thereby increase its expense ratio and decrease its rate of return.
Certain risks are associated with using credit ratings as a method for
evaluating high yield bonds. As credit agencies may fail to timely change the
credit ratings to reflect subsequent events, the Adviser continuously monitors
the issuers of high yield bonds in its portfolio to determine if the issuers, in
the Adviser's opinion, will have sufficient cash flow and profits to meet
required principal and interest payments, and to attempt to assure the bonds'
liquidity so the Fund can meet redemption requests. Achievement of the Fund's
investment objective may be more dependent on the Adviser's own credit analysis
than in the case of higher quality bonds. The Fund may retain a portfolio
security whose rating has been changed.
OPTIONS TRANSACTIONS
INTRODUCTION
The Adviser believes that certain transactions in options on securities and
on stock indices may be useful in limiting the Fund's investment risk and
augmenting its investment return. The Adviser expects, however, the amount of
Fund assets to be involved in options transactions to be small relative to the
Fund's investment in equity and/or debt securities. Accordingly, it is expected
that only a relatively small portion of the Fund's investment return will be
attributable to transactions in options on securities and on stock indices. The
Fund may
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invest in options transactions involving options on securities and on stock
indices that are traded on U.S. and foreign exchanges or in the over-the-counter
markets.
The following discussion sets forth the principal characteristics of, and
risks associated with, certain transactions involving options on securities and
on stock indices. Investors in the Fund should carefully read the following
discussion because the information set forth therein is important to an
understanding of certain of the techniques which the Fund may use in seeking to
limit its investment risk and enhance its investment return.
GENERAL CHARACTERISTICS OF AND LIMITATIONS APPLICABLE TO OPTIONS
A call option is a contract pursuant to which the purchaser, in return for
a premium paid, has the right to buy the equity or debt security underlying the
option at a specified exercise price at any time during the term of the option.
With respect to a call option on a stock index, the purchaser is entitled to
receive cash if the underlying stock index rises sufficiently above its level at
the time the option was purchased. The writer of the call option, who receives
the premium, has the obligation, upon exercise of the option, to deliver the
underlying equity or debt security against payment of the exercise price. With
respect to a call option on a stock index, the writer has the obligation to
deliver cash if the underlying index rises sufficiently above its level when the
option was purchased.
A put option is a similar contract. It gives the purchaser, in return for a
premium, the right to sell the underlying equity or debt security at a specified
exercise price during the term of the option. With respect to a put option on a
stock index, the purchaser is entitled to receive cash if the underlying index
falls sufficiently below its level at the time the option was purchased. The
writer of the put, who receives the premium, has the obligation to buy the
underlying equity or debt security upon exercise at the exercise price. With
respect to a put option on a stock index, the writer has the obligation to
deliver cash if the underlying index falls sufficiently below its level when the
option was purchased. The price of an option will reflect, among other things,
the relationship of the exercise price to the market price of the underlying
financial instrument, the price volatility of the underlying financial
instrument, the remaining term of the option, supply and demand of such options
and interest rates.
Securities exchanges have established limitations on the maximum number of
options that an investor or group of investors acting in concert may write. It
is possible that the Fund and other clients of the Adviser may be considered
such a group. Position limits may restrict the Fund's ability to purchase or
sell options on particular securities and on stock indices. Additionally, the
extent to which the Fund may engage in call option transactions may be limited
by the Internal Revenue Code's requirements for qualification as a regulated
investment company and the Fund's intention to qualify as such. See 'Taxes'
below.
COVERED OPTION WRITING
The Fund may write 'covered' call and put options on equity or debt
securities and on stock indices in seeking to enhance investment return or to
hedge against declines in the prices of portfolio securities or increases in the
prices of securities which the Fund intends to purchase. A call option on an
equity or debt security written by the Fund is 'covered' if the Fund owns the
security underlying the option or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account by its Custodian) upon conversion or
exchange of other securities held in its portfolio. A call option on an equity
or debt security written by the Fund is also covered if the Fund holds, on a
share-for-share basis, a call on the same security as the call written where the
exercise price of the call held is equal to or less than the exercise price of
the call written, or greater than the exercise price of the call written if the
difference is maintained by the Fund in cash. Treasury bills or other high grade
short-term
4
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obligations in a segregated account with the Fund's Custodian. A call option
which the Fund writes on a stock index is covered if the Fund owns a portfolio
of securities which correlates with the stock index or segregates in an account
with its Custodian cash, or cash equivalents, equal to the total market value of
the call option. A call option written by the Fund on a futures contract is
covered if the Fund owns a long position in the underlying futures contract or
segregates in an account with its Custodian cash, or cash equivalents, equal to
the then current market value of the underlying futures contract.
A put option written by the Fund on an equity or debt security is 'covered'
if the Fund maintains cash, Treasury bills or other high grade short-term
obligations with a value equal to the exercise price in a segregated account
with its Custodian, or holds on a share-for-share basis a put on the same equity
or debt security as the put written where the exercise price of the put held is
equal to or greater than the exercise price of the put written or lower than the
exercise price of the put written if the difference is maintained in a
segregated account with the Fund's Custodian. A put option written by the Fund
on a stock index is covered if the Fund maintains in a segregated account with
its Custodian cash, or cash equivalents, equal to the total market value of the
put option. A put option written on a futures contract is covered if the Fund
owns a short position in the underlying contract or segregates, in an account
with its Custodian, cash or cash equivalents equal to the then current market
value of the underlying futures contract.
One reason for writing options on a securities portfolio of equity and debt
securities or on stock indices is to attempt to realize, through the receipt of
premiums, a greater return than would be realized on the securities alone. In
the case of a securities call, the writer receives the premium, but has given up
the opportunity for profit from a price increase in the underlying security
above the exercise price during the option period. In the case of a stock index
call, the writer receives the premium, but is obligated to deliver cash if the
underlying index rises sufficiently during the option period. Conversely, the
put option writer has, in the form of the premium, gained a profit as long as
the price of the underlying security or stock index remains above the exercise
price, but has assumed an obligation to purchase the underlying security at the
exercise price from or deliver cash to the buyer of the put option during the
option period.
Another reason for writing options on a securities portfolio or on stock
indices is to hedge against a moderate decline in the value of securities owned
by the Fund in the case of a call option, or a moderate increase in the value of
securities the Fund intends to purchase, in the case of a put option. If the
security or stock index underlying a covered call option written by the Fund
declines, or fails to appreciate sufficiently to result in the call being
exercised, the Fund will realize income equal to the amount of the premium it
received for the option. That income may wholly or partially offset any decline
in the value of the Fund's portfolio securities. If the value of the security or
stock index underlying a covered put option written by the Fund increases and
the covered put expires unexercised, the Fund may realize income equal to the
amount of the premium it received for the option. That income may offset
increases in the prices of securities which the Fund purchases subsequent to its
writing of the put option.
Options written by the Fund will normally have expiration dates not more
than nine months from the date written. The exercise price of call options may
be below ('in-the-money'), equal to ('at-the-money') or above
('out-of-the-money') the current market values of the underlying securities at
the times options are written by the Fund.
If an increase occurs in the underlying security or stock index sufficient
to result in the exercise of a call written by the Fund, the Fund may be
required to deliver securities or cash and may thereby forego some of or all the
gain that otherwise may have been realized on the securities underlying the call
option. This 'opportunity cost' may be partially or wholly offset by the premium
received for the covered call written by the Fund. The Fund may purchase an
underlying security for delivery in accordance with an exercise notice of a call
option
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assigned to it, rather than delivering that security from its existing
portfolio, in which case additional brokerage commissions or other transaction
costs will be incurred. Under those circumstances, the market price of the
security to be delivered in accordance with the exercise notice may have
increased above the exercise price of the call option. If a decrease occurs in
the security or stock index underlying a put option written by the Fund and it
is exercised, the Fund may incur a loss. The Fund also may incur brokerage
commissions in connection with its purchase of the security underlying the put
option.
So long as the obligation of an option writer continues, the writer may be
assigned an exercise notice requiring in the case of a call, delivery of, or in
the case of a put, purchase of the underlying security against payment of the
exercise price. This obligation terminates upon expiration of the option, or
such earlier time as the writer effects a closing purchase transaction by
purchasing an option of the same series as was previously sold. However, a
writer may not effect a closing purchase transaction after notification of the
exercise of an option. Further, there is no assurance that the writer will be
able to effect a closing purchase transaction for particular options. See
'Closing Purchase and Sale Transactions.' To secure its obligation to deliver
the underlying security in the case of a call option traded on an exchange, or
to pay for the underlying security in the case of a put option traded on an
exchange, a writer of a covered option is required to deposit in escrow the
underlying security or other assets in accordance with rules of The Options
Clearing Corporation (the 'Clearing Corporation'), of the national securities
exchanges (the 'Exchanges'), and of the National Association of Securities
Dealers.
PURCHASING PUT AND CALL OPTIONS ON EQUITY OR DEBT SECURITIES, CURRENCIES AND ON
STOCK INDICES
The Fund may purchase put options on equity or debt securities, currencies
and on stock indices. One purpose of the Fund's purchase of such options is to
hedge against declines in the value of its portfolio securities. When the Fund
purchases an equity or debt security because the Adviser believes the market
price of that security may rise, the Adviser may nonetheless wish to protect the
Fund's holdings of the security against a decline in market value by purchasing
a put option on that security, currency or on a stock index. Such protection is
provided during the life of the put by entitling the Fund to sell the underlying
security at the exercise price of the put or to receive cash if the underlying
index falls below the exercise price. Additionally, when the Adviser anticipates
a general market or market sector decline, or a decline in the market prices of
specific equity or debt securities, the Adviser may seek to increase the Fund's
investment return by purchasing a put on a currency, stock index or on those
equity or debt securities. An increase in investment return may be achieved by
exercising the put when the market price of the underlying instrument has
sufficiently declined. However, if the value of a security or currency
underlying a put option or the general market or a market sector does not
decline sufficiently when the Fund has purchased a put option on the underlying
instrument that option may result in a loss to the Fund. See 'Risks of Options
on Indices' below.
The Fund also may purchase call options on equity or debt securities,
currencies and on stock indices. One purpose of the Fund's purchase of such
options is to hedge against an increase in the price of securities that the Fund
intends ultimately to buy. Hedge protection is provided during the life of the
call because the Fund, as the holder of the call, is able to buy the underlying
security at the exercise price, and, in the case of a call on a stock index, is
entitled to receive cash if the underlying index rises sufficiently. However, if
the value of a security underlying a call option or the general market or a
market sector does not rise sufficiently when the Fund has purchased a call
option on the underlying instrument, that option may result in a loss to the
Fund. See 'Risks of Options on Indices' below.
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CLOSING PURCHASE AND SALE TRANSACTIONS ON AN EXCHANGE
If the writer of an option contract wishes to terminate the obligation
under that contract, a 'closing purchase transaction' may be effected. This is
accomplished by buying an option of the same series as the option previously
written. The effect of the purchase is that the writer's position in an option
will be cancelled by the options exchange on which the option is traded.
However, an option writer may not effect a closing purchase transaction after
receiving notification of the exercise of an option. Likewise, an investor who
is the holder of an option contract may liquidate his or her position by
effecting a 'closing sales transaction.' This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected.
An option position may be closed out only on an Exchange which provides a
secondary market for an option of the same series. Although the Fund generally
will purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an Exchange will exist for any particular option, or at any particular time, and
for some options no secondary market may exist. In any such event it might not
be possible to effect closing transactions in particular options, with the
result that the Fund would have to exercise its options in order to realize any
profit and would incur brokerage commissions both upon the exercise of the
options and upon the subsequent disposition or acquisition of securities
underlying the exercised call or put options, respectively. If the Fund as a
covered call option writer is unable to effect a closing purchase transaction in
a secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an Exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an Exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an Exchange; (v) the facilities of an Exchange or
a clearing corporation may not be adequate at all times to handle current
trading volume; or (vi) one or more Exchanges could, for economic or other
reasons, decide or be compelled at some future date 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 the class or series of options) would
cease to exist, although outstanding options on that Exchange that had been
issued by a clearing corporation as a result of trades on that Exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at times, render certain of the facilities of any of the clearing
corporations inadequate, and thereby result in the institution by an Exchange of
special procedures which may interfere with the timely execution of customer's
orders. However, the Clearing Corporation, based on forecasts provided by the
Exchanges, believes that its facilities are adequate to handle the volume of
reasonably anticipated options transactions, and the Exchanges have advised that
clearing corporation that they believe their facilities will also be adequate to
handle reasonably anticipated volume.
The Fund will realize a gain or loss on a closing transaction corresponding
to the difference between the price of that transaction and the price of the
original transaction. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying financial
instrument, any loss resulting from a closing purchase or sale transaction is
likely to be offset in whole or in part by appreciation of the underlying
financial instrument if it is owned by the Fund.
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OPTIONS ON STOCK INDICES
LIMITATIONS ON THE WRITING OF CALL OPTIONS ON STOCK INDICES
Except as described below, the Fund will write call options on indices only
if on such date it holds a portfolio of stocks at least equal to the value of
the index times the multiplier times the number of contracts. When the Fund
writes a call option on a broadly based stock market index, the Fund will
segregate or put into escrow with its Custodian any combination of cash, cash
equivalents or 'qualified securities' with a market value at the time the option
is written of not less than 100% of the current index value times the multiplier
times the number of contracts. The Fund will write call options on broadly based
stock market indices only if at the time of writing it holds a diversified
portfolio of stocks.
If the Fund has written an option on an industry or market segment index,
it will segregate or put into escrow with its Custodian, or pledge to a broker
as collateral for the option, at least ten 'qualified securities,' all of which
are stocks of issuers in such industry or market segment, with a market value at
the time the option is written of not less than 100% of the current index value
times the multiplier times the number of contracts. Such stocks will include
stocks which represent at least 50% of the weighting of the industry or market
segment index and will represent at least 50% of the Fund's holdings in that
industry or market segment. No individual security will represent more than 25%
of the amount so segregated, pledged or escrowed. If at the close of business on
any day the market value of such qualified securities so segregated, escrowed or
pledged falls below 100% of the current index value times the multiplier times
the number of contracts, the Fund will so segregate, escrow or pledge an amount
in cash, Treasury bills or other high grade short-term obligations equal in
value to the difference. In addition, when the Fund writes a call option on an
index whose exercise price is below the level of the stock index ('in the
money') at the time the call is written, the Fund will segregate with its
Custodian or pledge to the broker as collateral cash, U.S. Government or other
high grade short-term debt obligations equal in value to the amount by which the
call option is in-the-money times the multiplier times the number of contracts.
Any amount segregated pursuant to the foregoing sentence may be applied to the
Fund's obligation to segregate additional amounts in the event that the market
value of the qualified securities falls below 100% of the current index value
times the multiplier times the number of contracts. A 'qualified security' is an
equity security which is listed on an Exchange or on NASDAQ against which the
Fund has not written a stock call option and which has not been hedged by the
Fund by the sale of stock index futures. However, if the Fund holds a call
option on the same index as the call option written where the exercise price of
the call option held is equal to or less than the exercise price of the call
option written, or greater than the exercise price of the call options written
if the difference is maintained by the Fund in cash, Treasury bills or other
high grade short-term obligations in a segregated account with its Custodian, it
will not be subject to the requirements described in this paragraph.
RISKS OF OPTIONS ON INDICES
In addition to the risks generally associated with options, the distinctive
characteristics of options on indices create certain risks that are not present
with stock options.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, successful use by the
Fund of options on indices would be subject to the Adviser's ability correctly
to predict movements in the direction of the stock market generally or of a
particular industry. This requires different skills and techniques than those
used in predicting changes in the prices of individual stocks. The Fund's
ability to hedge effectively through the use of options on stock indices also
depends on the degree to which price movements in the underlying index correlate
with price movements in the hedged securities. The Fund therefore bears the risk
that prices of hedged securities will not move in the same amount
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as the prices of options. It is also possible that there may be a negative
correlation between the index and the hedged securities, which could result in a
loss on both such securities and the option.
Index prices may be distorted if trading in certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, the Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, might be unable to exercise an option it held, which
could result in substantial losses to the Fund. However, it is the Fund's policy
to purchase or write options only on indices which include a sufficient number
of stocks so that the likelihood of a trading halt in the index is minimized.
Trading in index options commenced in April 1983 with the S&P 100 option
(formerly called the 'CBOE 100'). Since that time a number of additional index
option contracts have been introduced including options on industry indices.
Although the markets for certain index option contracts have developed rapidly,
the markets for other index options are still relatively illiquid. The ability
to establish and close out positions on index options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
this market will develop in all index option contracts. The Fund will not
purchase or sell any index option contract unless and until, in the Adviser's
opinion, the market for such options has developed sufficiently so that risks in
accordance with such transactions are not greater than risks generally expected
in connection with options on stocks.
SPECIAL RISKS OF WRITING CALLS ON INDICES
If the Fund is assigned an exercise notice on a call it has written, the
Fund would be required to liquidate portfolio securities in order to satisfy the
exercise, unless it has other liquid assets that are sufficient to satisfy the
exercise of the call. Because an exercise must be settled within hours after
receiving the notice of exercise, if the Fund fails to anticipate an exercise,
it may have to borrow from a bank pending settlement of the sale of securities
in its portfolio and would incur interest charges thereon.
When the Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise, and
the time the Fund is able to sell securities in its portfolio. As with stock
options, the Fund will not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where the Fund
would be able to deliver the underlying securities in settlement, the Fund may
have to sell part of its securities portfolio in order to make settlement in
cash, and the price of such securities might decline before they can be sold.
For example, even if an index call which the Fund has written is 'covered' by an
index call held by the Fund with the same strike price, the Fund will bear the
risk that the level of the index may decline between the close of trading on the
date the exercise notice is filed with the Clearing Corporation and the close of
trading on the date the Fund exercises the call it holds or the time the Fund
sells the call, which in either case would occur no earlier than the day
following the day the exercise notice was filed.
FUTURES CONTRACTS
FINANCIAL AND CURRENCY FUTURES
An interest rate futures contract is an agreement to purchase or sell an
agreed amount of debt securities at a set price for delivery on a future date.
Interest rate futures contracts can be purchased and sold with respect to
government debt of nations of Europe, Japan and the U.S. Similarly, a currency
futures contract calls for the purchase or sale of a fixed amount of a specific
currency at a set price for delivery on a future date. Currency
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futures contracts are traded with respect to the currencies of most of the
nations of Western Europe and Japan. Unlike interest rate and currency futures
contracts, a stock index futures contract does not contemplate the purchase or
delivery of the underlying financial instrument (interest rate and stock index
futures contracts are collectively herein referred to as 'financial futures
contracts'). Instead, one party agrees to deliver to the other an amount of cash
equal to a specific dollar amount times the difference between the value of a
specific stock index at the close of the last trading day of the contract. Stock
index futures contracts can be purchased or sold in Europe, Japan and the U.S.
In contrast to the purchase or sale of a security, nothing is paid or
received by the Fund upon purchase or sale of a financial or currency futures
contract. Instead, the Fund will be required initially to deposit with the
futures commission merchant an amount of cash or U.S. Treasury bills equal to a
percentage of the contract amount. Initial margin in futures transactions
differs from margin in securities transactions in that futures contract initial
margin does not involve the borrowing of funds by the customer to finance the
transactions. Rather, initial margin is in the nature of a good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been met. Subsequent
payments, called variation margin, to and from the futures commission merchant
are made on a daily basis as the market price of the futures contract
fluctuates. This process is known as 'marking to market.' At any time prior to
expiration of the futures contract, the Fund may elect to close a position by
taking an offsetting position which will terminate the Fund's position in the
futures contract. Although interest rate futures and currency futures contracts
(other than those relating to Eurodollar time deposits) generally provide for
delivery and acceptance of the underlying financial instrument, the Fund expects
most financial or currency futures contracts to be terminated by offsetting
transactions.
OPTIONS ON FUTURES CONTRACTS
An option on a financial or currency futures contract gives the purchaser
the right, but not the obligation, to assume a position in a financial or
currency futures contract (a long position if the option is a call and a short
position if the option is a put) at a specified exercise price at any time
during the option exercise period. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Options currently
can be purchased or sold with respect to interest rate futures contracts on U.S.
Treasury Bonds, and with respect to stock index futures contracts on the
Standard & Poor's 500 Stock Index. Options also currently can be purchased or
sold with respect to currency futures contracts, such as the British Pound,
Deutschemark, Swiss Franc, Japanese Yen, U.S. Dollar, Australian Dollar and the
Canadian Dollar. An option on a currency or financial futures contract can be
purchased and sold on the same exchanges or boards of trade as the underlying
futures contract.
REGULATION OF FUTURES CONTRACTS AND RELATED OPTIONS
In purchasing and selling futures contracts and related options, the Fund
will comply with the rules and interpretations of the Commodity Futures Trading
Commission ('CFTC'), under which the Fund is exempted from regulation as a
'commodity pool operator.' The Fund will acquire futures and related options for
'bona fide hedging' within the meaning and intent of the Commodity Exchange Act
and Regulations promulgated thereunder by the CFTC. The Fund may also acquire
futures and related options for other than bona fide hedging purposes provided
that the aggregate initial margin and premiums required to establish such
positions are in an amount not exceeding 5% of the liquidation value of the
Fund's portfolio after taking into account unrealized profits and unrealized
losses on any such contracts it has entered into. When options are in-the-money
at the time of purchase, the in-the-money amount will be excluded from the
computation of such 5% limitation.
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The Fund will only sell futures contracts or purchase puts and write calls
thereon to offset expected declines in the value of specific portfolio holdings,
provided the aggregate contract amount of such futures and related options does
not exceed the total market value of those holdings, as adjusted for the
historic volatility of the instruments being hedged. The Fund will only purchase
futures contracts or write puts and purchase calls thereon, provided it creates
a segregated account with its Custodian consisting of cash, U.S. Government
securities or other appropriate high-grade debt obligations in an amount equal
to the total market value of any such futures contracts and related options,
less the amount of premium and/or initial margin for such contracts. Such
segregated account will be marked-to-market on a daily basis to reflect the
current value of any such futures contracts and related options, less the amount
of premium and/or initial margin for such contracts and related options.
HEDGING WITH FUTURES CONTRACTS AND RELATED OPTIONS
The Fund may purchase an interest rate futures contract as a hedge against
an anticipated decline in interest rates and resulting increase in the market
price of debt securities the Fund intends to acquire. The Fund may sell an
interest rate futures contract as a hedge against an anticipated increase in
interest rates and resulting decline in the market price of debt securities the
Fund owns. The Fund may purchase a currency futures contract to hedge against
anticipated increases in the value of currency the Fund intends to acquire for
prospective securities purchases relative to the value of currency the Fund is
holding. The Fund may also sell a currency futures contract in anticipation of a
decrease in the value of currency the Fund is holding or in anticipation of the
sale of a portfolio security. The Fund may purchase a stock index futures
contract as a hedge against an anticipated general market or market sector
advance which may increase the market price of equity securities the Fund
intends to buy. The Fund may sell stock index futures contracts in anticipation
of or in a general market or market sector decline that may adversely affect the
market value of the Fund's portfolio of equity securities.
The Fund may use options on financial and currency futures contracts in
connection with its hedging strategies in lieu of purchasing or selling
financial and currency futures contracts. To hedge against a possible decrease
in the value of equity or debt securities or currency held in its portfolio, the
Fund may purchase put options and write call options on stock index, interest
rate or currency futures contracts, respectively. Similarly, in anticipation of
an increase in the prices of equity or debt securities or currency the Fund
intends to purchase, the Fund may purchase call options or write put options on
stock index or interest rate or currency futures contracts, respectively.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS
There are several risks associated with the Fund's use of financial and
currency futures and related options as hedging devices. One risk arises because
of imperfect correlation in the movement of prices of financial and currency
futures contracts and related options and the securities or currency subject to
the hedge. In the case of stock index futures and related options, the risks of
imperfect correlation increases as the composition of the Fund's portfolio of
equity securities diverges from the securities included in the applicable stock
index. In the case of interest rate or currency futures contracts and related
options, the risk of imperfect correlation presents the possibility that a
correct forecast of interest or exchange rate trends by the Adviser may still
not result in a successful hedging transaction. If the price of a financial or
currency futures contract or related option moves more than the price of the
hedged financial instrument, the Fund may experience either a loss or a gain on
the contract which will not be completely offset by movements in the price of
the hedged instrument. To compensate for the imperfect correlation of movements
in the price of securities or currency being hedged and movements in the price
of financial or currency futures contracts and related options, the Fund may buy
or sell financial or currency futures contracts and related options in a greater
dollar amount than the dollar amount of
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the securities or currency being hedged if the historical volatility of the
prices of such securities or currency has been greater than the historical
volatility, respectively, of the index, debt securities or currency underlying
financial or currency futures contracts or related options. Conversely, the Fund
may buy or sell fewer financial or currency futures contracts and related
options if the historical volatility of the price of hedged securities or
currency is less than the volatility of the index, debt securities or currency
underlying futures contracts or related options. It is also possible that, where
the Fund has sold financial futures or currency contracts or sold calls or
purchased puts thereon to hedge its portfolio against a decline in the equity or
debt securities or currency, the price may advance and the value of securities
or currency held in the Fund's portfolio may decline.
Where financial or currency futures contracts or related options are
purchased to hedge against possible increases in the price of equity or debt
securities or currency before the Fund is able to acquire such securities or
currency in an orderly fashion, it is possible that the prices of the securities
or currency may instead decline. If the Fund at that time decides not to acquire
the securities or currency because of concern as to further market decline or
for other reasons, the Fund will realize a loss on the futures contract or
related option that is not offset by a reduction in the price of securities or
currency purchased.
Successful use of financial futures contracts and related options by the
Fund is also subject to the Adviser's ability to predict correctly movements in
the direction of the market. Similarly, successful use of currency futures and
related options depends, in part, on the Adviser's ability to predict changes in
exchange rates. For example, if the Fund has hedged against the possibility of a
decline in the price of securities or the relative value of currency held in its
portfolio and the aggregate price of those securities or the relative value of
currencies increases instead, the Fund will lose part or all the benefit of the
increased value of the hedged securities or currency because it will have
offsetting losses on its futures or options positions. Additionally, in such
situations, if the Fund has insufficient cash, it may have to sell securities or
currency to meet daily variation margin payments. Sales of securities or
currency under those conditions may, but will not necessarily, be at increased
prices which reflect the rising market. The Fund may have to sell securities or
currency at a time when it may be disadvantageous to do so.
A financial or currency futures position may be closed by the sale of an
identical contract where the Fund has previously purchased a futures contract
and by the purchase of an identical contract where the Fund has previously sold
a futures contract. Gain or loss to the Fund will correspond to the difference
in the price of the original transaction and that of the closing transaction.
Positions in financial and currency futures and related options may be closed
out only on an exchange or board of trade which provides a secondary market for
such futures. Although the Fund intends to purchase or sell futures and related
options only on commodities exchanges or boards of trade where there appears to
be an active secondary market, there is no assurance that a liquid secondary
market on an exchange or board of trade will exist for any particular futures or
related option contract at any particular time. In such event, it may not be
possible to close a futures position, and in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts or related options
have been used to hedge securities or currency held in the Fund's portfolio,
such securities or currency will not be sold until the futures contract or
related option can be terminated. In those circumstances, an increase in the
price of the securities or currency, if any, may partially or completely offset
losses on the futures contract or related option. However, as described above,
there is no guarantee that the price of the securities or currency will, in
fact, correlate with the price movements in futures contracts or related options
and thereby offset losses on futures contracts or related options.
The Fund intends, to the extent consistent with its bona fide hedging
strategies, to purchase and sell financial or currency futures contracts and
related options on the stock index or debt security or currency for which it can
obtain the best price, with consideration also given to liquidity. Commodities
exchanges and boards
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of trade have established limitations on the maximum number of options that an
investor or group of investors acting in concert may write. It is possible that
the Fund and other clients of the Adviser may be considered such a group.
Position limits may restrict the Fund's ability to purchase or sell options on
futures contracts. Additionally, the extent to which the Fund may engage in call
option transactions may be limited by the Internal Revenue Code's requirements
for qualification as a regulated investment company and the Fund's intention to
qualify as such. See 'Taxes' below.
OVER-THE-COUNTER DERIVATIVE TRANSACTIONS
The Fund may invest in options, futures and swaps and related products
which are often referred to as 'derivatives.' Derivatives may have a return that
is tied to a formula based upon an interest rate, index or other measurement
which may differ from the return of a simple security of the same maturity. A
formula may have a cap or other limitation on the rate of interest to be paid.
Derivatives may have varying degrees of volatility at different times, or under
different market conditions. See 'Options Transactions,' 'Options on Stock
Indices' and 'Futures Contracts' above.
The Fund may enter into interest rate, currency and index swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter
into these transactions to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency fluctuations
or to protect against any increase in the price of securities the Fund
anticipates purchasing at a later date. Interest rate swaps involve the exchange
by the Fund with another party of their respective commitments to pay or receive
interest, such as an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. A currency swap is an agreement
to exchange cash flows on a notional amount of two or more currencies based on
the relative value differential between them and an index swap is an agreement
to swap cash flows on a notional amount based on changes in values of the
reference indices. Swaps may be used in conjunction with other derivative
instruments to offset interest rate, currency or other underlying risks. For
example, interest rate swaps may be offset with 'caps,' 'floors' or 'collars.' A
'cap' is essentially a call option which places a limit on the amount of
floating rate interest that must be paid on a certain principal amount. A
'floor' is essentially a put option which places a limit on the minimum amount
that would be paid on a certain principal amount. A 'collar' is essentially a
combination of a long cap and a short floor where the limits are set at
different levels.
The Fund will usually enter into swaps on a net basis, that is, the two
payment streams will be netted out in a cash settlement on the payment date or
dates specified in the instrument, with the Fund receiving or paying, as the
case may be, only the net amount of the two payments. To the extent obligations
created thereby may be deemed to constitute senior securities under the
Investment Company Act of 1940, the Fund will maintain required collateral in a
segregated account consisting of U.S. Government securities or cash or cash
equivalents. See 'Investment Restrictions' below.
SPECIAL RISKS OF OVER-THE-COUNTER DERIVATIVE TRANSACTIONS
OTC derivative transactions differ from exchange-traded derivative
transactions in several respects. OTC derivatives are transacted directly with
dealers and not with a clearing corporation. Without the availability of a
clearing corporation, OTC derivative pricing is normally done by reference to
information from market makers, which information is carefully monitored by the
Adviser and verified in appropriate cases.
As OTC derivatives are transacted directly with dealers, there is a risk of
nonperformance by the dealer as a result of the insolvency of such dealer or
otherwise, in which event the Fund may experience a loss. An OTC derivative may
only be terminated voluntarily by entering into a closing transaction with the
dealer with whom the Fund originally dealt. Any such cancellation, if agreed to,
may require the Fund to pay a premium to that
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dealer. In those cases in which the Fund has entered into a covered derivative
transaction and cannot voluntarily terminate the derivative, the Fund will not
be able to sell the underlying security until the derivative expires or is
exercised or different cover is substituted. In such cases, the Fund may not be
able to sell an underlying security even though it might otherwise be
advantageous to do so.
It is the Fund's intention to enter into OTC derivative transactions only
with dealers which agree to, and which are expected to be capable of, entering
into derivative closing transactions with the Fund, although there is no
assurance that a dealer will voluntarily agree to terminate the derivative.
There is also no assurance that the Fund will be able to liquidate an OTC
derivative at any time prior to expiration. OTC derivatives for which there is
no adequate secondary market will be considered illiquid. See 'Investment
Objective and Policies and Risk Factors -- Illiquid Securities' in the
Prospectus.
BORROWING
The Fund may from time to time increase its ownership of securities above
the amounts otherwise possible by borrowing from banks (other than those
affiliated with the Fund or any of its affiliates) and investing the borrowed
funds. The Fund also may borrow from those banks to facilitate the meeting of
redemption requests or for temporary or emergency purposes. The Fund may pledge
its assets to secure those borrowings. Any borrowings by the Fund will be made
only to the extent that the value of the Fund's assets, less its liabilities
other than borrowings, is equal to at least 300% of all of its borrowings
(including reverse repurchase agreements) computed at the time a loan is made.
If the value of the Fund's assets at any time should fail to meet the 300% asset
coverage described above, the Fund, within three days, is required to reduce its
aggregate borrowings (including reverse repurchase agreements) to the extent
necessary to meet such asset coverage and may have to sell a portion of its
investments at a time when independent investment judgment would not indicate
such action. Interest on money borrowed is an expense of the Fund which it would
not otherwise incur so that it may have little or no net investment income
during periods when its borrowings are substantial.
RESTRICTED SECURITIES
The Fund may invest up to 15% of its net assets in securities which are
subject to legal or contractual restrictions on resale ('Restricted
Securities'), such as securities that cannot be sold unless registered under the
Securities Act of 1933, as amended (the 'Securities Act'), but the Fund has no
current intention of investing more than 5% of its net assets in Restricted
Securities. Generally the Fund cannot sell Restricted Securities without the
expense and time required to register the securities under the Securities Act.
The Fund ordinarily will acquire the right to have Restricted Securities
registered within a specified time period, with the payment of expenses of such
registration to be subject to negotiation at the time such Restricted Securities
are purchased. Certain Restricted Securities may be sold to institutional
investors without registration pursuant to rules under the Securities Act. The
institutional trading market is relatively new and liquidity of the Fund's
investments in these Restricted Securities could be impaired if trading does not
develop or declines. Restricted Securities for which no adequate trading market
exists may be deemed illiquid securities. See 'Investment Objective and Policies
and Risk Factors -- Illiquid Securities' in the Prospectus.
REVERSE REPURCHASE AGREEMENTS
A reverse repurchase agreement involves the sale of a debt security held by
the Fund coupled with an agreement by the Fund to repurchase the instrument at a
stated price, date and interest payment. The Fund will use the proceeds of a
reverse repurchase agreement to purchase other debt securities or to enter into
repurchase agreements maturing not later than the expiration of the prior
reverse repurchase agreement.
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The Fund will enter into a reverse repurchase agreement only when the
interest income to be earned from the investment of the proceeds of the
transaction is greater than the interest expense of the transaction. Under the
Investment Company Act, reverse repurchase agreements will be considered to be
borrowings by the Fund and, therefore, may be subject to the same risks involved
in any borrowing in which the Fund might be involved. See 'Borrowing' above. The
Fund may not enter into a reverse repurchase agreement if as a result its
current obligations under such agreements would exceed one third of the value of
the Fund's net assets computed at the time the reverse repurchase agreement is
entered into. The Fund may invest up to 25% of its net assets in reverse
repurchase agreements, but has no current intention of investing more than 5% of
the value of its net assets in reverse repurchase agreements.
The Fund may enter into reverse repurchase agreements with banks or
broker-dealers. Entry into such agreements with broker-dealers requires the
creation and maintenance of a segregated account with the Fund's Custodian
consisting of U.S. Government securities or cash or cash equivalents.
REPURCHASE AGREEMENTS
The Fund may purchase securities and concurrently enter into 'repurchase
agreements.' A repurchase agreement typically involves a purchase by the Fund of
an investment contract from a selling financial institution such as a bank or
broker-dealer, which contract is fully secured by government obligations or
other debt securities. The agreement provides that the Fund will sell the
underlying securities back to the institution at a specified price and at a
fixed time in the future, usually not more than seven days from the date of
purchase. The collateral will be held by the Fund's Custodian, either physically
or in a book entry account. The difference between the purchase price and the
resale price represents the interest earned by the Fund, which is unrelated to
the coupon rate or maturity of the purchased security. Should the value of the
underlying security decline below the resale price or the financial institution
default in its obligation to repurchase the securities, the Fund might sustain a
loss. In the event of the bankruptcy or insolvency of the financial institution,
the Fund may be delayed in realizing upon the collateral underlying the
repurchase agreement. Further, the law is unsettled regarding the rights of the
Fund if the financial institution which is a party to the repurchase agreement
petitions for bankruptcy or otherwise becomes subject to the United States
Bankruptcy Code. The Fund may invest up to 25% of its net assets in repurchase
agreements, but has no current intention of investing more than 5% of its net
assets in repurchase agreements. Repurchase agreements of greater than seven
days' maturity may be deemed to be illiquid. See 'Investment Objective and
Policies and Risk Factors -- Illiquid Securities' in the Prospectus.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and financial institutions, provided
outstanding loans do not exceed in the aggregate 331/3% of the value of the
Fund's net assets and provided that such loans are callable at any time by the
Fund and are at all times secured by cash or equivalent collateral that is equal
to at least the market value, determined daily, of the loaned securities. The
Fund, however, may not enter into portfolio lending arrangements with the
Adviser or any of its affiliates absent appropriate regulatory relief from
applicable prohibitions contained in the Investment Company Act. The Fund may
lend up to 25% of its net assets, but has no current intention of committing
more than 5% of the value of its net assets to portfolio loans. The advantage of
portfolio lending is that the Fund continues to receive payments in lieu of the
interest and dividends of the loaned securities, while at the same time earning
interest either directly from the borrower or on the collateral, which may be
invested in short-term obligations.
Loans of portfolio securities will only be made to firms determined to be
creditworthy pursuant to procedures approved by the Board of Directors of the
Fund. A loan may be terminated by the borrower on one business day's notice or
by the Fund at any time. If the borrower fails to maintain the requisite amount
of
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collateral, the loan automatically terminates, and the Fund may use the
collateral to replace the securities while holding the borrower liable for any
excess of replacement cost over collateral. On termination of the loan, the
borrower is required to return the securities to the Fund, and any gain or loss
in the market price during the loan would inure to the Fund.
As voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
which are subject to the loan. The Fund will pay reasonable finders',
administrative and custodial fees in connection with a loan of its securities or
may share the interest earned on collateral with the borrower.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
From time to time, in the ordinary course of business, the Fund may
purchase securities on a when-issued or delayed delivery basis -- i.e.,
delivery and payment can take place a month or more after the date of the
transaction. The purchase price, or the interest rate payable on debt
securities, is fixed on the transaction date. The securities so purchased are
subject to market fluctuation, and no interest or dividend accrues to the Fund
until delivery and payment take place. At the time the Fund makes the commitment
to purchase securities on a when-issued or delayed delivery basis, it will
record the transaction and thereafter reflect the value of such securities in
determining its net asset value each day. The Fund will make commitments for
such when-issued transactions only with the intention of actually acquiring the
securities. The Fund's Custodian will maintain, in a separate account of the
Fund, cash, U.S. Government securities or other high grade debt obligations
having value equal to or greater than such commitments. On delivery dates for
such transactions, the Fund may meet its obligations from maturities or sales of
the securities held in the separate account and/or from then-available cash
flow. If the Fund chooses to dispose of the right to acquire a when-issued
security prior to its acquisition, it could, as with the disposition of other
portfolio acquisitions, incur a gain or loss due to market fluctuation. The Fund
currently intends to invest no more than 5% of the value of its net assets in
such transactions.
SHORT SALES
The Fund may make short sales and short sales against-the-box but currently
intends to invest no more than 5% of the value of its net assets in such
transactions. A short sale is a transaction in which the Fund sells a security
it does not own in anticipation of a decline in market price. In order to
deliver the security to the buyer, the Fund must arrange through a broker to
borrow the security. That borrowing arrangement, which may subject the Fund to
payment of a premium, obligates the Fund to replace the borrowed security at its
market price. The Fund may incur a loss with respect to a short sale
transaction, if the market price of the security increases between the date of
the short sale and the date on which the Fund replaces the borrowed security.
A short sale against-the-box is a short sale where, at the time of the
short sale, the Fund owns, or has the immediate and unconditional right, at no
extra cost, to obtain securities identical to those subject to the short sale.
The Fund may make a short sale only if, at the time the short sale is made
and after giving effect thereto, the market values of all securities sold short
is one-third or less of the value of its net assets and the market value of
securities sold short which are not listed on a national securities exchange
does not exceed 10% of the Fund's net assets. The Fund's obligation to replace
the security borrowed in connection with a short sale will be secured by
collateral consisting of cash or U.S. Government securities or liquid securities
which are listed on a national securities exchange or on the NASDAQ National
Market System that are marked-to-market on a daily basis. Additionally, the Fund
will be required to deposit similar collateral in a segregated account with its
16
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<PAGE>
Custodian in an amount such that the value of both collateral deposits is at all
times equal to at least 100% of the current market value of the securities sold
short. The Fund ordinarily will not receive interest on cash collateral although
the Fund will be entitled to receive interest on collateral represented by U.S.
Government securities.
If the price of the security sold short increases between the time of the
short sale and the time the Fund replaces the borrowed security, the Fund will
incur a loss, and if the price declines during this period, the Fund will
realize a gain. Any realized gain will be decreased, and any incurred loss
increased, by the amount of the transaction costs and any premium, dividend or
interest which the Fund may have to pay in connection with the short sale.
ARBITRAGE TRANSACTIONS
The Fund also may engage in arbitrage transactions involving near
contemporaneous purchase of securities on one market and sale of those
securities on another market to take advantage of pricing differences between
markets. The Fund will incur a gain to the extent that proceeds exceed costs,
and a loss to the extent that costs exceed proceeds. The risk of an arbitrage
transaction, therefore, is that the Fund may not be able to sell securities
subject to an arbitrage at prices exceeding the costs of purchasing those
securities. The Fund will attempt to limit that risk by effecting arbitrage
transactions only when the prices of the securities are confirmed in advance of
the trade. The Fund currently intends to invest no more than 5% of the value of
its net assets in such transactions.
INVESTMENT IN OTHER INVESTMENT COMPANIES
The Fund may under certain circumstances invest in securities issued by
other investment companies. See 'Investment Restrictions.' If the Fund invests
in such securities, investors may be subject to duplicate management, advisory
or distribution fees.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental polices
are those which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. A 'majority of the Fund's
outstanding voting securities,' when used in this Statement of Additional
Information, means the lesser of (i) 67% of the shares represented at a meeting
at which more than 50% of the outstanding shares are present in person or
represented by proxy or (ii) more than 50% of the outstanding shares.
Restrictions or limits not included in the following list, but described
elsewhere in this document and the Fund's Prospectus, are not fundamental
policies of the Fund and may be changed at the discretion of the Fund's Board of
Directors.
The Fund may not:
1. With respect to 50% of the value of its total assets, invest more
than 25% of the value of its total assets in the securities of one issuer,
and with respect to the other 50% of the value of its total assets, invest
more than 5% of the value of its total assets in the securities of one
issuer or acquire more than 10% of the outstanding voting securities of a
single issuer. This restriction shall not apply to U.S. Government
securities.
2. Invest more than 25% of its assets in the securities of issuers
engaged in specific industries or industry groups.
3. Change its sub-classification under the Investment Company Act of
1940 from non-diversified to diversified.
17
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<PAGE>
4. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions);
the deposit or payment by the Fund of initial or maintenance margin in
connection with futures contracts is not considered the purchase of a
security on margin.
5. Issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow money from a bank (and may pledge its assets to
secure such borrowings) directly or through reverse repurchase agreements
for securities purchases, or temporarily to facilitate meeting redemption
requests or for emergency purposes, and by engaging in reverse repurchase
agreements with broker-dealers. The Fund may not, however, borrow money in
an aggregate amount exceeding 331/3% of the Fund's net assets. The
purchase or sale of securities on a when-issued or delayed delivery basis
and collateral arrangements with respect to futures contracts are not
deemed to be a pledge of assets; and neither such arrangements nor
investment in over-the-counter derivative transactions or the purchase or
sale of options on futures contracts on an exchange are deemed to be the
issuance of a senior security.
6. Buy or sell real estate or interests in real estate, except that
the Fund may purchase and sell securities which are secured by real estate,
securities of companies which invest or deal in real estate and publicly
traded securities of real estate investment trusts.
7. Buy or sell commodities or commodity contracts which under the
Commodity Exchange Act and Regulations promulgated thereunder would require
the Fund to register as a 'commodity pool operator' as that term is defined
under the Commodity Exchange Act.
8. Act as underwriter except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws.
9. Make investments for the purpose of exercising control.
10. Invest in securities of other investment companies, except in
accordance with the Investment Company Act and the rules and regulations
thereunder.
11. Invest in interests in oil, gas or other mineral exploration or
development programs, except that the Fund may invest in the securities of
companies which invest in or sponsor such programs.
12. Make loans, except through (i) repurchase agreements (repurchase
agreements with a maturity of longer than 7 days together with illiquid
assets being limited to 15% of the Fund's net assets) and (ii) loans of
portfolio securities.
13. Pledge, mortgage, or hypothecate its assets in an amount exceeding
331/3% of its total assets.
14. Invest more than 10% of its total assets in the securities of
issuers which together with any predecessors have a record of less than
three years continuous operation or securities of issuers which are
restricted as to disposition.
The following restrictions are not considered fundamental policies of the
Fund.
1. The Fund may not invest in securities of any issuer if, to the
knowledge of the Fund, any officer or director of the Fund or the Fund's
investment adviser owns more than 1/2 of 1% of the outstanding securities
of such issuer, and such officers and directors who own more than 1/2 of 1%
own in the aggregate more than 5% of the outstanding securities of such
issuer.
2. The Fund may not purchase securities of any issuer if, as to 75% of
the assets of the Fund at the time of purchase, more than 10% of the voting
securities of any issuer would be held by the Fund.
3. The Fund may not effect a change in its investment objective
without giving 30 days' prior notice to shareholders.
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DIRECTORS, OFFICERS AND PRINCIPAL STOCKHOLDERS
Pertinent information concerning the Fund's directors and officers is set
forth below. Some of the Fund's directors and officers are employees of the
Adviser and its affiliates. At least a majority of the Fund's Board of Directors
are not 'interested persons' of the Fund as that term is defined in the
Investment Company Act.
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS(1) THE FUND DURING PAST 5 YEARS*
------------------- -------- --------------------
<S> <C> <C>
Henry H. Arnhold ................... Director Co-Chairman of the Board since 1994, previously
Chairman of the Board, Arnhold and S.
Bleichroeder, Inc.; Director, Arnhold and S.
Bleichroeder Advisers, Inc.; Director, Aquila
International Fund Ltd., First Eagle Fund of
America, Inc. and Conservation International;
Trustee, The New School for Social Research.
Edwin J. Ehrlich ................... Director Director, Pension Fund Trusts -- ITT Corp.;
2976 Lonni Lane Advisory Board Member, Emerging World
Merrick, New York 11566 Investors Limited Partnership.
K. Georg Gabriel ................... Director Senior Advisor, Strategic Investment Partners,
2401 Tracy Place, N.W. Inc.; Member, Investment Committee, Eugene and
Washington, D.C. 20008 Agnes Meyer Foundation; Director, First Eagle
Fund of America, Inc.
Robert J. Gellert .................. Director Manager, United Continental Corporation; General
122 East 42nd Street Partner, Windcrest Partners.
New York, New York 10168
*Michael M. Kellen ................. Director and Vice Director and Senior Vice President, Arnhold and
Chairman of the Board S. Bleichroeder, Inc.; Director and Vice
Chairman of the Board, First Eagle Fund of
America, Inc.
*Stephen M. Kellen ................. Director Co-Chairman of the Board since 1994, previously
President, Arnhold and S. Bleichroeder, Inc.;
Director, Arnhold and S. Bleichroeder
Advisers, Inc.; Director, First Eagle Fund of
America, Inc. and The American Council on
Germany; Trustee, The Carnegie Hall Society
and WNET/Thirteen; Trustees Council of The
National Gallery of Art.
William M. Kelly ................... Director Manager, Lingold Associates; Independent General
40 Wall Street -- Suite 4201 Partner, ML Venture Partners II, L.P.;
New York, New York 10005 Trustee, New York Foundation; Treasurer and
Trustee, Black Rock Forrest Consortium; Board
of Governors, Eugene Lang College.
*Stanford S. Warshawsky ............ Director and Chairman Co-President since 1994, Director and Secretary,
of the Board previously Vice Chairman of the Board, Arnhold
and S. Bleichroeder, Inc.; Director, Arnhold
and S. Bleichroeder Advisers, Inc.; Director,
First Eagle Fund of America, Inc.; Director,
German-American Chamber of Commerce.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS(1) THE FUND DURING PAST 5 YEARS*
------------------- -------- --------------------
<S> <C> <C>
J. Frank Wiedeman .................. Director Executive Director, American Capital Management
324 Deermeadow Lane Inc.; Investment Adviser to a major offshore
Chatham, Massachusetts 02633 bank.
John P. Arnhold .................... President, Chief President and Chief Executive Officer, Arnhold
Executive Officer, and S. Bleichroeder Advisers, Inc.;
and Chief Financial Co-President since 1994 and Director,
Officer previously Senior Vice President, Arnhold and
S. Bleichroeder, Inc.; President, Worldvest
Inc.; Director, Aquila International Fund
Ltd.; Director, The Global Beverage Fund Ltd.;
Co-President of First Eagle Fund of America,
Inc.
Arthur F. Lerner ................... Vice President Portfolio Manager, Arnhold and S. Bleichroeder
Advisers, Inc.; Senior Vice President, Arnhold
and S. Bleichroeder, Inc.
Allan R. Raphael ................... Vice President Portfolio Manager, Arnhold and S. Bleichroeder
Advisers, Inc.; Senior Vice President, Arnhold
and S. Bleichroeder, Inc., 1992; Portfolio
Manager Caxton Corporation, Sept. 1990-Nov.
1992; Director, Harvey Entertainment.
Robert Miller ...................... Secretary, Treasurer Senior Vice President, Arnhold and S.
and Chief Bleichroeder, Inc.; Vice President, Secretary
Accounting Officer and Treasurer, Arnhold and S. Bleichroeder
Advisers, Inc.; Secretary, Treasurer, Chief
Accounting Officer and Chief Financial
Officer, First Eagle Fund of America, Inc.
Martha B. Pierce ................... Vice President Vice President since 1997, previously Assistant
Vice President since 1994 and Fund
Administrator, Arnhold and S. Bleichroeder,
Inc.; Vice President, First Eagle Fund of
America, Inc.
Tracy LaPointe Saltwick ............ Assistant Vice Vice President, Arnhold and S. Bleichroeder,
President Inc.; Assistant Vice President, First Eagle
Fund of America, Inc.
Charles J. Rodriguez ............... Assistant Vice Senior Vice President, Arnhold and S.
President Bleichroeder, Inc.; Assistant Vice President,
First Eagle Fund of America, Inc.
Cari Levine ........................ Assistant Secretary Assistant Secretary, First Eagle Fund of
America, Inc.; Fund Administrator, Arnhold and
S. Bleichroeder, Inc. since 1993.
</TABLE>
- ------------------
* 'Interested' director, as defined in the Investment Company Act, by reason of
his affiliation with Arnhold and S. Bleichroeder, Inc. and Arnhold and S.
Bleichroeder Advisers, Inc.
(1) Unless otherwise stated the address is: Arnhold and S. Bleichroeder, Inc.,
1345 Avenue of the Americas, New York, New York 10105.
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<PAGE>
Henry H. Arnhold is the father of John P. Arnhold. Stephen M. Kellen is the
father of Michael M. Kellen. Henry H. Arnhold and Stephen M. Kellen are first
cousins by marriage.
The officers conduct and supervise the daily business operations of the
Fund, while the directors, in addition to the functions set forth under
'Distributor,' review such actions and decide on general policy.
The Fund pays each of its directors who is not an interested person of the
Fund annual compensation of $5,000 plus $500 per meeting of the Board of
Directors and certain out-of-pocket expenses. Mr. Gabriel serves as a director
for an affiliated investment company, First Eagle Fund of America, Inc. The
following table sets out the compensation received by each of the Directors from
the Fund and an affiliated fund, First Eagle Fund of America, Inc. for the
fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
TOTAL AGGREGATE
COMPENSATION FROM THE
AGGREGATE COMPENSATION FUND AND FIRST EAGLE
NAME FROM THE FUND FUND OF AMERICA, INC.
---- ------------- ---------------------
<S> <C> <C>
Henry H. Arnhold............................................ 0 0
Edwin J. Ehrlich............................................ $8,000 $ 8,000
Paul Fribourg (resigned 3/21/96)............................ $1,750 $ 3,000
K. Georg Gabriel............................................ $7,500 $14,500
Robert J. Gellert........................................... $8,000 $ 8,000
Larry D. Horner (resigned 11/20/96)......................... $7,000 $ 7,000
Michael M. Kellen........................................... 0 0
Stephen M. Kellen........................................... 0 0
William M. Kelly............................................ $8,000 $ 8,000
Stanford S. Warshawsky...................................... 0 0
J. Frank Wiedeman........................................... $8,000 $ 8,000
</TABLE>
The Fund does not pay any compensation to interested directors of the Fund
or any retirement or pension benefits to directors.
As of April 1, 1997 the directors and officers of the Fund, as a group,
owned approximately 139,837 shares or 6.32% of the outstanding common stock of
the Fund.
As of April 1, 1997, Arnhold and S. Bleichroeder, Inc. Profit Sharing Plan,
1345 Avenue of the Americas, New York, NY 10105, owned beneficially and of
record approximately 15.12% of the Fund's outstanding shares.
Directors and employees of the Fund, Arnhold and S. Bleichroeder, Inc. and
Arnhold and S. Bleichroeder Advisers, Inc. are permitted to engage in personal
securities transactions subject to the restrictions and procedures contained in
the Fund's Code of Ethics, which was approved by the Boards of Directors of the
Fund and Arnhold and S. Bleichroeder, Inc.
ADVISER
Arnhold and S. Bleichroeder Advisers, Inc. provides investment advisory
services as the Fund's investment adviser. For its services, the Adviser
receives, pursuant to an Investment Advisory Agreement between the Fund and the
Adviser (the 'Advisory Agreement'), an annual advisory fee of 1.5% of the Fund's
average daily net assets. This fee described in the Prospectus under
'Adviser -- Management and Services Fees' is accrued daily and is payable
quarterly. For the fiscal period ended December 31, 1994, and for the years
ended
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<PAGE>
December 31, 1995 and 1996 Arnhold and S. Bleichroeder, Inc. or the Adviser
earned an advisory fee of $112,270, $338,062 and $446,932, respectively.
The Adviser has agreed to waive its fee for, and to reimburse expenses of,
the Fund in an amount that operates to limit annual operating expenses of the
Fund for the year ending December 31, 1997 to not more than 2.25% of daily net
assets.
MANAGEMENT AND SERVICES FEES
On October 17, 1995, the Board of Directors and on December 12, 1995 the
shareholders approved an amended and restated Investment Advisory Agreement
between Arnhold and S. Bleichroeder, Inc. and the Fund effective January 1,
1996. The amended and restated Investment Advisory Agreement is substantially
the same as the prior agreement except for the terms of the advisory fee
arrangement.
The Advisory Agreement will continue in effect for a period of more than
two years from the date of execution only so long as such continuance is
specifically approved at least annually in conformity with the Investment
Company Act. Additionally, by unanimous vote on October 17, 1995, the directors
approved the assignment of the Advisory Agreement from Arnhold and S.
Bleichroeder, Inc. to Arnhold and S. Bleichroeder Advisers, Inc., effective
April 30, 1996. The Advisory Agreement provides that the Adviser will not be
liable for any error of judgment or for any loss suffered by the Fund in
connection with the matters to which the Advisory Agreement relates, except a
loss resulting from willful misfeasance, bad faith, gross negligence or reckless
disregard of duty. The Advisory Agreement provides that it will terminate
automatically if assigned, within the meaning of the Investment Company Act, and
that it may be terminated without penalty by either party upon not more than 60
days' nor less than 30 days' written notice.
Arnhold and S. Bleichroeder, Inc. receives an annual service fee of up to
0.25% of the Fund's average daily net assets payable quarterly, pursuant to a
separate Services Agreement which was approved by the Board of Directors, to
cover expenses incurred by Arnhold and S. Bleichroeder, Inc. for providing
administrative and fund accounting support services and shareholder liaison
services, including assistance with subscriptions, redemptions and other
shareholder questions.
DISTRIBUTOR
Arnhold and S. Bleichroeder, Inc., a registered broker-dealer, investment
adviser and a member of the New York Stock Exchange and the National Association
of Securities Dealers ('NASD'), serves as the distributor of the Fund's common
stock. Arnhold and S. Bleichroeder, Inc. is engaged in the investment advisory,
securities brokerage and underwriting businesses. The Fund's shares will be
continuously offered on an agency basis on behalf of the Fund, at the net asset
value next determined after receipt of payment by Arnhold and S. Bleichroeder,
Inc., pursuant to a Distribution Agreement with the Fund (the 'Distribution
Agreement'). See 'Net Asset Value' in the Prospectus. Arnhold and S.
Bleichroeder, Inc. assumes the expenses related to distributing the Fund's
shares. Sales of the Fund's shares are not subject to an initial sales charge.
Pursuant to the Distribution Agreement, the Fund has agreed to indemnify Arnhold
and S. Bleichroeder, Inc. against certain liabilities under the Securities Act
of 1933, as amended (the 'Securities Act').
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities,
futures and options on securities, on indices and on futures for the Fund, the
selection of brokers, dealers and futures commission merchants to effect those
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers and futures commission merchants may receive brokerage
commissions on Fund portfolio transactions, including options and the purchase
and sale of underlying securities or futures positions upon the exercise of
options. Orders may be directed to any broker or futures commission merchant
including, to the extent and in the manner permitted by applicable law, the
Adviser.
Equity securities traded in the over-the-counter market and bonds,
including convertible bonds, are generally traded on a 'net' basis with dealers
acting as principal for their own accounts without a stated commission, although
the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriters,
22
<PAGE>
<PAGE>
generally referred to as the underwriter's concession or discount. On occasion,
certain money market instruments and U.S. Government agency securities may be
purchased directly from the issuer, in which case no commissions or discounts
are paid. The Fund will not deal with Arnhold and S. Bleichroeder, Inc. in any
transaction in which Arnhold and S. Bleichroeder, Inc. acts as principal. Thus,
it will not deal with Arnhold and S. Bleichroeder, Inc. acting as market maker,
and it will not execute a negotiated trade with Arnhold and S. Bleichroeder,
Inc. if execution involves Arnhold and S. Bleichroeder, Inc. acting as principal
with respect to any part of the Fund's order.
Portfolio securities may not be purchased from any underwriting or selling
group of which Arnhold and S. Bleichroeder, Inc., during the existence of the
group, is a member, except in accordance with rules of the Securities and
Exchange Commission. This limitation, in the opinion of the Fund, will not
significantly affect the Fund's ability to pursue its present investment
objective. However, in the future in other circumstances, the Fund may be at a
disadvantage because of this limitation in comparison to other funds with
similar objectives but not subject to such limitations.
In placing orders for portfolio securities or futures of the Fund, the
Adviser is required to give primary consideration to obtaining the most
favorable price and efficient execution. Within the framework of this policy,
the Adviser will consider the research and investment services provided by
brokers, dealers or futures commission merchants who effect or are parties to
portfolio transactions of the Fund, the Adviser or the Adviser's other clients.
Such research and investment services are those which brokerage houses
customarily provide to institutional investors and include statistical and
economic data and research reports on particular companies and industries. Such
services are used by the Adviser in connection with all of its investment
activities, and some of such services obtained in connection with the execution
of transactions for the Fund may be used in managing other investment accounts.
Conversely, brokers, dealers or futures commission merchants furnishing such
services may be selected for the execution of transactions of such other
accounts, whose aggregate assets are far larger than the Fund, and the services
furnished by such brokers, dealers or futures commission merchants may be used
by the Adviser in providing investment management for the Fund. Commission rates
are established pursuant to negotiations with the broker, dealer or futures
commission merchant based on the quality and quantity of execution services
provided by the executing party in the light of generally prevailing rates. In
addition, the Adviser is authorized to pay higher commissions on brokerage
transactions for the Fund to brokers other than Arnhold and S. Bleichroeder,
Inc. in order to secure the research and investment services described above,
subject to review by the Fund's Board of Directors from time to time as to the
extent and continuation of this practice. The allocation of orders among brokers
and the commission rates paid are reviewed periodically by the Fund's Board of
Directors.
Subject to the above considerations, Arnhold and S. Bleichroeder, Inc. may
act as a securities broker for the Fund. In order for Arnhold and S.
Bleichroeder, Inc. to effect any portfolio transactions for the Fund, the
commissions, fees or other remuneration received by Arnhold and S. Bleichroeder,
Inc. must be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities being purchased or sold on an Exchange during a
comparable period of time. This standard would allow Arnhold and S.
Bleichroeder, Inc. 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. Furthermore, the Board of Directors of the Fund, including a
majority of the directors who are not 'interested' directors, has adopted
procedures which are reasonably designed to provide that any commissions, fees
or other remuneration paid to Arnhold and S. Bleichroeder, Inc. are consistent
with the foregoing standard. Brokerage transactions with Arnhold and S.
Bleichroeder, Inc. also are subject to such fiduciary standards as may be
imposed by applicable law.
23
<PAGE>
<PAGE>
From time to time the Fund may engage in agency cross transactions with
respect to securities that meet its investment objective and policies. An agency
cross transaction occurs when a broker sells securities from one client's
account to another client's account. Cross transactions are executed with
written permission from the Fund. This authorization permits cross transactions
only between the Fund on one side and clients for which Arnhold and S.
Bleichroeder, Inc. acts as broker, but does not act as investment adviser, on
the other side. The authorization can be terminated at any time by written
notice to Arnhold and S. Bleichroeder, Inc. The Fund will not engage in cross
transactions with investment advisory clients of the Adviser or Arnhold and S.
Bleichroeder, Inc.
Purchase or sale confirmations for cross transactions, in addition to
indicating the entire amount of transaction charges incurred by the Fund, will
indicate the entire amounts of transaction charges incurred by all clients on
the other side of the transaction. The Fund will be notified annually of the
total number of, and transaction charges, applicable to cross transactions
undertaken for the previous year and the total amount incurred for all such
trades with the Fund by the clients on the other side of the transactions.
The Fund may from time to time sell or purchase securities to or from
companies or persons who are considered to be affiliated with the Fund solely
because they are investment advisory clients of Arnhold and S. Bleichroeder,
Inc. or the Adviser. No consideration other than cash payment against prompt
delivery at the then current market price of the securities will be paid to any
person involved in those transactions. Additionally, all such transactions will
be consistent with procedures adopted by the Board of Directors of the Fund,
including a majority of the directors who are not interested persons thereof, to
assure their conformance with the requirements of the Investment Company Act.
In accordance with Section 11(a) under the Securities Exchange Act of 1934,
Arnhold and S. Bleichroeder, Inc. may not retain compensation for effecting
transactions on a national securities exchange for the Fund unless the Fund has
expressly authorized the retention of such compensation in a written agreement
executed by the Fund and Arnhold and S. Bleichroeder, Inc. The Fund has provided
Arnhold and S. Bleichroeder, Inc. with such authorization. Section 11(a)
provides that Arnhold and S. Bleichroeder, Inc. must furnish to the Fund at
least annually a statement disclosing the aggregate compensation received by the
exchange member in effecting such transactions.
For the years ended December 31, 1996 and 1995 and for the fiscal period
ended December 31, 1994 the Fund paid total brokerage commissions of $88,098,
$82,550 and $136,574, respectively, of which $6,614, $31,964 and $38,565,
respectively, were paid to Arnhold and S. Bleichroeder, Inc. For the year ended
December 31, 1996, brokerage commissions paid by the Fund to Arnhold and S.
Bleichroeder, Inc. constituted 8% of the total brokerage commissions paid by the
Fund. For the year ended December 31, 1996, the Fund effected 12% of the
aggregate dollar amount of its portfolio transactions involving the payment of
commissions through Arnhold and S. Bleichroeder, Inc. Of the total brokerage
commissions paid during the fiscal year ended December 31, 1996, $81,184, (or
92%) were paid to firms which provided research, statistical or other services.
Arnhold and S. Bleichroeder, Inc. has not separately identified a portion of
such brokerage commissions as applicable to the provision of such research,
statistical or other services.
STOCKHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of shares of the Fund, a Stockholder Investment
Account is established for each investor under which a record of the shares held
is maintained by the Transfer Agent. If a stock certificate is desired, it must
be requested in writing for each transaction. Certificates are issued only for
full shares and may be redeposited in the Stockholder Investment Account at any
time. There is no charge to the investor for issuance of a certificate. Whenever
a transaction takes place in the Stockholder Investment Account, the
24
<PAGE>
<PAGE>
stockholder will be mailed a statement showing the transaction and the status of
the account. Additionally, the Transfer Agent will mail each stockholder of
record a quarterly statement of the stockholder's account.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at the net
asset value per share at the close of business on the record date. An investor
may direct the Transfer Agent in writing not less than ten full business days
prior to the record date to have subsequent dividends and/or distributions sent
in cash rather than reinvested. In the case of recently purchased shares for
which registration instructions have not been received on the record date, cash
payment will be automatically reinvested. Any stockholder who receives a cash
payment representing a dividend or distribution may reinvest such dividend or
distribution by returning the check or the proceeds to the Transfer Agent. Such
investment will be made at the net asset value per share next determined after
receipt of the check or proceeds by the Transfer Agent.
TAXES
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code and
intends to distribute all but a de minimis amount of its income and capital
gains to its stockholders within time periods prescribed by the Internal Revenue
Code. This relieves the Fund (but not its stockholders) from paying federal
income tax on income which is distributed to stockholders, and permits net
capital gains of the Fund (i.e., the excess of net long-term capital gains over
net short-term capital losses) to be treated as long-term capital gains of the
stockholders, regardless of how long shares in the Fund are held.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of the Fund's annual gross income, without offset
for losses from the sale or other disposition of securities, consist of certain
types of qualifying income (the '90% test'); (b) the Fund derive less than 30%
of its gross income from gains (without offset for losses) from the sale or
other disposition of securities, certain options, futures or forward contracts,
or from certain transactions in foreign currencies, held for less than three
months (the '30% test'); and (c) the Fund diversify its holdings so that, at the
end of each quarter of the taxable year, (i) at least 50% of the market value of
the Fund's assets is represented by cash, cash items, government securities,
securities of other regulated investment companies and other securities limited
in respect of any one issuer to an amount not greater than 5% of the Fund's
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its assets is invested in the securities of any
one issuer (other than government securities and securities of other regulated
investment companies). Qualifying income for purposes of the 90% test consists
of income derived from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of securities, gains on the sale
or exchange of foreign currencies and other income (including gains from
options, futures, or forward contracts) derived from the business of investing
in securities or currencies. For purposes of satisfying the 30% test, offsetting
positions in certain hedging transactions may be treated as a single investment,
with increases and decreases in the value of the positions which are part of the
hedge being netted together.
In order not to be subject to the regular federal corporate income tax, the
Fund must, in addition to the above requirements, distribute to its stockholders
at least 90% of its net investment income other than net capital gains earned in
each year. In addition, a regulated investment company will be subject to a
non-deductible 4% excise tax in any calendar year in which the company does not
distribute to its stockholders the sum of 98% of its ordinary income for such
calendar year, 98% of its capital gain net income determined on an October 31
year basis and 100% any prior undistributed amount from the previous excise tax
reporting period. In light of this
25
<PAGE>
<PAGE>
provision, the Fund intends to distribute all of its income and capital gains
(except a de minimis amount) to its stockholders during the calendar year in
which such income is earned and such gains are realized.
Dividends on stock owned by the Fund will be included in its gross income
no later than the date on which the stock becomes ex-dividend with respect to
the dividend. If the Fund acquires stock after it becomes ex-dividend and
acquires the right to receive the dividend, it must include the dividend in its
gross income on the date of acquisition.
Gains or losses on sales of securities by the Fund will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year. Other gains or losses on the sale of stock or securities
will be short-term capital gains or losses. Certain of the Fund's transactions
may be subject to wash sale and short sale provisions of the Internal Revenue
Code. In addition, debt securities acquired by the Fund may be subject to
original issue discount and market discount rules.
Ordinarily, gains and losses realized from portfolio transactions will be
treated as capital gain or loss. However, all or a portion of the gain or loss
from the disposition of non-U.S. dollar denominated securities (including debt
instruments, certain financial forward, futures and option contracts, and
certain preferred stock) may be treated as ordinary income or loss under Section
988 of the Internal Revenue Code. In addition and absent any election by the
Fund to accrue market discount daily, all or a portion of the gain realized from
the disposition of market discount bonds will be treated as ordinary income
under Section 1276 of the Internal Revenue Code. Generally, a market discount
bond is defined as any bond bought by the Fund after its original issuance at a
price below its face or accreted value. Finally, all or a portion of the gain
realized from engaging in 'conversion transactions' may be treated as ordinary
income under Section 1258 of the Internal Revenue Code. 'Conversion
transactions' are defined to include certain forward, futures, option and
straddle transactions, transactions marketed or sold to produce capital gains,
or transactions described in Treasury regulations to be issued in the future.
Under the Internal Revenue Code, special rules apply to the treatment of
certain options and futures contracts ('Section 1256 Contracts') held by a
regulated investment company. At the end of each year Section 1256 Contracts
held by the Fund will be required to be 'marked to market' for federal income
tax purposes; that is, they will be treated as having been sold at market value.
Sixty percent of any gain or loss recognized on these 'deemed sales' and on
actual disposition will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term gain or loss.
Offsetting positions held by the Fund involving certain financial forward,
futures or options contracts (including certain foreign currency forward
contracts or options) may constitute 'straddles.' Straddles are defined to
include 'offsetting positions' in actively traded personal property. The tax
treatment of straddles is governed by Sections 1092 and 1258 of the Internal
Revenue Code, which, in certain circumstances, override or modify the provisions
of Sections 1256 and 988. If the Fund were treated as entering into straddles by
reason of its engaging in certain forward contracts or options transactions,
such straddles would be characterized as 'mixed straddles' if the forward
contracts or options transactions comprising a part of such straddles were
governed by Section 1256. The Fund may make one or more elections with respect
to mixed straddles. Depending on which election is made, if any, the results to
the Fund may differ. If no election is made to positions established by the Fund
which constitute a straddle, losses realized by the Fund on one end of the
straddle will be deferred to the extent of unrealized gain in the offsetting
position. Moreover, as a result of the straddle rules, short-term capital loss
on straddle positions may be recharacterized as long-term capital loss, and
long-term capital gains may be treated as short-term capital gains.
Any dividends or distributions paid shortly after a purchase by an investor
may have the effect of reducing the per share net value of the investor's shares
by the per share amount of the dividends or distributions. Furthermore, such
dividends or distributions, although in effect a return of capital, are subject
to federal income
26
<PAGE>
<PAGE>
taxes. Therefore, prior to purchasing shares of the Fund, the investor should
carefully consider the impact of dividends or capital gains distributions which
are expected to be or have been announced.
PERFORMANCE INFORMATION
The Fund may advertise its performance in terms of average annual total
return for 1, 5, and 10 year periods, or for such lesser periods as the Fund has
been in existence. Average annual total return is computed by finding the
average annual compounded rates of return over the 1, 5, and 10 year periods
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1 +T)'pp'n = ERV
<TABLE>
<S> <C> <C>
Where: P = A hypothetical initial payment of $1,000
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of hypothetical $1,000 payment made at the beginning of the 1, 5, or
10 year periods at the end of the 1, 5, or 10 year periods (or fractional portion thereof)
</TABLE>
The calculation (i) assumes all dividends and distributions by the Fund are
reinvested at the price stated in the Prospectus on the reinvestment dates
during the period, (ii) includes all recurring fees that are charged to all
shareholder accounts, (iii) assumes complete redemption at the end of the 1, 5,
or 10 year periods to determine the ending redeemable value and (iv) does not
take into account any federal or state income taxes that may be payable upon
redemption.
The Fund may also advertise aggregate total return, which represents the
cumulative change in the value of a hypothetical initial investment of $1,000 in
the Fund assuming a constant rate of performance over a stated period of time.
Aggregate total return is computed according to the following formula:
ERV -- P
--------
P
<TABLE>
<S> <C> <C>
Where: P = A hypothetical initial payment of $1,000
ERV = Ending redeemable value of hypothetical $1,000 payment made at the beginning of the 1, 5, or
10 year periods at the end of the 1, 5, or 10 year periods (or fractional portion thereof)
</TABLE>
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT AUDITORS
The Bank of New York serves as Custodian for the Fund's assets. BISYS Fund
Services, Inc. serves as Transfer and Dividend Disbursing Agent. In those
capacities, both The Bank of New York and BISYS Fund Services, Inc. maintain
certain financial and accounting books and records pursuant to agreements with
the Fund.
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York, 10154 serves as
the Fund's independent auditors and in that capacity audits and reports on the
Fund's annual financial statements and financial highlights.
ORGANIZATION AND HISTORY OF THE FUND
The Fund was incorporated in Maryland on October 7, 1993.
27
<PAGE>
<PAGE>
FIRST EAGLE INTERNATIONAL FUND, INC.
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
Shares STOCK (91.55%) Value
<C> <S> <C>
Austria (2.56%)
6,800 Wolford AG US$ 821,806
Brazil (1.67%)
7,000 Telebras ADR 535,500
Finland (2.84%)
29,000 KCI Konecranes International 912,343
France (15.40%)
1,750 Altran Technologies SA 561,146
7,700 Axime SA* 888,677
3,000 Brioche Pasquier SA 383,170
5,000 Christian Dior SA 805,003
4,387 Clarins SA 642,177
6,200 Lambert Dodard Chancereul 1,127,005
10,000 Michelin 538,785
-------------
4,945,963
Germany (20.21%)
13,300 Adidas AG 1,147,810
10,200 Bayerische Vereinsbank AG 418,296
5,000 Eurobike AG 152,488
11,000 Fresenius Medical Care AG 940,038
5,000 Hannover Rueckverischerungs AG 228,731
5,800 Hoechst AG 273,608
22,400 Leica Camera AG 697,679
35,000 SKW Trostberg AG 949,543
15,600 Tarkett AG 310,763
4,300 VEBA AG 248,328
2,700 Volkswagen AG 1,121,270
-------------
6,488,554
Italy (14.44%)
71,000 Brembo SpA* 996,942
184,000 Carraro SpA 847,090
216,000 Gildemeister Italiana SpA 774,219
69,400 Industrie Natuzzi SpA ADR 1,596,200
114,000 Pagnossin SpA 421,361
-------------
4,635,812
</TABLE>
F-1
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Shares STOCK (CONTINUED) Value
Netherlands (19.84%)
<C> <S> <C>
33,500 Aalberts Industries NV US$ 823,102
18,000 Koninklijke Ahrend NV 1,002,118
17,000 Ballast Nedam NV Cum. Conv. Pfd. 826,542
17,750 Hunter Douglas NV 1,195,485
15,000 IHC Caland NV 855,910
10,000 Nedcon Group NV 271,718
10,521 Wolters Kluwer NV 1,395,917
-------------
6,370,792
Russian (1.33%)
14,000 Mosenergo GDR 425,786
Switzerland (1.78%)
3,500 Jungfraubahn Holdings AG 570,856
United Kingdom (5.87%)
58,000 Bluebird Toys Plc. 195,037
150,000 Hambros Plc. 574,997
30,000 Hays Plc. 287,755
41,237 J.D. Wetherspoon Plc. 825,656
-------------
1,883,445
United States (5.61%)
25,000 Harvey Entertainment Co.* 148,438
65,500 Nautica Enterprises Inc.* 1,653,875
-------------
1,802,313
-------------
Total Stock (cost $24,013,295) 29,393,170
<CAPTION>
WARRANTS (1.47%)
<C> <S> <C>
Germany
9,000 Allianz Exp. 2/23/98 (cost $502,621) 470,700
<CAPTION>
Principal SHORT TERM INVESTMENTS (4.04%)
<C> <S> <C>
US$1,300,000 US Treasury Bill due 1/16/97 (cost $1,297,324) 1,297,239
-------------
Total Investments (cost $25,813,240) 31,161,109
-------------
OTHER ASSETS IN EXCESS OF LIABILITIES (2.94%) 944,171
-------------
NET ASSETS (100.00%) $32,105,280
-------------
-------------
</TABLE>
<TABLE>
<C> <S> <C>
* Non-income producing security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-2
<PAGE>
<PAGE>
FIRST EAGLE INTERNATIONAL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (cost $25,813,240) $31,161,109
Cash 387,214
Receivable for investments sold 1,649,010
Receivable for fund shares sold 576
Dividends and interest receivable 43,787
Deferred organization expenses 65,760
-----------
TOTAL ASSETS 33,307,456
-----------
LIABILITIES:
Management fee payable 123,324
Capital gain distribution payable 1,003,040
Accrued operating expenses 75,812
-----------
TOTAL LIABILITIES 1,202,176
-----------
NET ASSETS $32,105,280
-----------
-----------
Net Assets were comprised of:
Common stock (par $0.01) authorized 100,000,000 shares, outstanding
2,134,166 shares (Note 6) $ 21,342
Paid in surplus (Note 6) 26,731,242
-----------
26,752,584
Accumulated net realized gain on investments 5,410
Net unrealized appreciation on investments and
translation of assets and liabilities in foreign currencies 5,347,286
-----------
NET ASSETS, December 31, 1996 $32,105,280
-----------
-----------
Net Asset Value per share:
($32,105,280 [div] 2,134,166 shares of common stock issued and outstanding) $15.04
------
------
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-3
<PAGE>
<PAGE>
FIRST EAGLE INTERNATIONAL FUND, INC.
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income (net of $56,323 foreign tax withheld) $ 357,412
Interest income 166,128
----------
TOTAL INCOME 523,540
----------
EXPENSES:
Management fee (note 2) 446,932
Accounting and custodian fees 107,958
Service fees (note 2) 74,489
Directors' fees 48,250
Audit fees 38,075
Transfer agent fees 37,799
Legal fees 36,101
Organizational expense amortization 29,280
Registration expenses 24,484
Printing expenses 16,307
Miscellaneous expenses 7,136
----------
TOTAL EXPENSES 866,811
Less: Custody earnings credits (note 3) (12,926)
----------
NET EXPENSES 853,885
----------
NET INVESTMENT LOSS (330,345)
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 1,310,638
Change in unrealized appreciation on investments 3,224,827
----------
NET GAIN ON INVESTMENTS 4,535,465
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $4,205,120
----------
----------
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-4
<PAGE>
<PAGE>
FIRST EAGLE INTERNATIONAL FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the year For the year
ended ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss $ (330,345) $ (227,702)
Net realized gain on investments 1,310,638 1,923,496
Net change in unrealized appreciation on investments 3,224,827 744,197
----------------- -----------------
Net increase in net assets resulting from operations 4,205,120 2,439,991
Distribution from net realized gains (1,003,040) (717,832)
Transactions in fund shares-net 6,482,311 546,706
----------------- -----------------
Total increase 9,684,391 2,268,865
NET ASSETS:
Beginning of year 22,420,889 20,152,024
----------------- -----------------
End of year $32,105,280 $22,420,889
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding throughout the period:
<TABLE>
<CAPTION>
For the years
ended For the period from
December 31, April 4, 1994**
--------------------- through
1996 1995 December 31, 1994
------ ------ -------------------
<S> <C> <C> <C>
Net asset value, beginning of year $13.38 $12.37 $12.50
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (0.16) (0.13) (0.02)
Net gains (losses) on investments (both realized
and unrealized) 2.29 1.57 (0.11)
------ ------ -------
Total from investment operations 2.13 1.44 (0.13)
------ ------ -------
LESS DISTRIBUTIONS
Dividends (from net investment income) -- -- --
Distributions (from capital gains) (0.47) (0.43) --
------ ------ -------
Total distributions (0.47) (0.43) --
------ ------ -------
Net asset value, end of year $15.04 $13.38 $ 12.37
------ ------ -------
------ ------ -------
Total Return* 15.9% 11.6% (1.0)%`D'`D'
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year $32,105,280 $22,420,889 $20,152,024
Ratio of expenses to average net assets(1) 2.9% 3.1%`D' 2.0%`D'
Ratio of net investment loss to average net assets (1.1)% (1.1)%`D' (0.3)%`D'
Portfolio turnover rate 101% 166% 170%
Average commission rate paid on portfolio security
purchases and sales transactions(2) $ 0.03 -- --
</TABLE>
* Past performance is not predictive of future performance
** Commencement of investment operations
`D' Annualized
`D'`D' Total return not annualized
(1) During the year ended December 31, 1996, the Fund has earned credits from
the custodian which reduce custodian fees incurred. If the credits are taken
into consideration, the ratio of expenses to average net assets would remain
at 2.9%.
(2) For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose the average commission rate per share for portfolio
security trades on which commissions are charged.
F-5
<PAGE>
<PAGE>
FIRST EAGLE INTERNATIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES -- First Eagle International Fund,
Inc. (the 'Fund') is registered under the Investment Company Act of 1940, as
amended (the 'Act'), as a non-diversified, open end management investment
company and was incorporated in Maryland on October 7, 1993. The Fund had no
operations other than the sale to Arnhold and S. Bleichroeder, Inc. ('ASB') of
8,000 shares of its common stock for $100,000 on March 3, 1994. Investment
operations commenced on April 4, 1994.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Any security for which the primary market is on
an exchange is valued at the last sale price on such exchange on the day of
valuation or, if there was no sale on such day, the mean between the last bid
and asked prices quoted on such day. Equity securities listed on the NASDAQ
National Market System are valued at the last sale price or, if there was no
sale on such day, at the mean between the most recently quoted bid and asked
prices. Corporate bonds (other than convertible debt securities) and U.S.
Government Securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, are valued on the basis of valuations provided by a pricing
service which uses information with respect to transactions in bonds, quotations
from bond dealers, market transactions in comparable securities and various
relationships between securities in determining value. Other securities are
valued at the mean between the most recently quoted bid and asked prices.
Short-term debt instruments which mature in less than 60 days are valued at
amortized cost, unless the Board of Directors determines that such valuation
does not represent fair value. Securities which are otherwise not readily
marketable or securities for which market quotations are not readily available
are valued in good faith at fair value in accordance with procedures adopted by
the Fund's Board of Directors.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains or losses
on security transactions are determined based on the first-in, first-out method.
Discounts and premiums on purchases of investments are accreted and amortized,
respectively, as adjustments to interest income and cost of securities on a
level yield basis. Dividend income is recorded on the ex-dividend date. Interest
income is recorded on an accrual basis.
SHORT SALES: The Fund may make short sales of securities. A short sale is a
transaction in which the Fund sells a security it does not own in anticipation
of a decline in market price. To enter a short sale, the Fund needs to borrow
the security for delivery to the buyer. The proceeds received are retained by
the executing broker until the Fund replaces the borrowed security. If the price
of the security sold short increases between the time of the short sale and the
time the Fund replaces the borrowed security, the Fund will incur a loss, and if
the price declines during this period, the Fund will realize a gain. Any gain
will be decreased, and any incurred loss increased by the amount of transaction
costs and any dividends or interest which the Fund may have to pay in connection
with such short sale are recorded as expenses.
F-6
<PAGE>
<PAGE>
FORWARD CURRENCY CONTRACTS: In connection with purchases and sales of securities
denominated in foreign currencies, the Fund may enter into forward currency
contracts. Additionally, the Fund may enter into such contracts to hedge certain
other foreign currency denominated investments. These contracts are recorded at
market value, and the related realized and unrealized foreign exchange gains and
losses are included in the statement of operations. The Fund will realize a gain
or loss upon the closing or settlement of the forward transaction. Such realized
gains or losses are included in the statement of operations. In the event that
counterparties fail to settle these currency contracts or the related foreign
security trades, the Fund could be exposed to foreign currency fluctuations.
C. FOREIGN CURRENCY TRANSLATION: The market values of securities which are not
traded in United States currency are recorded in the financial statements after
translation to U.S. dollars based on the applicable exchange rates at the end of
the period. The costs of such securities are translated at exchange rates
prevailing when acquired. Related dividends, interest and withholding taxes are
accrued at the rates of exchange prevailing on the respective dates of such
transactions.
The net assets of the Fund are presented at the foreign exchange rates and
market values at the close of the period. The Fund does not isolate that portion
of gains and losses on investments which is due to change in foreign exchange
rates from that which is due to changes in market prices of the equity
securities.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment
income, if any, and distribution of net realized gain from investment
transactions, if any, will be made annually. The Fund records dividends and
distributions to its shareholders on the record date.
Capital gain distributions are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles
primarily due to the recognition of certain foreign currency gains (losses) as
ordinary income (loss) for federal income tax purposes and net investment losses
which for federal income tax purposes cannot be used to offset future net
investment income. Accordingly, a permanent book and tax basis difference of
$28,157 was reclassified by the Fund to paid in surplus.
F. DEFERRED ORGANIZATION EXPENSES -- A total of $146,000 was incurred in
connection with the organization of the Fund. The costs have been deferred and
are being amortized by the Fund over the period of benefit not to exceed 60
months from the date the Fund commenced operations. The Adviser has agreed that
if any of the initial shares purchased by the Adviser are redeemed during the
amortization period, the redemption proceeds will be reduced by any unamortized
organizational expenses in the same proportion as the number of initial shares
being redeemed bears to the number of shares outstanding at the time of
redemption.
G. ESTIMATES AND ASSUMPTIONS -- Estimates and assumptions are required to be
made regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ from these amounts.
F-7
<PAGE>
<PAGE>
NOTE 2. INVESTMENT ADVISORY AGREEMENT AND SERVICES AGREEMENT -- Arnhold and S.
Bleichroeder Advisers, Inc. (the 'Adviser',) a wholly owned subsidiary of ASB,
manages the Fund. The Investment Advisory Agreement between ASB and the Fund has
been assigned, pursuant to an assignment agreement, to the Adviser effective
April 30, 1996. The assignment was approved by the Board of Directors of ASB and
by unanimous vote of the Board of Directors of the Fund. The Investment Advisory
Agreement provides that, subject to the direction of the Fund's Board of
Directors, the Adviser is responsible for the management of the Fund's
portfolio. Accordingly, the Adviser will furnish advice and recommendations with
respect to the Fund's portfolio of investments.
The Adviser is responsible for the continuous supervision of the Fund's
portfolio. Arthur F. Lerner and Allan R. Raphael, both Portfolio Managers of the
Adviser, have been portfolio managers of the Fund since its inception. Together,
they are responsible for the day-to-day management of the Fund's portfolio.
For the advisory services provided by the Adviser, the fee arrangement requires
the Fund to pay an annual management fee of 1.50% of the Fund's average daily
net assets payable quarterly. The annual advisory fee may be higher than that
paid by most other registered investment companies. For the fiscal year
beginning January 1, 1997, the Fund's Adviser has agreed to waive its fee for,
and to reimburse expenses of, the Fund in an amount that operates to limit
annual operating expenses of the Fund for the year ending December 31, 1997 to
not more than 2.25% of daily net assets.
ASB receives an annual services fee of 0.25% of the Fund's average daily net
assets payable quarterly, pursuant to a separate services agreement which was
approved by the Board of Directors, to cover expenses incurred by ASB for
providing administrative and fund accounting support services and shareholder
liaison services, including assistance with subscriptions, redemptions and other
shareholder questions. ASB determined that the volume and demand for shareholder
liaison services required staffing in addition to the personnel responsible for
investment advisory services. Prior to January 1, 1996, ASB was not being paid
for such services.
NOTE 3. CUSTODIAN FEES -- The Fund has entered into an expense offset agreement
with its custodian wherein it receives credit toward the reduction of custodian
fees whenever there are uninvested cash balances. As of December 31, 1996 the
Fund's custodian fees and related offset were $41,958 and $12,926, respectively.
NOTE 4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and proceeds from sales of portfolio securities for the year ended
December 31, 1996, excluding short-term investments, were $31,102,321 and
$26,459,194, respectively.
For the year ended December 31, 1996, the Fund paid brokerage commissions on
securities transactions of $88,098 of which $6,614 was paid to ASB.
NOTE 5. FEDERAL INCOME TAXES -- The United States federal income tax basis of
the Fund's investments at December 31, 1996 was substantially the same as the
basis for financial reporting purposes and accordingly, the aggregate gross
unrealized appreciation on investments was $6,196,171 and the aggregate gross
unrealized depreciation was $848,302, resulting in net unrealized appreciation
for United States federal income tax purposes of $5,347,869.
F-8
<PAGE>
<PAGE>
NOTE 6. COMMON STOCK -- Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
For the year ended For the year ended
December 31, 1996 December 31, 1995
------------------------ ------------------------
Shares Amount Shares Amount
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Beginning of year............................ 1,675,613 $20,298,430 1,629,447 $19,846,326
--------- ----------- --------- -----------
Shares sold.................................. 429,455 6,119,768 200,161 2,452,762
Shares redeemed.............................. (23,211) (337,352) (153,995) (1,906,056)
Reinvested distributions..................... 52,309 699,895 -- --
--------- ----------- --------- -----------
Net increase................................. 458,553 6,482,311 46,166 546,706
--------- ----------- --------- -----------
Adjustment representing other-than temporary
book-tax difference........................ -- (28,157) -- (94,602)
--------- ----------- --------- -----------
--------- ----------- --------- -----------
End of year.................................. 2,134,166 $26,752,584 1,675,613 $20,298,430
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
Of the 2,134,166 shares outstanding at December 31, 1996, ASB owned 8,256 shares
and the ASB Profit Sharing Plan owned 324,901 shares. The directors and officers
of the Fund, as a group, owned approximately 121,262 shares at December 31,
1996.
F-9
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and
Board of Directors
First Eagle International Fund, Inc.
We have audited the accompanying statement of assets and liabilities and
the schedule of investments of First Eagle International Fund, Inc., as of
December 31, 1996, the related statement of operations for the year then ended,
the statement of changes in net assets for each of the years in the two-year
period then ended, and the financial highlights for each of the years in the
two-year period then ended and the period from April 4, 1994 (commencement of
operations) to December 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Investment securities
held in custody are confirmed to us by the custodian. As to securities purchased
and sold but not received or delivered, we request confirmation from brokers and
where replies are not received, we carry out other appropriate auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
First Eagle International Fund, Inc. as of December 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended and the financial highlights for the
two-year period then ended and the period form April 4, 1994 to December 31,
1994, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
New York, New York
January 31, 1997
F-10
<PAGE>
<PAGE>
FIRST EAGLE INTERNATIONAL FUND, INC.
PART C
OTHER INFORMATION
APRIL 30, 1997
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
A. Financial Statements
<TABLE>
<C> <S>
1. -- Schedule of Investments dated December 31, 1996.
2. -- Statement of Assets and Liabilities dated December 31, 1996.
3. -- Statement of Operations for the year ended December 31, 1996.
4. -- Statement of Changes in Net Assets for the years ended December 31, 1995.
5. -- Financial highlights for the fiscal period ended December 31, 1994 and years ended
December 31, 1995 and 1996.
6. -- Notes to Financial Statements.
7. -- Independent Auditors' Report -- KPMG Peat Marwick LLP dated January 31, 1997.
</TABLE>
B. Exhibits
<TABLE>
<C> <S>
1.(a) -- Articles of Incorporation of the Registrant.*
(b) -- Amended Articles of Incorporation of the Registrant.*
2. -- By-laws of the Registrant.*
4. -- Specimen certificate for shares of common stock of the Registrant.*
5.(a) -- Investment Advisory Agreement between the Registrant and Arnhold and S. Bleichroeder,
Inc.*
(b) -- Investment Advisory Agreement dated January 1, 1996.*
(c) -- Assignment Agreement between the Registrant, Arnhold and S. Bleichroeder, Inc. and
Arnhold and S. Bleichroeder Advisers, Inc.*
6.(a) -- Distribution Agreement between the Registrant and Arnhold and S. Bleichroeder, Inc.*
(b) -- Subscription Offering Agreement between the Registrant and Arnhold and S. Bleichroeder,
Inc.*
8.(a) -- Custody Agreement between the Registrant and The Bank of New York.*
(b) -- Fund Accounting Agreement.*
(c) -- Special Custody Agreement between Registrant, The Bank of New York and Arnhold and S.
Bleichroeder, Inc.*
(d) -- Amendment to Custody Agreement for ACCESS between Registrant and The Bank of New York.
9.(a) -- Transfer Agency Agreement.*
(b) -- Services Agreement.*
10. -- Opinion of Fulbright & Jaworski L.L.P.
11. -- Consent of Independent Auditors.
13. -- Subscription Agreement.*
17. -- Financial Data Schedule.
19. -- Power of Attorney.*
</TABLE>
- ------------
* Previously filed and incorporated by reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No persons are controlled by or under common control with the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- ------------------------
<S> <C>
Common Stock........................................... 454 (as of April 1, 1997)
</TABLE>
II-1
<PAGE>
<PAGE>
ITEM 27. INDEMNIFICATION
The Registrant shall indemnify directors, officers, employees and agents of
the Registrant against judgments, fines, penalties, settlements and expenses to
the fullest extent authorized, and in the manner permitted, by applicable
federal and state law.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Arnhold and S. Bleichroeder Advisers, Inc. (the 'Adviser') is a wholly
owned subsidiary of Arnhold and S. Bleichroeder, Inc. which has a substantial
quantity of assets under management in the form of individual and fund accounts.
Arnhold and S. Bleichroeder, Inc. is a registered broker-dealer and maintains a
substantial involvement in the securities brokerage and underwriting businesses.
The business and other connections of the Adviser's directors and officers are
as follows:
<TABLE>
<CAPTION>
NAME POSITION WITH THE ADVISER BUSINESS AND OTHER CONNECTIONS
---- ------------------------- ------------------------------
<S> <C> <C>
Henry H. Arnhold.............. Director Co-Chairman of the Board of Arnhold and S.
Bleichroeder, Inc.; Director, Aquila
International Fund Limited, First Eagle Fund
of America, Inc. and Conservation
International; Trustee, The New School for
Social Research; Director, Conservation
International.
John P. Arnhold............... President and Chief Executive Co-President and Director, Arnhold and S.
Officer Bleichroeder, Inc.; Director, Aquila
International Fund Limited and The Global
Beverage Fund Limited; Co-President, First
Eagle Fund of America, Inc.
Gary L. Fuhrman............... Director Director and Senior Vice President, Arnhold and
S. Bleichroeder Inc.; Director, National R.V.
Holdings, Inc. and Medical Resources, Inc.
Stephen M. Kellen............. Director Co-Chairman of the Board of Arnhold and S.
Bleichroeder Inc.; Director, First Eagle Fund
of America, Inc. and The American Council on
Germany; Trustee, The Carnegie Hall Society
and WNET/Thirteen; Trustees Council of The
National Gallery of Art.
Robert Miller................. Vice President, Secretary and Senior Vice President, Arnhold and S.
Treasurer Bleichroeder, Inc.; Secretary, Treasurer,
Chief Accounting Officer and Chief Financial
Officer, First Eagle Fund of America, Inc.
Stanford S. Warshawsky........ Director Co-President, Director and Secretary, Arnhold
and S. Bleichroeder, Inc.; Director, First
Eagle Fund of America and German-American
Chamber of Commerce.
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITER
(a) Arnhold and S. Bleichroeder, Inc. acts as an investment adviser to
First Eagle Fund, N.V., Aquila International Fund Limited, Aetos Corporation,
DEF Associates, N.V., Eagle Select Fund Limited and The Global Beverage Fund
Limited.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES POSITIONS AND OFFICES
(b) BUSINESS ADDRESS* WITH UNDERWRITER WITH REGISTRANT
----------------- ---------------- ---------------
<S> <C> <C> <C>
Henry H. Arnhold.............. Co-Chairman of the Board Director
John P. Arnhold............... Co-President and Director President, Chief Executive Officer and Chief
Financial Officer
Michael M. Kellen............. Senior Vice President and Director and Vice Chairman of the Board
Director
Stephen M. Kellen............. Co-Chairman of the Board Director
Tracy L. LaPointe............. Vice President Assistant Vice President
Arthur F. Lerner.............. Senior Vice President Vice President
Robert Miller................. Senior Vice President Secretary, Treasurer and Chief Accounting Officer
Martha B. Pierce.............. Vice President Vice President
Allan R. Raphael.............. Senior Vice President Vice President
Charles J. Rodriguez.......... Senior Vice President Assistant Vice President
Stanford S. Warshawsky........ Co-President, Director and Director and Chairman of the Board
Secretary
</TABLE>
- ------------
* The Address of each person named is 1345 Avenue of the Americas, New York,
New York 10105.
II-2
<PAGE>
<PAGE>
(c) The Registrant has no principal underwriter which is not an affiliated
person of the Registrant.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The Registrant's accounts and records will be maintained at The Bank of New
York, 48 Wall Street, New York, New York 10005. Records of shareholders'
accounts will be maintained at BISYS Fund Services, Inc., 3435 Stelzer Road,
Columbus Ohio 43219.
ITEM 31. MANAGEMENT SERVICES
The Registrant is not a party to any management-related service contract
not discussed in the Prospectus or Statement of Additional Information of this
Registration Statement.
ITEM 32. UNDERTAKINGS
The Registrant hereby undertakes to provide each person to whom a copy of
the Prospectus is given with a copy of the Fund's annual report, which contains
the information required by item 5A of Form N-1A, upon request by such person
and free of charge.
The Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a director, if requested to do
so by the holders of at least 10% of the Fund's outstanding shares, and that it
will assist in communication with other shareholders as required by Section
16(c) of the Investment Company Act of 1940.
II-3
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 (the 'Securities
Act') and the Investment Company Act of 1940 (the 'Investment Company Act'), the
Registrant has duly caused this Post-Effective Amendment to the Registration
Statement 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 day of
April 1997.
FIRST EAGLE INTERNATIONAL FUND, INC.
By: ________/s/ JOHN P. ARNHOLD_______
JOHN P. ARNHOLD
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ HENRY H. ARNHOLD Director April 24, 1997
- ------------------------------------------
(HENRY H. ARNHOLD)
/s/ EDWIN J. EHRLICH Director April 24, 1997
- ------------------------------------------
(EDWIN J. EHRLICH)
/s/ K. GEORG GABRIEL Director April 24, 1997
- ------------------------------------------
(K. GEORG GABRIEL)
/s/ ROBERT J. GELLERT Director April 24, 1997
- ------------------------------------------
(ROBERT J. GELLERT)
/s/ MICHAEL M. KELLEN Director April 24, 1997
- ------------------------------------------
(MICHAEL M. KELLEN)
/s/ STEPHEN M. KELLEN Director April 24, 1997
- ------------------------------------------
(STEPHEN M. KELLEN)
/s/ WILLIAM M. KELLY Director April 24, 1997
- ------------------------------------------
(WILLIAM M. KELLY)
/s/ STANFORD S. WARSHAWSKY Director April 24, 1997
- ------------------------------------------
(STANFORD S. WARSHAWSKY)
Director April 24, 1997
- ------------------------------------------
(J. FRANK WIEDEMAN)
/s/ JOHN P. ARNHOLD President, Chief Executive Officer and Chief April 24, 1997
- ------------------------------------------ Financial Officer
(JOHN P. ARNHOLD)
/s/ ROBERT MILLER Secretary, Treasurer and Chief Accounting April 24, 1997
- ------------------------------------------ Officer
(ROBERT MILLER)
</TABLE>
II-4
<PAGE>
<PAGE>
EXHIBIT INDEX
B. Exhibits
<TABLE>
<C> <S>
1.(a) -- Articles of Incorporation of the Registrant.*
(b) -- Amended Articles of Incorporation of the Registrant.*
2. -- By-laws of the Registrant.*
4. -- Specimen certificate for shares of common stock of the Registrant.*
5.(a) -- Investment Advisory Agreement between the Registrant and Arnhold and S. Bleichroeder,
Inc.*
(b) -- Investment Advisory Agreement dated January 1, 1996.*
(c) -- Assignment Agreement between the Registrant, Arnhold and S. Bleichroeder, Inc. and
Arnhold and S. Bleichroeder Advisers, Inc.*
6.(a) -- Distribution Agreement between the Registrant and Arnhold and S. Bleichroeder, Inc.*
(b) -- Subscription Offering Agreement between the Registrant and Arnhold and S. Bleichroeder,
Inc.*
8.(a) -- Custody Agreement between the Registrant and The Bank of New York.*
(b) -- Fund Accounting Agreement.*
(c) -- Special Custody Agreement between Registrant, The Bank of New York and Arnhold and S.
Bleichroeder, Inc.*
(d) -- Amendment to Custody Agreement for ACCESS between Registrant and The Bank of New York.
9.(a) -- Transfer Agency Agreement.*
(b) -- Services Agreement.*
10. -- Opinion of Fulbright & Jaworski L.L.P.
11. -- Consent of Independent Auditors.
13. -- Subscription Agreement.*
17. -- Financial Data Schedule.
19. -- Power of Attorney.*
</TABLE>
- ------------
* Previously filed and incorporated by reference.
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as ....................................'D'
Characters normally expressed as superscript shall be preceded by .........'pp'
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Shareholders and Board of Directors
First Eagle International Fund, Inc.:
We consent to the use of our report dated January 31, 1997 with respect to
First Eagle International Fund, Inc. included in this Registration Statement on
Form N-1A and to the references to our firm under the headings 'Financial
Highlights' in the Prospectus and 'Custodian, Transfer and Dividend Disbursing
Agent and Independent Auditors' in the Statement of Additional Information.
KPMG PEAT MARWICK LLP
New York, New York
April 30, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 25,813,240
<INVESTMENTS-AT-VALUE> 31,161,109
<RECEIVABLES> 2,146,347
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,307,456
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,202,176
<TOTAL-LIABILITIES> 1,202,176
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,731,242
<SHARES-COMMON-STOCK> 2,134,166
<SHARES-COMMON-PRIOR> 1,675,613
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,410
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,347,286
<NET-ASSETS> 32,105,260
<DIVIDEND-INCOME> 357,412
<INTEREST-INCOME> 166,128
<OTHER-INCOME> 0
<EXPENSES-NET> 853,885
<NET-INVESTMENT-INCOME> (330,345)
<REALIZED-GAINS-CURRENT> 1,310,638
<APPREC-INCREASE-CURRENT> 3,224,827
<NET-CHANGE-FROM-OPS> 4,205,120
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1,003,040
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 429,455
<NUMBER-OF-SHARES-REDEEMED> 23,211
<SHARES-REINVESTED> 52,309
<NET-CHANGE-IN-ASSETS> 9,684,391
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 446,932
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 866,811
<AVERAGE-NET-ASSETS> 29,821,897
<PER-SHARE-NAV-BEGIN> 13.38
<PER-SHARE-NII> (.16)
<PER-SHARE-GAIN-APPREC> 3.39
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.47)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.04
<EXPENSE-RATIO> 2.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
