<PAGE>
PROSPECTUS
W.P. STEWART & CO. GROWTH FUND, INC.
----------------
Investment Adviser
W.P. STEWART & CO., INC.
527 MADISON AVENUE
NEW YORK, NEW YORK 10022
----------------
W.P. Stewart & Co. Growth Fund, Inc. (the "Fund") is a non-diversified
mutual fund, the investment objective of which is capital gains. There can be
no certainty that the Fund will achieve its investment objective.
----------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
April 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
RISK/RETURN SUMMARY......................................................... 3
FUND PERFORMANCE............................................................ 4
FEES AND EXPENSES........................................................... 5
Expense Example........................................................... 5
INVESTMENT OBJECTIVE, INVESTMENT STRATEGIES AND RELATED RISKS............... 6
Investment Objective and Principal Investment Strategies.................. 6
Principal Investment Risks................................................ 6
Other Investment Strategies and Risks..................................... 7
MANAGEMENT.................................................................. 8
The Investment Adviser.................................................... 8
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE................................. 8
YEAR 2000 READINESS......................................................... 8
PRICING OF SHARES........................................................... 9
PURCHASE OF SHARES.......................................................... 9
REDEMPTIONS AND DISTRIBUTIONS............................................... 10
Redemptions............................................................... 10
Dividends and Distributions............................................... 10
TAXATION.................................................................... 11
Taxability of Dividends and Distributions................................. 11
Taxability of Transactions................................................ 11
FINANCIAL HIGHLIGHTS........................................................ 12
</TABLE>
2
<PAGE>
RISK/RETURN SUMMARY
. Investment Objective.. Capital gains.
. Principal Investment The Fund's investment adviser, W.P. Stewart & Co.,
Strategies.............. Inc. (the "Adviser"), seeks to achieve the Fund's
investment objective of capital gains (i.e., growth
in the value of the Fund's shares), by investing in
common stocks of companies based on a variety of
factors. Such factors include: the company's record
and projections of profit and earnings growth,
accuracy and availability of information with respect
to the company, success and experience of management,
accessibility of management to the Adviser, product
lines and competitive position both in the U.S. and
abroad, lack of cyclicality, large market
capitalization and liquidity of the company's
securities. The Fund's portfolio normally consists
primarily of common stocks of U.S.-based companies
listed on the New York Stock Exchange.
. Principal Investment Your Fund shares can go down in value, so that you
Risks................... can lose money by investing in the Fund. The price of
the Fund's shares may be more volatile than the price
of shares of funds investing in other types of equity
securities or in primarily fixed income securities.
The price of common stocks tends to fluctuate more
dramatically than other types of investments. These
price movements may result from economic, political
and regulatory factors affecting individual
companies, industries or securities markets as a
whole. The price of growth stocks may be particularly
volatile. Since the companies that issue these stocks
usually reinvest a high portion of earnings in their
own businesses, they may lack the dividend yield
associated with value stocks that can cushion total
return in a declining market. Also, since investors
buy growth stocks based on their expected earnings
growth, earnings disappointments often result in
sharp price declines. An investment in the Fund is
not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
The Fund is a "non-diversified" investment company,
which means that the Fund may invest a larger portion
of its assets in fewer companies than a diversified
investment company. This increases the risks of
investing in the Fund since the performance of each
stock has a greater impact on the Fund's performance.
To the extent that the Fund invests a relatively high
percentage of its assets in securities of a limited
number of companies, the Fund may also be more
susceptible than would a more widely diversified
investment company to any single economic, political
or regulatory occurrence. No method of fundamental or
technical analysis, including that employed by the
Adviser, has been proven to provide a guaranteed rate
of return adjusted for investment risk.
. Suitability........... Because the Fund invests a high percentage of its
assets in a limited number of common stocks, the Fund
may not represent a complete investment program.
3
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FUND PERFORMANCE
The following bar chart and table show the variability of the Fund's
performance from year to year and provide some indication of the risks of
investing in the Fund. The bar chart shows the Fund's performance for each
full calendar year of operations for the last four years. The table shows how
the Fund's average annual returns compare to those of a broad-based securities
market index. Of course, past performance cannot predict or guarantee future
results.
Annual Total Returns*
[GRAPHIC]
1995 1996 1997 1998
------ ------ ------ ------
27.73% 30.64% 24.69% 33.30%
* Annual total returns do not include performance for the period from 2/28/94
(inception date) through 12/31/94 and do not reflect deduction of the
Fund's 0.50% redemption fee. If the redemption fee was deducted, the annual
total returns would be lower than those shown. During the 4-year period
shown in the bar chart, the highest return for a quarter was 18.68%
(quarter ended 12/31/98) and the lowest return for a quarter was (7.39)%
(quarter ended 9/30/98).
Average Annual Total Returns (as of the fiscal year ended December 31, 1998)
<TABLE>
<CAPTION>
Return Since
One Year Inception*
-------- ------------
<S> <C> <C>
W.P. Stewart & Co. Growth Fund, Inc.**................. 32.63% 23.60%
S&P 500(R) Index***.................................... 28.58% 24.78%
</TABLE>
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* Inception Date of Fund: 2/28/94
** The Fund's returns shown are after deduction of the Fund's 0.50%
redemption fee.
*** The S&P 500(R) is the Standard & Poor's Composite Stock Price Index, a
widely recognized, unmanaged index of common stock prices.
4
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FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)................................................................ None
Maximum Deferred Sales Load............................................ None
Maximum Sales Load Imposed on Reinvested Dividends..................... None
Redemption Fee (as a percentage of the amount redeemed)................ 0.50%
Exchange Fee........................................................... None
Annual Fund Operating Expenses (expenses that are deducted from Fund as-
sets)
Management Fees........................................................ 1.50%
Distribution (12b-1) Fees.............................................. None
Other Expenses......................................................... 0.44%
----
Total Fund Operating Expenses*......................................... 1.94%
====
</TABLE>
- --------
* The Adviser has voluntarily agreed to waive advisory fees and/or reimburse
expenses of the Fund so that Total Fund Operating Expenses do not exceed
2.5% of the average net assets of the Fund up to $30 million, 2% of the
next $70 million of average net assets of the Fund, and 1.5% of the average
net assets of the Fund in excess of $100 million. For the fiscal year ended
December 31, 1998, the Adviser did not waive advisory fees and/or reimburse
expenses of the Fund pursuant to such voluntary waiver and/or expense
reimbursement agreement. Such voluntary waiver and/or expense reimbursement
is not required by the Investment Advisory Services Agreement between the
Fund and the Adviser and may be discontinued at any time.
EXPENSE EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
This Example assumes that you invest $50,000 (minimum investment) in the
Fund for the time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- ------- ------- --------
<S> <C> <C> <C>
$1,252 $3,347 $5,570 $11,740
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$994 $3,073 $5,280 $11,404
</TABLE>
5
<PAGE>
INVESTMENT OBJECTIVE, INVESTMENT STRATEGIES AND RELATED RISKS
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
The Fund's investment objective is to earn capital gains for shareholders.
The Fund normally invests primarily in common stocks listed on the New York
Stock Exchange, but also invests, from time to time, in securities listed on
other U.S. stock exchanges, in securities traded through The NASDAQ Stock
Market Inc. ("NASDAQ") and on international exchanges. The Fund permits
investors to participate in a professionally-managed portfolio consisting
primarily of stocks of growth businesses based in the U.S.
The Adviser employs an appraisal method which attempts to measure each
prospective company's quality and growth rate by numerous criteria. Such
criteria include: the company's record and projections of profit and earnings
growth, accuracy and availability of information with respect to the company,
success and experience of management, accessibility of management to the
Adviser, product lines and competitive position both in the U.S. and abroad,
lack of cyclicality, large market capitalization and liquidity of the
company's securities. These results are compared to the general stock and bond
markets to determine the relative attractiveness of each company at a given
moment. The Adviser weighs economic, political and market factors in making
investment decisions; this appraisal technique attempts to measure each
investment candidate not only against other stocks of the same industry group,
but also against a broad spectrum of investments. No method of fundamental or
technical analysis, including that employed by the Adviser, has been proven to
provide a guaranteed rate of return adjusted for investment risk.
The Fund invests in a relatively small number of individual stocks. To
enable it to do so, the Fund technically is classified as "non-diversified,"
and, therefore, may invest more than 5% of the value of its assets in the
securities of a company and may acquire more than 10% of the voting securities
of a company.
PRINCIPAL INVESTMENT RISKS
The price of the Fund's shares may go up or down, and may be more volatile
than for a fund investing in fixed income or money market securities. The
prices of common stocks tend to rise and fall more dramatically than other
types of investments. These price movements may result from economic,
political, regulatory and other factors affecting the issuer, the issuer's
geographic region, the issuer's industry, stock markets in general or
particular sectors of stock markets. Large-cap stocks, for example, can react
differently than small- or mid-cap stocks.
The price of growth stocks may be particularly volatile. Since the issuers
of such stocks usually reinvest a high portion of earnings in their own
businesses, they may lack the dividend yield associated with value stocks that
can cushion total return in a declining market. Also, growth stocks tend to be
more expensive relative to their earnings or assets, especially compared to
"value" stocks. Because investors buy growth stocks based on their expected
earnings growth, earnings disappointments often result in sharp price
declines.
Because the Fund invests in a relatively small number of individual stocks,
the risks of investing in the Fund are greater than the risks of investing in
a more widely diversified fund. To the extent that the Fund invests a
relatively high percentage of its assets in securities of a limited number of
companies, the Fund may be more susceptible than would a more widely
diversified fund to any single economic, political or regulatory occurrence or
to changes in a particular company's financial condition or in the market's
assessment of the company.
6
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
In addition to the Fund's principal investment strategies described above,
the Fund may invest in the following other investments:
Temporary Positions: For temporary defensive purposes or in order to earn a
return on available cash balances pending investment or reinvestment, the Fund
may invest up to 100% of its assets in debt securities of the U.S. government
or its agencies or instrumentalities, interest-bearing accounts maintained
with financial institutions, including banks, investment grade short-term debt
securities and commercial paper of U.S. companies or repurchase agreements, as
well as in other money market instruments. The Fund may not achieve its
investment objective by investing in such securities.
Foreign Investments: The Fund may also invest in stocks issued by non-U.S.
companies. Such investments will normally be made through the purchase of
American Depositary Receipts ("ADRs"), which are investments in shares of non-
U.S. companies denominated in U.S. dollars. Investments in non-U.S. stocks,
whether directly or through ADRs, involve more and different risks than
investments in U.S. stocks. Foreign companies are not necessarily subject to
the same disclosure, accounting, and financial reporting standards as U.S.
companies. Furthermore, the political, economic and social structures of some
countries may be less stable and more volatile than those in the U.S. As a
result, foreign stock exchanges, custodial arrangements and currencies
generally are more volatile. In addition, the value of the Fund's foreign
investments may be adversely affected if the computer systems of foreign stock
exchanges, brokers, custodians and other foreign service providers are not
"Y2K" compliant. See "Year 2000 Readiness" below.
If the underlying investments represented by ADRs are denominated in foreign
currencies or the Fund receives dividends that are declared in foreign
currencies, the value of the ADRs and the amount of dividends received as
measured in U.S. dollars may be adversely affected by fluctuations in
currencies, including fluctuations in the new "euro" currency. Introduced on
January 1, 1999 by member nations of the European Union, the euro is expected
to become the sole currency among such nations by 2002. The Fund's foreign
investments may be subject to additional risks as a result of the conversion
to the euro, including potential adverse tax and accounting consequences, as
well as difficulties with respect to processing and settlement of
transactions. All of these factors can make foreign investments, especially
those in emerging markets, more volatile and potentially less liquid than
investments in U.S. companies. In addition, dividends declared on the
underlying investment represented by ADRs generally will be subject to
withholding taxes.
7
<PAGE>
MANAGEMENT
THE INVESTMENT ADVISER
The Fund's investments are managed by the Adviser, a Delaware corporation
incorporated in 1998. From February 28, 1994 (the commencement of the Fund's
investment operations) to July 1, 1998, the Fund's investment adviser was the
predecessor of the Adviser's parent company. The Adviser and the predecessor
have been providing investment advisory services to individuals, trusts and
pension funds since 1975. The Advisor's business office is located at 527
Madison Avenue, 21st Floor, New York, New York 10022-4212, its telephone
number is (212) 750-8585 and its facsimile number is (212) 980-8039.
The Adviser is responsible for the management of the Fund's business
affairs, including providing investment research and analysis of investment
opportunities and the management of the Fund's trading and investment
transactions, subject to the investment policies and restrictions described in
this Prospectus and the supervision of the Board of Directors.
The portfolio manager of the Fund is Marilyn G. Breslow, President and a
Director of the Fund and President and a Director of the Adviser. Ms. Breslow
has served as a portfolio manager of the Fund since July 1997 and of other
accounts managed by the Adviser and its predecessor since 1990. Ms. Breslow
and the other portfolio managers of the Adviser are members of an investment
research group which selects the group of securities in which each account,
including the Fund, may invest. Ms. Breslow, who is primarily responsible for
the day-to-day management of the Fund's portfolio, selects securities from
this group for investment by the Fund. Although each account managed by the
Adviser has individual objectives and a unique portfolio, the Fund's
investments generally are similar to investments made by the Adviser's managed
accounts.
At the Annual Meeting of Shareholders of the Fund held on October 28, 1998,
shareholders approved a new Investment Advisory Agreement between the Fund and
the Adviser, effective immediately. The terms of the new Advisory Agreement
are identical in all material respects to the preceding Advisory Agreement
except for a change in the method of calculating the fee payable by the Fund.
Under the new Advisory Agreement, the fee rate has not changed (remaining at
1.5% of the Fund's net assets) but the fee now is calculated based on the
Fund's average daily net assets and paid quarterly, in arrears. The prior
investment advisory agreement provided that the fee was paid quarterly, in
advance, based on the net asset value of the Fund as of the last day of the
preceding quarter (after giving effect to subscriptions and redemptions on
that date).
For the fiscal year ended December 31, 1998, the Fund paid the Adviser and
its predecessor an advisory fee of 1.5% of the average net assets of the Fund.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Management's Discussion of the Fund's performance during the fiscal year
ended December 31, 1998 is included in the Fund's 1998 Annual Report to
Shareholders, additional copies of which can be obtained free of charge upon
request in writing or by telephoning the Fund.
YEAR 2000 READINESS
The Fund's business operations depend on the proper functioning of its
service providers' computer systems. Many systems currently cannot distinguish
the year 2000 from the year 1900 because of the way dates
8
<PAGE>
are encoded and calculated (commonly referred to as the year 2000 or Y2K
problem). The Fund could be adversely affected if the computer systems of its
service providers, including the Adviser and the Fund's administrator,
transfer agent and custodian, cannot make this distinction. In addition, the
fact that the year 2000 is a leap year may create additional difficulties for
some systems. The Adviser, on behalf of the Fund, has made inquiries of the
Fund's administrator, transfer agent and custodian as to the readiness of
their computer systems to handle the year 2000 transition. The Adviser had
been informed that all of these service providers expect that their systems
will be ready to handle the year 2000 transition. Furthermore, the Adviser
expects that its systems will be ready to handle the year 2000 transition as
well.
Of course, the Fund's ability to reduce the effects of the year 2000 problem
is dependent on the efforts of third parties over which the Fund and the
Adviser generally will have no control. The computer systems of the companies
and other entities in which the Fund invests as well as the systems of the
exchanges on which the securities of such companies are traded may encounter
year 2000 problems. Such problems could hurt the value of the Fund's
investments and correspondingly its return.
PRICING OF SHARES
The price of a Fund share is based on the Fund's net asset value per share.
The net asset value per share is determined each day the New York Stock
Exchange is open for trading (each, a "Business Day") by or at the direction
of the Board of Directors as of the close of business of the Exchange
(generally 4:00 p.m. New York City time). Shares will not be priced on days
that the New York Stock Exchange is closed for trading. To the extent that the
Fund's securities are traded elsewhere, such as on foreign exchanges, on days
that the New York Stock Exchange is closed, the value of the Fund's shares may
be affected on days when shareholders will not be able to purchase or redeem
shares of the Fund.
The net asset value is computed by dividing the sum of the market value of
the securities held by the Fund plus any cash or other assets (including
interest and dividends accrued but not yet received) minus all liabilities
(including accrued expenses) by the total number of shares outstanding at a
particular time.
In general, the Fund values its portfolio holdings at their last available
public sale price on a Business Day in the case of securities listed on any
established securities exchange or included in NASDAQ or any comparable
foreign over-the-counter quotation system providing last sale data, or if no
sales of such securities are reported on such date, and in the case of "over-
the-counter" securities not described above in this paragraph, at the last
reported bid price. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange on which the securities
are principally traded. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith
under the direction of the Board of Directors of the Fund.
PURCHASE OF SHARES
You may purchase shares on any Business Day. The purchase price will be the
net asset value of the shares next computed following receipt of payment and
the Subscriber Information Form and Subscription Agreement attached to this
Prospectus. Your payment cannot be accepted until the Fund receives these
subscription documents. The minimum initial investment in the Fund is $50,000,
although the Fund may in its discretion accept purchases for a lesser amount.
There is no minimum subsequent investment. Payment may be made by
9
<PAGE>
check or by wire pursuant to delivery instructions set forth in the
Subscription Instructions. If you already are a Fund shareholder, you need not
submit the subscription documents when purchasing additional shares. The Fund
can reject any purchase.
The Fund generally does not issue certificates for shares. The Fund instead
credits your account with the number of shares purchased. You should promptly
check the confirmation that is mailed after each purchase (or redemption) in
order to ensure that the purchase (or redemption) of shares reported has been
recorded accurately in your account. Statements of account will be mailed
monthly, showing transactions during the month.
REDEMPTIONS AND DISTRIBUTIONS
REDEMPTIONS
You may redeem shares on any day the New York Stock Exchange is open for
trading. The redemption price will be the net asset value of the shares next
computed following receipt of the redemption request in proper form by the
Fund, less a redemption fee equal to 0.5% of the gross redemption proceeds.
Redemption requests must be made in writing and sent by mail to W.P. Stewart &
Co. Growth Fund, Inc., 527 Madison Avenue, New York, New York 10022, or sent
by facsimile to 212-980-8039. If certificates have been issued for the shares
being redeemed, your redemption request must be accompanied by the
certificates endorsed for transfer (or accompanied by an endorsed stock
power). The Fund can refuse any requests for redemption if a Fund
representative thinks any such request may not be properly authorized. The
Fund will not honor redemption requests that are not in proper form.
The Fund reserves the right to require the redemption of your shares if the
net asset value of such shares is reduced to less than $10,000 due to
redemptions made by you. Should the Fund elect to exercise this right, you
will receive prior written notice and you will be permitted at least 10
calendar days to purchase additional shares to increase your investment to at
least the minimum to avoid automatic redemption at the net asset value as of
the close of business on the proposed redemption date.
You will receive payment of the redemption price within seven days after
receipt of the redemption request in good order, but the Fund may suspend the
right of redemption or postpone payment during any period when (a) trading on
the New York Stock Exchange is restricted or such exchange is closed, other
than customary weekend and holiday closings; (b) the Securities and Exchange
Commission has by order permitted such suspension; or (c) an emergency, within
the meaning of the Act, exists, making sale of portfolio securities or
determination of the value of the Fund's net assets not reasonably
practicable. You will receive notice of any suspension if you have submitted a
redemption request and you have not received your redemption payment. If you
do not withdraw your redemption request after notification of a suspension,
the redemption will be made as of the day on which the suspension is lifted,
on the basis of the net asset valuation on that day.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to pay you a dividend annually representing its entire net
investment income and to distribute to you all its realized net capital gains.
Your dividends and/or any capital gain distributions will be reinvested
automatically in shares of the Fund at net asset value as of the payment date
unless you make a written request to the Fund for payment in cash at least
five days in advance of the payment date.
Checks issued upon your request for payment of dividends and capital gain
distributions in cash will be forwarded to you by first class mail. Uncashed
checks will not earn interest.
10
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TAXATION
TAXABILITY OF DIVIDENDS AND DISTRIBUTIONS
Dividends from net ordinary income or net short-term capital gains will be
taxable to you as ordinary income and distributions from net capital gains
from the sale of assets held by the Fund for more than 12 months ("net capital
gains") will be taxable to you as long-term capital gains, regardless of
whether such distributions are paid in cash or reinvested in additional shares
of the Fund and regardless of how long you have held shares of the Fund. The
maximum long-term capital gains rate for individuals is 20%. The maximum long-
term capital gains rate for corporations is the same as the maximum tax rate
for ordinary income, which currently is 35%. Corporations may be entitled to
take a dividends received deduction for a portion of certain dividends they
receive. The Fund will inform you each year of the tax status of distributions
you received for the previous year. Your tax liabilities for such
distributions will depend on your particular tax situation.
Distributions of net ordinary income or net short-term capital gains
received by a non-resident alien individual or foreign corporation which is
not engaged in a trade or business in the U.S. generally will be subject to
federal withholding tax at the rate of 30%, unless such rate is reduced by an
applicable income tax treaty to which the U.S. is a party. However, gains from
the sale by such shareholders of shares of the Fund and distributions received
by such shareholders from net capital gains generally will not be subject to
federal withholding tax.
TAXABILITY OF TRANSACTIONS
Any time you redeem your shares, it is considered a taxable event for you.
Any gain or loss realized upon a redemption of shares generally will be
treated as capital gain or loss and will be long-term capital gain or loss if
you held your shares for more than 12 months. Any such long-term capital gain
derived by an individual shareholder will be taxed at the maximum rate of 20%.
Any such loss will be treated as a long-term capital loss if you held your
shares for more than one year and otherwise as a short-term capital loss. Any
such loss, however, with respect to shares that you held for six months or
less will be treated as a long-term capital loss to the extent of any capital
gain distributions received.
The foregoing is a summary of some of the important federal income tax
considerations affecting the Fund and its shareholders and is not a complete
analysis of all relevant tax considerations, nor is it a complete listing of
all potential tax risks involved in purchasing or holding shares. You should
consult your own tax advisor regarding specific questions of federal, state,
local or foreign tax considerations.
11
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FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the period of the Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Lopez Edwards Frank & Co.,
LLP, independent auditors, whose report, along with the Fund's financial
statements are included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE FEBRUARY 28,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1994* THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $168.71 $152.65 $125.94 $101.06 $100.00
------- ------- ------- ------- -------
Income or Loss From
Investment Operations
Net Investment Loss..... (2.21) (1.87) (1.81) (1.15) (0.48)
Net Gains or Losses on
Securities (both
realized and
unrealized)............ $ 57.80 38.53 40.17 29.19 1.54
------- ------- ------- ------- -------
Total from Investment
Operations............. 55.59 36.66 38.36 28.04 1.06
Less Distributions
Distributions (from
capital gains)......... (10.71) (20.60) (11.65) (3.16) 0.00
------- ------- ------- ------- -------
Total Distributions..... (10.71) (20.60) (11.65) (3.16) 0.00
------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $213.59 $168.71 $152.65 $125.94 $101.06
======= ======= ======= ======= =======
TOTAL RETURN (a)........ 33.30% 24.69 % 30.64 % 27.73 % 1.06 %
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of
Period (in thousands).. $50,650 $36,201 $19,829 $10,789 $ 3,109
Ratio of Expenses to
Average Net Assets..... 1.94% 2.13 % 2.50 % 2.50 % 2.50 %(b)
Ratio of Fees and
Expenses Waived and
Reimbursed by the
Adviser and
Administrator to
Average Net Assets..... -- .02 % 0.28 % 1.32 % 10.20 %(b)(c)
Ratio of Net Investment
Loss to Average Net
Assets................. (1.26)% (1.35)% (1.51)% (1.36)% (1.25)%(b)
Portfolio Turnover...... 34 % 79 % 76 % 76 % 9 %
</TABLE>
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* Commencement of investment operations.
(a) Total return is calculated assuming a purchase of common stock at net asset
value at the beginning of the period, a sale at net asset value at the end
of the period, reinvestment of all dividends and distributions at net asset
value during the period and no redemption fee. Total return would be
reduced if the redemption fee of 0.5% were taken into account. Total return
for a period of less than one year is not annualized. Past performance
results shown in this report should not be considered a representation of
future performance. Total return will vary and net asset value of shares,
when redeemed, may be worth more or less than their original cost.
(b) Annualized.
(c) Includes organization expenses paid by Adviser.
12
<PAGE>
The Fund's Statement of Additional Information includes additional
information about the Fund and is incorporated by reference herein (legally
forms a part of this Prospectus). Additional information about the Fund's
investments is also available in the Fund's annual and semi-annual reports to
shareholders. In the Fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year. You can obtain the Statement
of Additional Information, annual and semi-annual reports and additional
copies of this Prospectus or make shareholder inquiries by writing to W.P.
Stewart & Co., Inc., 527 Madison Avenue, New York, New York 10022, by
telephoning the Fund collect at 212-750-8585 or by sending a request by
facsimile at 212-980-8039. You can also obtain these and other related
materials at the Securities and Exchange Commission's internet site
(http://www.sec.gov) or upon paying a duplicating fee by writing the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549-6009. You can also review and copy such materials
at the Securities and Exchange Commission's Public Reference Section in
Washington, D.C. (please call 1-800-732-0330 in advance for available hours).
Investment Company Act File No. 811-8128
<PAGE>
SUBSCRIPTION APPLICATION
W.P. STEWART & CO. GROWTH FUND, INC.
Subscription Instructions
BASIC SUBSCRIPTION DOCUMENTS
You may subscribe for shares of the common stock, par value $0.001 per share
("Shares"), of W.P. Stewart & Co. Growth Fund, Inc. (the "Fund") only by
completing, signing and delivering the following basic subscription documents:
(a) Subscriber Information Form: Complete all requested information, date
and sign.
(b) Subscription Agreement: Date and sign page S-8. The Subscription
Agreement may be completed by a duly authorized officer or agent on behalf
of a Subscriber.
(c) Evidence of Authorization: Subscribers which are corporations should
submit certified corporate resolutions authorizing the subscription and
identifying the corporate officer(s) empowered to sign the basic
subscription documents. Partnerships should submit an extract of the
partnership agreement identifying the general partners. Trusts should submit
a copy of the trust agreement or relevant portions thereof showing
appointment and authority of trustee(s). Employee benefit plans (including
Individual Retirement Accounts) should submit a certificate of the trustee
or an appropriate officer certifying that the subscription has been
authorized and identifying the individual empowered to sign the basic
subscription documents. (Entities may be requested to furnish other or
additional documentation evidencing the authority to invest in the Fund.)
DELIVERY INSTRUCTIONS
Basic subscription documents should be delivered or mailed to the Fund at the
following address:
W.P. Stewart & Co., Inc.
527 Madison Avenue
New York, New York 10022
All basic subscription documents will be returned to the Subscriber if this
subscription is not accepted.
- --------------------------------------------------------------------------------
S-1
<PAGE>
SUBSCRIPTION PAYMENTS
Payments for the amount subscribed (not less than $50,000 unless otherwise
agreed in advance by the Fund) may be made by check, made payable to the W.P.
Stewart & Co. Growth Fund, Inc., or by wire transfer as follows:
Receiving Bank State Street Bank and Trust Company
Information: 1776 Heritage Drive
North Quincy, Massachusetts 02171
ABA No.: 011000028
For Account of: BNF=AC-65590622
Mutual Funds F/B/O W.P. Stewart
For Subaccount of: OBI=Growth Fund
Shareholder Name/Account Number
ACCEPTANCE OF SUBSCRIPTIONS
The acceptance of subscriptions is within the absolute discretion of the
Fund, which may require additional information prior to making a determination.
The Fund will seek to notify the Subscriber of its acceptance or rejection of
the subscription prior to the date of the proposed investment. If the
subscription is rejected, the Fund will promptly refund (without interest) to
the Subscriber any subscription payments received by the Fund.
ADDITIONAL INFORMATION
For additional information concerning subscriptions, prospective investors
should contact W.P. Stewart & Co., Inc. at 212-750-8585.
- --------------------------------------------------------------------------------
S-2
<PAGE>
W.P. STEWART & CO. GROWTH FUND, INC.
Subscriber Information Form
Each Subscriber for shares of the common stock, par value $0.001 per share
("Shares"), of W.P. Stewart & Co. Growth Fund, Inc. (the "Fund") is requested
to furnish the following information (please print or type):
1.IDENTITY OF SUBSCRIBER
Name: ________________________________________________________________________
*Mailing Address: ____________________________________________________________
____________________________________________________________________
( )
Telephone: ___________________________________________________________________
( )
Telecopier: __________________________________________________________________
* Please indicate above the address to which Fund communications and notices
should be sent. If the Subscriber is a natural person, please also furnish
below the Subscriber's residential address if different from the address
indicated above:
Residential Address: ________________________________________________________
(If different from
Mailing Address) _____________________________________________________________
Duplicate Statement Address: _________________________________________________
_____________________________________________________________
2.AMOUNT OF SUBSCRIPTION
$
3.SUPPLEMENTAL DATA FOR ENTITIES
If the Subscriber is not a natural person, furnish the following
supplemental data (natural persons may skip to Question 4):
(a) Legal form of entity: ____________________________________________________
(b) Jurisdiction of organization: ____________________________________________
- --------------------------------------------------------------------------------
S-3
<PAGE>
4. TAX INFORMATION
- --------------------------------------------------------------------------------
PART 1-PLEASE PROVIDE Social Security
YOUR TIN IN THE BOX AT Number OR
RIGHT AND CERTIFY BY Employer
SIGNING AND DATING BE- Identification
LOW. Number
SUBSTITUTE
Form W-9
Department of the
Treasury Internal -------------------------------------------------------------
Revenue Service PART 2-CERTIFICATES-Under penalties of per-
jury, I certify that:
(1) The number shown on this form is my
correct Taxpayer Identification Number (or
I am waiting for a number to be issued for
me) and
Payer's Request
for Taxpayer
Identification
("TIN") (2) I am not subject to backup withholding
either because: (a) I am exempt from
backup withholding, or (b) I have not been
notified by the Internal Revenue Service
(the "IRS") that I am subject to backup
withholding as a result of a failure to
report all interest or dividends, or (c)
the IRS has notified me that I am no
longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross
out item (2) above if you have been noti-
fied by the IRS that you are currently
subject to backup withholding because of
under reporting interest or dividends on
your tax return. However, if after being
notified by the IRS that you are subject
to backup withholding, you received an-
other notification from the IRS that you
are no longer subject to backup withhold-
ing, do not cross out such item (2).
-------------------------------------------------------------
SIGNATURE ............... PART-3
DATE .................... Awaiting TIN [_]
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
- --------------------------------------------------------------------------------
S-4
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer
identification number has not been issued to me, and either
(1) I have mailed or delivered an application to receive a
Taxpayer Identification Number to the appropriate Internal
Revenue Service Center or Social Security Administration
Office or (2) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a
Taxpayer Identification Number by the time of payment, 31%
of all reportable payments made to me will be withheld, but
that such amounts will be refunded to me if I then provide a
Taxpayer Identification Number within 60 days.
Signature ______________________________Date _____________
______________________________________________
Name and title or
representative capacity,
if applicable
- --------------------------------------------------------------------------------
S-5
<PAGE>
W.P. STEWART & CO. GROWTH FUND, INC.
Subscription Agreement
W.P. Stewart & Co. Growth
Fund, Inc.
c/o W.P. Stewart & Co., Inc.
527 Madison Avenue
New York, New York 10022-4212
Ladies and Gentlemen:
The undersigned (the "Subscriber") hereby acknowledges having received the
current prospectus (the "Prospectus") dated April 30, 1999 and annual report as
of December 31, 1998 of W.P. Stewart & Co. Growth Fund, Inc., a corporation
organized under the laws of the State of Maryland (the "Fund").
Subscription Commitment
The Subscriber hereby subscribes for as many shares of the common stock of
the Fund, par value $0.001 (the "Shares"), as may be purchased including
fractional shares at the net asset value per Share (as set forth in the
Prospectus) next computed after receipt prior to the close of business at the
New York Stock Exchange (normally 4:00 PM) of this Subscription Agreement and
payment from the Subscriber for the amount set forth in the accompanying
Subscriber Information Form completed and signed by the Subscriber (which shall
be considered an integral part of this Subscription Agreement). This
Subscription Agreement and the Subscriber Information Form need be submitted
only by new investors.
The Subscriber understands that this subscription is not binding on the Fund
until accepted by the Fund, and may be rejected by the Fund in its absolute
discretion. If so rejected, the Fund shall return to the Subscriber, without
interest or deduction, any payment tendered by the Subscriber, and the Fund and
the Subscriber shall have no further obligation to each other hereunder. Unless
and until rejected by the Fund this subscription shall be irrevocable by the
Subscriber.
Representations, Warranties and Covenants
To induce the Fund to accept this subscription, the Subscriber hereby makes
the following representations, warranties and covenants to the Fund:
(a) The information set forth in the accompanying Subscriber Information
Form is accurate and complete as of the date hereof, and the Subscriber will
promptly notify the Fund of any change in such information. The Subscriber
consents to the disclosure of any such information, and any other
information furnished to the Fund, to any governmental authority, self-
regulatory organization or, to the extent required by law, to any other
person.
(b) In deciding whether to invest in the Fund, the Subscriber has not
relied or acted on the basis of any representations or other information
purported to be given on behalf of the Fund or the investment adviser of the
Fund except as set forth in the Prospectus, the Fund's Statement of
Additional Information or the Fund's Registration Statement on Form N-1A (it
being understood that no person has been authorized by the Fund or the
Fund's investment adviser to furnish any such representations or other
information).
- --------------------------------------------------------------------------------
S-6
<PAGE>
(c) The Subscriber has the authority and legal capacity to execute,
deliver and perform this Subscription Agreement and to purchase and hold
Shares.
(d) If the Subscriber is, or is acting on behalf of, an employee benefit
plan (a "Plan") which is subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"): (i) the Plan, and any fiduciaries
responsible for the Plan's investments, are aware of and understand the
Fund's investment objective, policies and methods and the decision to invest
the Plan's assets in the Fund was made with appropriate consideration of
relevant investment factors with regard to the Plan including the
diversification requirements of Section 404(a)(1)(C) of ERISA; (ii) the
decision to invest the Plan's assets in the Fund is a prudent one and is
consistent with the responsibilities imposed upon the Plan's fiduciaries
with regard to their investment decisions under ERISA; (iii) the fiduciary
or other person signing this Subscription Agreement is independent of the
Fund and the investment adviser of the Fund; and (iv) this subscription and
the investment contemplated hereby are in accordance with all requirements
applicable to the Plan under its governing instruments and under ERISA.
Indemnification
The Subscriber agrees that the subscription made hereby may be accepted in
reliance on the representations, warranties, agreements, covenants and
confirmations set out above. The Subscriber agrees to indemnify and hold
harmless the Fund and the Fund's investment adviser (including for this purpose
their respective shareholders, members, directors, managers, officers and
employees, and each person who controls any of them within the meaning of
Section 20 of the Securities Exchange Act of 1934, as amended) from and against
any and all loss, damage, liability or expense, including reasonable costs and
attorneys' fees and disbursements, which the Fund, such adviser or such persons
may incur by reason of, or in connection with, any representation or warranty
made herein (or in the accompanying Subscriber Information Form) not having
been true when made, any misrepresentation made by the Subscriber or any
failure by the Subscriber to fulfill any of the covenants or agreements set
forth herein, in the Subscriber Information Form or in any other document
provided by the Subscriber to the Fund.
Miscellaneous
(a) The Subscriber agrees that neither this Subscription Agreement, nor any
of the Subscriber's rights or interest herein or hereunder, is transferable or
assignable by the Subscriber, and further agrees that the transfer or
assignment of any Shares acquired pursuant hereto shall be made only in
accordance with the provisions hereof and all applicable laws.
(b) The Subscriber agrees that, except as permitted by applicable law, it may
not cancel, terminate or revoke this Subscription Agreement or any agreement of
the Subscriber made hereunder, and that this Subscription Agreement shall
survive the death or legal disability of the Subscriber and shall be binding
upon the Subscriber's heirs, executors, administrators, successors and assigns.
(c) All of the representations, warranties, covenants, agreements and
confirmations set out above and in the Subscriber Information Form shall
survive the acceptance of the subscription made herein and the issuance of any
Shares.
(d) This Subscription Agreement together with the Subscriber Information Form
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof and may be amended only by a writing executed by both
parties.
- --------------------------------------------------------------------------------
S-7
<PAGE>
(e) Within ten days after receipt of a written request therefor from the
Fund, the Subscriber agrees to provide such information and to execute and
deliver such documents as the Fund may deem reasonably necessary to comply with
any and all laws and ordinances to which the Fund is or may be subject.
Notices
Any notice required or permitted to be given to the Subscriber in relation to
the Fund shall be sent to the address specified in Item 1 of the Subscriber
Information Form accompanying this Subscription Agreement or to such other
address as the Subscriber designates by written notice received by the Fund.
Governing Law
This Subscription Agreement shall be governed by the laws of the State of New
York without regard to the conflicts of law provisions thereof.
Dated: _______________________ Very truly yours,
______________________________________________
Name of Subscriber
______________________________________________
Signature
______________________________________________
Name and title or representative capacity,
if applicable
* * * * *
The foregoing is hereby accepted, subject to the conditions set forth herein.
Dated: _______________________ W.P. Stewart & Co. Growth Fund, Inc.
By: __________________________________________
- --------------------------------------------------------------------------------
S-8
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
--------------
W.P. STEWART & CO. GROWTH FUND, INC.
--------------
Investment Adviser
W.P. STEWART & CO., INC.
527 MADISON AVENUE
NEW YORK, NEW YORK 10022
--------------
This Statement of Additional Information provides information about W.P.
Stewart & Co. Growth Fund, Inc., in addition to the information contained in
the Prospectus of the Fund dated April 30, 1999. Please retain this document
for future reference.
This Statement of Additional Information is not a prospectus. It relates to
and should be read in conjunction with the Prospectus of the Fund. The audited
financial statements and Report of the Fund's Independent Accountants for the
Fund's fiscal year ended December 31, 1998 are incorporated by reference into
this Statement of Additional Information from the Fund's Annual Report to
Shareholders for the year ended December 31, 1998. You may obtain the Fund's
Prospectus and Annual Report to Shareholders free of charge upon request in
writing or by telephoning the Fund (collect) at 212-750-8585.
--------------
April 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ORGANIZATION OF THE FUND.................................................... 3
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS............................. 3
Investment Objective and Methods.......................................... 3
Portfolio Turnover........................................................ 5
Fundamental Investment Policies........................................... 5
Non-Fundamental Investment Policies....................................... 6
MANAGEMENT OF THE FUND...................................................... 6
INVESTMENT ADVISORY AND OTHER SERVICES...................................... 8
Potential Conflicts of Interest........................................... 9
Duty of Care.............................................................. 10
BROKERAGE ALLOCATION........................................................ 10
CUSTODIAN, ADMINISTRATOR AND SHAREHOLDER SERVICING AGENT.................... 11
INDEPENDENT AUDITOR......................................................... 12
CAPITAL STOCK............................................................... 12
DISTRIBUTION OF THE FUND'S SHARES........................................... 12
COMPUTATION OF NET ASSET VALUE.............................................. 12
PURCHASE OF SHARES.......................................................... 12
REDEMPTIONS................................................................. 13
TAX STATUS.................................................................. 13
ERISA CONSIDERATIONS........................................................ 14
FINANCIAL STATEMENTS........................................................ 15
CONTACT INFORMATION......................................................... 15
</TABLE>
2
<PAGE>
ORGANIZATION OF THE FUND
W.P. Stewart & Co. Growth Fund, Inc. (the "Fund") is a corporation which was
organized under Maryland law on September 23, 1993. The Fund is a registered
open-end, non-diversified, management investment company (commonly known as a
mutual fund). The Fund commenced investment operations on February 28, 1994.
W.P. Stewart & Co., Inc., a registered investment adviser (the "Adviser"), is
the Fund's investment adviser. You may purchase shares of the Fund, par value
$0.001 per share ("Shares"), in the manner described in the Fund's prospectus
dated April 30, 1999 (the "Prospectus").
Pursuant to the laws of Maryland, the Fund's jurisdiction of incorporation,
the Board of Directors of the Fund has adopted By-Laws of the Fund that do not
require annual meetings of Fund shareholders. The absence of a requirement
that the Fund hold annual meetings of the Fund's shareholders reduces Fund
expenses. Meetings of shareholders will be held when required by the
Investment Company Act of 1940, as amended (the "Act") or Maryland law or when
called by the Chairman of the Board of Directors, the President or
shareholders owning at least 10% of the outstanding Fund Shares.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVE AND METHODS
The Fund's investment objective is to earn capital gains for shareholders.
The Adviser seeks to achieve the Fund's investment objective by investing in
common stocks of companies based on a variety of factors. Such factors
include: the company's record and projections of profit and earnings growth,
accuracy and availability of information with respect to the company, success
and experience of management, accessibility of management to the Adviser,
product lines and competitive position both in the U.S. and abroad, lack of
cyclicality, large market capitalization and liquidity of the company's
securities. The Fund's portfolio normally consists primarily of common stocks
of U.S.-based companies listed on the New York Stock Exchange, Inc. (the "New
York Stock Exchange"). There can be no assurance that the Fund will achieve
its investment objective.
The Fund may also invest in the following:
Temporary Positions: For temporary defensive purposes or in order to earn a
return on available cash balances pending investment or reinvestment, the Fund
may invest up to 100% of its assets in debt securities of the U.S. government
or its agencies or instrumentalities, interest-bearing accounts maintained
with financial institutions, including banks, investment grade short-term debt
securities and commercial paper of U.S. companies or repurchase agreements, as
well as in other money market instruments.
Repurchase Agreements: A repurchase agreement customarily requires the
seller to agree to repurchase the securities from the Fund at a mutually
agreed time and price. The total amount received by the Fund on repurchase
would be calculated to exceed the price paid by the Fund, reflecting an agreed
upon market rate of interest for the period of time to the settlement
(repurchase) date. The underlying securities are ordinarily U.S. government
securities, but may consist of other securities in which the Fund is permitted
to invest. Repurchase agreements will be fully collateralized at all times.
However, if the proceeds from any sale upon default in the obligation to
repurchase is less than the repurchase price, the Fund would suffer a loss. In
the event of a default, the Fund might incur costs and encounter delays in
liquidating collateral.
3
<PAGE>
Foreign Investments: The Fund may invest in stocks issued by non-U.S.
companies. Such investments may be made through the purchase of American
Depositary Receipts ("ADRs") or directly in such foreign securities.
ADRs represent an investment in shares of non-U.S. companies but are
denominated in U.S. dollars and usually are listed on a U.S. stock exchange or
traded through NASDAQ. Investments in ADRs involve certain risks that
investments directly in U.S. stocks do not. Because the underlying security
represented by an ADR is normally denominated in a currency other than the
U.S. dollar, the value of the ADR as measured in U.S. dollars will be affected
favorably or unfavorably by movements in currency exchange rates. This may
occur even though the price of the underlying security in the foreign currency
in which the security trades directly does not vary. Dividends will normally
be declared in the currency in which the underlying security is denominated.
The amount of dividends received by the holder of an ADR as measured in U.S.
dollars will be affected favorably or unfavorably by movements in currency
exchange rates because the dividend will normally be converted into U.S.
dollars before payment. Also, dividends declared on the underlying investment
represented by an ADR generally will be subject to foreign withholding taxes.
Investments directly in the securities of foreign companies present special
risks and considerations not typically associated with investing in U.S.
securities and ADRs. In addition to the exchange rate risks and withholding
tax issues described above for ADRs, investments directly in foreign
securities may be subject to withholding taxes on capital gains. Other risks
and considerations can include political and economic instability, different
accounting and financial reporting standards, less available public
information regarding companies, exchange control and capital flow regulations
and different tax treatment. The securities markets on which such foreign
securities trade may be less liquid and settlement delays may be experienced,
resulting in losses to the Fund and periods when such assets are unavailable
to pay redemptions.
The Fund does not intend to enter into any type of transaction to hedge
currency fluctuations.
Fixed Income and Convertible Securities and Warrants: The Fund may invest in
investment grade debt or preferred equity securities, including securities
convertible into or exchangeable for other equity securities, and warrants.
Debt securities are subject to credit risk, which is the risk that the issuer
may be unable to make interest or principal payments, as well as market risk,
which is the risk that the securities may lose value because interest rates
rise. Convertible securities typically are corporate bonds or preferred stocks
that may be converted at a specified time and price into shares of common
stock. Convertible securities generally provide a fixed income stream and
afford the investor the opportunity to participate in the appreciation of the
underlying common stock. Convertible securities generally perform like regular
debt securities, that is, if interest rates rise, the value of the securities
usually will fall. Furthermore, since they are convertible into common stock,
convertible securities also have the same types of risks as investing in the
underlying common stock.
Warrants are options to buy a stated number of shares of common stock at a
specified price during the life of the warrants. Warrants involve more risk
than an investment in the underlying common stock. If the price of the
underlying common stock does not rise above the exercise price before the
warrant expires, the Fund generally will not exercise the warrant and the Fund
will lose the amount it paid for the warrant. Furthermore, the price of the
warrant will not necessarily rise if the price of the underlying common stock
rises.
Borrowing: The Fund is authorized to borrow money in an amount up to 33% of
the Fund's total assets for investment purposes. The Fund also is authorized
to borrow an additional 5% of its total assets without regard to the foregoing
limitation for temporary or emergency purposes (such as clearance of portfolio
transactions, the
4
<PAGE>
payment of dividends and Share redemptions). The Adviser presently does not
intend to borrow on behalf of the Fund more than 5% of the Fund's net assets.
Illiquid Securities: The Fund may hold up to 5% of the value of its total
assets in illiquid securities, including certain securities which cannot be
readily resold to the public because of legal or contractual restrictions,
non- negotiable deposits with banks, repurchase agreements which have a
maturity of longer than seven days and securities that are not readily
marketable.
Lending Portfolio Securities. The Fund may lend its portfolio securities to
brokers, dealers and financial institutions when secured by collateral
maintained on a daily marked-to-market basis in an amount equal to at least
100% of the market value, determined daily, of the loaned securities. The Fund
may at any time demand the return of the securities loaned. The Fund will
continue to receive the income on loaned securities and will, at the same
time, earn interest on the loan collateral, a portion of which generally will
be rebated to the borrower. Any cash collateral received under these loans
will be invested in short-term money market instruments. Where voting or
consent rights with respect to the 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 voting or consent rights if the
matters involved will have a material effect on the Fund's investment in the
securities loaned. The Fund intends to limit its securities lending activities
so that no more than 5% of the value of the Fund's total assets will be
represented by securities loaned. The Fund does not currently intend to lend
securities.
Portfolio Turnover
Although the Fund will not make a practice of short-term trading, purchases
and sales of securities will be made whenever appropriate, in the Adviser's
view, to achieve the principal objective of the Fund to provide capital gains.
The rate of portfolio turnover is calculated by dividing the lesser of the
cost of purchases or the proceeds from sales of portfolio securities
(excluding short-term U.S. government obligations and other short-term
investments) for the particular fiscal year by the monthly average of the
value of the portfolio securities (excluding short-term U.S. government
obligations and short-term investments) owned by the Fund during the
particular fiscal year. The Fund's rate of portfolio turnover for the fiscal
years ended December 31, 1998 and 1997 was 34.0% and 79.0%, respectively. The
decrease in the portfolio turnover rate in 1998 was due to the fact that the
Fund temporarily refused new and additional subscriptions for Shares for
several months during 1998. The Fund anticipates that the portfolio turnover
rate will increase in 1999. The rate of portfolio turnover is not a limiting
factor when the Adviser deems portfolio changes appropriate to achieve the
Fund's investment objective.
FUNDAMENTAL INVESTMENT POLICIES
The Fund has adopted certain fundamental investment policies which can be
changed only with the approval of shareholders holding a majority of the total
number of outstanding Shares. As defined in the Act, this means the lesser of
(a) 67% or more of the Shares of the Fund at a meeting where more than 50% of
the outstanding Shares is present in person or by proxy or (b) more than 50%
of the outstanding Shares of the Fund.
The following is a complete list of the Fund's fundamental investment
policies:
(1) The Fund will not make short sales of securities, invest in warrants
or put or call options (or combinations thereof) or purchase any securities
on margin, except for short-term credits necessary for clearance of
portfolio transactions.
(2) The Fund will not issue senior securities;
5
<PAGE>
(3) The Fund may borrow money for investment purposes in amounts up to 33
1/3% of its total assets (including the amount borrowed) and the Fund may
also borrow up to 5% of its total assets (not including the amount
borrowed) for temporary or emergency purposes.
(4) The Fund will not underwrite securities issued by others except to
the extent the Fund may be deemed to be an underwriter, under Federal
securities laws, in connection with the sale of its portfolio securities.
(5) The Fund will not invest more than 5% of the value of its total
assets in securities which cannot be readily resold to the public because
of legal or contractual restrictions or because there are no market
quotations readily available or in other "illiquid" securities (including
non-negotiable deposits with banks and repurchase agreements of a duration
of more than seven days). For purposes of this policy, illiquid securities
do not include securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933 that have been determined to be liquid by the
Fund's Board of Directors based upon the trading markets for such
securities.
(6) The Fund will not invest more than 5% of the value of its total
assets in securities of companies which, including their predecessors, have
a record of less than three years' continuous operation.
(7) The Fund will not invest more than 25% of the value of its total
assets in any one industry or group of related industries.
(8) The Fund will not invest in real estate, real estate limited
partnerships or real estate mortgage loans, although the Fund may invest in
marketable securities which are secured by real estate and marketable
securities of companies which invest or deal in real estate or real estate
mortgage loans.
(9) The Fund will not engage in the purchase or sale of commodities or
commodity futures contracts or invest in oil, gas or other mineral
exploration or development programs, although the Fund may invest in
securities issued by companies that engage in such activities.
(10) The Fund will not make loans, except that this restriction shall not
prohibit (1) the purchase of publicly distributed debt securities in
accordance with the Fund's investment objectives and policies, (2) the
lending of portfolio securities and (3) entering into repurchase
agreements.
If a percentage restriction is satisfied at the time of investment, a
subsequent increase or decrease in the percentage beyond the specified limit
resulting from a change in value or net assets will not be considered a
violation of the foregoing restrictions. Whenever any investment policy or
investment restriction states a maximum percentage of the Fund's assets which
may be invested in any security or other property, it is intended that such
maximum percentage limitation be determined immediately after and as a result
of the acquisition of such security or property.
NON-FUNDAMENTAL INVESTMENT POLICIES
The Fund does not intend to invest in the securities of other investment
companies.
MANAGEMENT OF THE FUND
The Fund has a Board of Directors which is responsible for the management
and operations of the Fund. The Board oversees the officers of the Fund and
the Adviser and decides upon general policy matters. A majority of the
Directors are not "interested persons" (as defined in the Act) of the Fund or
the Adviser (the
6
<PAGE>
"Independent Directors"). The following table sets forth the principal
occupation or employment of the members of the Board of Directors and
principal officers of the Fund.
<TABLE>
<CAPTION>
POSITION HELD WITH PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS+ THE FUND DURING PAST FIVE (5) YEARS
- ---------------------- ------------------ --------------------------
<S> <C> <C>
Marilyn G. Breslow President and Director Director and portfolio manager with the
(54)*.................. Adviser since 1990. Ms. Breslow has
served as portfolio manager of the Fund
since mid-1997.
June Eichbaum (48)...... Director
570 Lexington Avenue Ms. Eichbaum has been a principal of
New York, New York Major, Hagen & Africa (New York) Inc.
10022 (an executive search firm) since 1992.
William Talcott May Director Mr. May has held various officerships
(36)................... and directorships in May family
575 Madison Avenue controlled companies engaged in the real
New York, New York estate brokerage and residential
10022 property management business since 1988.
Thomas R. LeViness (58). Director President of Pell & LeViness, P.C. (a
90 Park Avenue law firm)
New York, New York
10016
David J. Winkler (42)... Director Senior Vice President of American
1211 Sixth Avenue Phoenix Corp. (a commercial insurance
New York, New York broker).
10036
John C. Russell (64)*... Vice President Director, Deputy Chairman and Managing
Trinity Hall, 43 Cedar Director of W.P. Stewart & Co., Ltd.,
Avenue the Adviser's parent, since mid-1998;
P.O. Box HM 2905 Director of the Adviser or its
Hamilton HM LX Bermuda predecessor from 1996 through mid-1998;
General Counsel of the Adviser's
predecessor 1996-1997; Chief Operating
Officer of the Adviser's predecessor
since 1997; Partner of Kroll & Tract (a
law firm) from 1994 through 1996; prior
thereto engaged in practice of law in
New York.
Lisa D. Levey (42)*..... Assistant Secretary General Counsel and Assistant Secretary
of W.P. Stewart & Co., Ltd., the
Adviser's parent, since mid-1998;
General Counsel and Assistant Secretary
of the Adviser or its predecessor since
1997. From 1991 through 1996, Ms. Levey
served as General Counsel and Secretary
of Danielson Holding Corporation (a
publicly traded financial services
holding company).
</TABLE>
- --------
* An "interested person" of the Fund as defined in the Act.
+ Unless otherwise indicated, the address of each of the members of the Board
of Directors and principal officers of the Fund is 527 Madison Avenue, New
York, New York 10022.
7
<PAGE>
The Fund makes no payments to any of its officers and employees for services
and the Fund does not pay any retirement benefits. However, each of the Fund's
Independent Directors is paid by the Fund a fee of $1,250 for each meeting of
the Fund's Board of Directors and for each meeting of any committee of the
Board of Directors that they attend (other than those attended by telephone
conference call). Each Director is reimbursed by the Fund for any expenses he
or she may incur by reason of attending such meetings or in connection with
services he or she may perform for the Fund. The following table sets forth
the aggregate compensation paid by the Fund to the current Directors of the
Fund for service in the fiscal year ended December 31, 1998:
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM FUND AND
AGGREGATE BENEFITS ACCRUED FUND COMPLEX
COMPENSATION AS PART OF PAID TO
NAME AND POSITION FROM THE FUND FUND EXPENSES DIRECTORS**
----------------- ------------- ---------------- -------------
<S> <C> <C> <C>
Marilyn G. Breslow*................ -- None --
President and Director
June Eichbaum...................... $5,000 None $5,000
Director
William Talcott May................ $5,000 None $5,000
Director
Thomas R. LeViness................. $1,250 None $1,250
Director
David J. Winkler................... $1,250 None $1,250
Director
</TABLE>
- --------
* Directors who are "interested" do not receive compensation from the Fund.
** Neither the Adviser nor any of its affiliates serves as investment adviser
to any registered investment company other than the Fund.
As of January 29, 1999, the Directors and officers of the Fund owned less
than 1% of the Shares outstanding. As of the same date, no person owned of
record or beneficially 5% or more of the Shares outstanding.
INVESTMENT ADVISORY AND OTHER SERVICES
As described in the Fund's Prospectus, the Adviser is the Fund's investment
adviser pursuant to an agreement between the Adviser and the Fund (the
"Investment Advisory Services Agreement") and, as such, manages the Fund's
portfolio. The Adviser is a Delaware corporation which was incorporated in
1998. The Adviser is registered under the Investment Advisers Act of 1940 as
an investment adviser. From February 28, 1994 (commencement of the Fund's
investment operations) to July 1, 1998, the Fund's investment adviser was the
predecessor of the Adviser's parent company. The Adviser's business office is
located at 527 Madison Avenue, New York, New York 10022-4212, its telephone
number is (212) 750-8585 and its facsimile number is (212) 980-8039. The
Adviser is a wholly owned subsidiary of W.P. Stewart & Co., Ltd., a Bermuda
corporation ("W.P. Stewart-Bermuda"), which is also registered as an
investment adviser. William P. Stewart may be deemed to be a controlling
person of W.P. Stewart-Bermuda.
8
<PAGE>
The persons named below are affiliated with the Fund and are also affiliated
persons of the Adviser. The capacity in which such persons are affiliated with
the Fund and the Adviser is also indicated.
<TABLE>
<CAPTION>
NAME OFFICE HELD WITH THE FUND OFFICE HELD WITH THE ADVISER
---- ------------------------- ---------------------------------------
<S> <C> <C>
Marilyn G. Breslow...... Director and President Director and President
John C. Russell......... Vice President None
Lisa D. Levey........... Assistant Secretary General Counsel and Assistant Secretary
</TABLE>
Under the Investment Advisory Services Agreement, the Adviser is responsible
for the management of the Fund's portfolio and constantly reviews its holdings
in the light of its own research analyses and those of other relevant sources.
Reports of portfolio transactions are reviewed by the directors of the Fund on
a regular basis.
The Adviser has agreed to waive advisory fees and/or reimburse expenses of
the Fund so that total Fund operating expenses do not exceed 2.5% of the
average annual net assets of the Fund up to $30 million, 2% of the average
annual net assets of the Fund of the next $70 million, and 1.5% of the average
daily net assets of the Fund in excess of $100 million. Fee waivers and
reimbursement are not required by the Investment Advisory Services Agreement
and may be discontinued at any time. For the fiscal year ended December 31,
1998, the Adviser did not waive advisory fees and/or reimburse expenses of the
Fund pursuant to such waiver and/or reimbursement agreement. During the same
period, the Fund paid the Adviser an advisory fee of 1.5% of the average net
assets of the Fund.
For the fiscal years ended December 31, 1998, 1997 and 1996, fees payable to
the Adviser and the predecessor adviser in accordance with the terms of the
Investment Advisory Services Agreement totaled $629,727, $406,906 and
$218,540, respectively. After voluntary fee waiver and/or expense
reimbursement, for the fiscal years ended December 31, 1997 and 1996 the Fund
paid the predecessor adviser $402,270 and $210,050, respectively.
POTENTIAL CONFLICTS OF INTEREST
The Adviser manages and expects to continue to manage other investment and
trading accounts with objectives similar in whole or in part to those of the
Fund, including other collective investment vehicles which may be managed or
sponsored by the Adviser and in which the Adviser may have an equity interest.
The Investment Advisory Services Agreement requires that the Adviser act in
a manner that it considers fair, reasonable and equitable in allocating
investment opportunities to the Fund, but does not otherwise impose any
specific obligations or requirements concerning the allocation of time, effort
or investment opportunities to the Fund or any restrictions on the nature or
timing of investments for the account of the Fund and for the Adviser's own
account or for other accounts which the Adviser may manage. The Adviser is not
obligated to devote any specific amount of time to the affairs of the Fund and
is not required to give exclusivity or priority to the Fund in the event of
limited investment opportunities.
When the Adviser determines that it would be appropriate for the Fund and
one or more of its other investment accounts to participate in an investment
opportunity, the Adviser will seek to execute orders for all of the
participating investment accounts, including the Fund, on an equitable basis.
If the Adviser has determined to invest at the same time for more than one of
the investment accounts, the Adviser may place combined orders for all such
accounts simultaneously and if all such orders are not filled at the same
price, it may average the
9
<PAGE>
prices paid. Similarly, if an order on behalf of more than one account cannot
be fully executed under prevailing market conditions, the Adviser may allocate
the investments among the different accounts on a basis that it considers
equitable. Situations may occur where the Fund could be disadvantaged because
of the investment activities conducted by the Adviser for other investment
accounts.
The Adviser selects the brokers to be used for the Fund's transactions, and
the Adviser's affiliate is permitted to act as broker for the Fund. By reason
of the brokerage fees the Adviser's affiliate earns by acting as broker to the
Fund, the Adviser has an incentive to select its affiliate as broker for the
Fund. See "Brokerage Allocation."
DUTY OF CARE
The Articles of Incorporation of the Fund provide that no director or
officer of the Fund shall have any liability to the Fund or its shareholders
for damages in the absence of malfeasance, bad faith, gross negligence or
recklessness or as otherwise required by the Maryland General Corporation Law.
The Articles of Incorporation and By-Laws of the Fund contain provisions for
the indemnification by the Fund of its directors and officers to the fullest
extent permitted by law.
The Investment Advisory Services Agreement provides that the Adviser shall
not be liable to the Fund or its shareholders for any loss or damage
occasioned by any acts or omissions in the performance of its services as
Adviser in the absence of misconduct, recklessness or gross negligence or as
otherwise required by law.
BROKERAGE ALLOCATION
The Adviser is responsible for the placement of the portfolio transactions
of the Fund and the negotiation of any commissions paid on such transactions.
Portfolio securities transactions generally will be effected through brokers
on securities exchanges or directly with the issuer or an underwriter or
market maker for the securities. Purchases and sales of portfolio securities
through brokers involve a commission to the broker. Purchases and sales of
portfolio securities with dealers serving as market makers include the spread
between the bid and the asked prices.
As described in the Prospectus, the Fund is non-diversified, and tends to
take larger positions in fewer different portfolio companies than most other
mutual funds. In addition, the Adviser may select the same investments for the
Fund as for its other managed accounts, resulting in a large volume of trades
on the same day in any particular security. In an effort to obtain best
execution for its clients in the aggregate, including the Fund, the Adviser
will take into account such factors as price (including the applicable dealer
spread or commission, if any), size of order, difficulty of execution,
operational facilities of the firm involved and the firm's risk in positioning
a block of securities. In light of these considerations, brokerage
transactions normally will be effected through the Adviser's affiliate, W. P.
Stewart Securities Limited. The Adviser believes that this practice results in
a better overall price and execution to its clients, including the Fund,
although the Fund may pay commissions at a rate higher than those charged by
other brokers. The Adviser's affiliate will conduct any brokerage services it
performs for the Fund in compliance with the requirements of Section 17(e)(2)
of the Act, and the Board of Directors of the Fund has adopted procedures
designed to ensure such compliance.
As broker, the Adviser's affiliate will charge the Fund commissions not
exceeding the rates charged to the Adviser's institutional customers for
similar trades at the time of execution. Prior to July 1997, the Fund effected
10
<PAGE>
the majority of its trades through the previous adviser to the Fund (the
predecessor of the Adviser's parent company), which was then registered as a
broker-dealer. Thereafter, the Fund effected the majority of its trades
through W. P. Stewart Securities Limited, the Adviser's affiliate, which was
formed and registered as a broker-dealer at that time. For the fiscal years
ended December 31, 1998, 1997 and 1996, the Fund paid the Adviser's
predecessor or its affiliate brokerage commissions of $47,414, $82,116 and
$53,260, respectively. For the fiscal year ended December 31, 1998, the Fund
paid total brokerage commissions of $47,574, of which approximately 99.7% was
paid to the Adviser's predecessor or W.P. Stewart Securities Limited for
effecting 99.4% of the aggregate amount of transactions in which the Fund paid
brokerage commissions.
Any brokerage transactions not executed by the Adviser's affiliate (which
the Adviser believes will be on an exception only basis) will be executed by
other brokers and dealers selected by the Adviser on the basis of a variety of
factors, including the following: the ability to effect prompt and reliable
executions at favorable prices; the operational efficiency with which
transactions are effected; the financial strength, integrity and stability of
the broker; the quality, comprehensiveness and frequency of available research
and related services considered to be of value; and the competitiveness of
commission rates in comparison with other brokers satisfying the Adviser's
other selection criteria. Research and related services furnished by brokers
may include written information and analyses concerning specific securities,
companies or sectors; market, financial and economic studies and forecasts;
statistics and pricing or appraisal services, as well as discussions with
research personnel, along with hardware, software, data bases and other news,
technical and telecommunications services and equipment utilized in the
investment management process. The Adviser is authorized to pay higher
commissions to brokerage firms that provide it with such investment and
research information if the Adviser determines such prices or commissions are
reasonable in relation to the overall services provided. Research and related
services provided by broker-dealers used by the Fund may be utilized by the
Adviser or its affiliates in connection with its investment services for other
accounts and, likewise, research and related services provided by broker-
dealers used for transactions of other accounts may be utilized by the Adviser
in performing its services for the Fund. The Adviser will make appropriate
allocations so that it bears the cost of any such services used for purposes
other than for investment management, for example, for administration.
CUSTODIAN, ADMINISTRATOR AND SHAREHOLDER SERVICING AGENT
The Fund's securities and other assets will normally be held in the custody
of State Street Bank and Trust Company, which has its principal place of
business at 1776 Heritage Drive, North Quincy, Massachusetts 02171 ("State
Street"). Under the Custodian Contract, State Street is reimbursed by the Fund
for its disbursements, expenses and charges incurred in connection with the
foregoing services and receives a fee from the Fund based on the average
assets of the Fund, subject to a minimum annual fee of $36,000.
State Street also provides certain administrative services to the Fund
pursuant to an Administration Agreement, including overseeing the
determination of the net asset value of the Fund, maintaining certain books
and records of the Fund, and preparing and/or filing periodic reports,
advertising materials, supplements, proxy materials and other filings. In
consideration for these services, State Street is paid a fee based on a
percentage of the average assets of the Fund, subject to a minimum annual fee
of $65,000.
State Street also provides certain shareholder services to the Fund pursuant
to a Transfer Agency and Service Agreement, including disbursing dividends and
distributions, disbursing redemption proceeds, processing subscription
applications and serving as transfer agent and registrar. In consideration for
these services, State Street is paid a monthly fee of $2,500 ($30,000
annually).
11
<PAGE>
INDEPENDENT AUDITOR
Lopez Edwards Frank & Co., LLP, 1 Penn Plaza, New York, New York 10119-0141,
serves as the independent auditor of the Fund. It audits the Fund's annual
financial statements and renders reports thereon, which are included in the
Annual Report to Shareholders. In addition, the Fund's auditor reviews certain
filings of the Fund with the Securities and Exchange Commission and prepares
the Fund's federal and state corporation tax returns.
CAPITAL STOCK
The authorized capital stock of the Fund consists of 100,000,000 Shares, all
of one class and of $0.001 par value per Share, and all having equal voting,
redemption, dividend and liquidation rights. Shares are fully paid and non-
assessable when issued and are redeemable and subject to redemption under
certain conditions described in the Prospectus. Shares have no preemptive,
conversion or cumulative voting rights.
Pursuant to the By-Laws of the Fund adopted under the provisions of the laws
of Maryland, the Fund's jurisdiction of incorporation, the Fund will not
generally hold annual meetings of Fund shareholders. Shareholder meetings,
however, will be held when required by the Act or Maryland laws, or when
called by the Board of Directors, the President or shareholders owning at
least 10% of outstanding Shares. The Fund is obligated to bear the cost of any
such notice and meeting.
DISTRIBUTION OF THE FUND'S SHARES
The Fund is offering its Shares directly and has no underwriter, except that
the Adviser will act as placement agent where required by local law. The
Adviser may recommend an investment in the Fund but receives no fee
specifically for doing so.
COMPUTATION OF NET ASSET VALUE
Shares of the Fund are sold at net asset value. For a discussion of how net
asset value is determined, see "Pricing of Shares" in the Prospectus. The Fund
computes its net asset value once daily on days the New York Stock Exchange is
open for trading. The Exchange ordinarily is closed on the following days: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Using the Fund's net asset value at December 31, 1998, the maximum offering
price of the Fund's shares was as follows:
<TABLE>
<S> <C>
Net Assets...................................................... $50,649,729
Number of Shares Outstanding.................................... 237,131
Offering Price per Share........................................ $213.59
</TABLE>
PURCHASE OF SHARES
The methods of buying Shares are described in the Prospectus. There are no
sales charges.
The Fund may accept securities in payment of Shares provided such
securities:
(a) meet the investment objective and policies of the Fund;
12
<PAGE>
(b) are acquired by the Fund for investment and not for resale;
(c) are liquid securities which are not restricted as to transfer either
by law or liquidity of market; and
(d) have a value which is readily ascertainable (and not established only
by valuation procedures) as evidenced by a listing on the American
Stock Exchange, the New York Stock Exchange or NASDAQ.
REDEMPTIONS
The Fund may require the redemption of your Shares in full (less a 0.5%
redemption fee) if (i) the net asset value of your Shares is reduced to less
than $10,000 due to redemptions made by you, or (ii) the Fund determines or
has reason to believe that ownership of such Shares by such shareholder will
cause the Fund to be in violation of, or require registration of any such
Shares or subject the Fund to additional registration or regulation under, the
securities laws of any relevant jurisdiction. Any such mandatory redemption
shall be effective as of the date designated by the Fund in a notice to the
shareholder (which shall be not less than 10 calendar days after delivery or
mailing of the notice of mandatory redemption).
TAX STATUS
The Prospectus of the Fund contains information about the federal income tax
status of the Fund and the federal income tax consequences of ownership of
Shares. Certain supplementary information is presented below.
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code.
This relieves the Fund (but not its shareholders) from paying federal income
tax on income which is distributed to shareholders and permits net capital
gains of the Fund (i.e., the excess of net capital gains from the sale of
assets held for more than 12 months over net short-term capital losses) to be
treated as capital gains of the shareholders, regardless of how long
shareholders have held their Shares in the Fund.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of the Fund's annual gross income (without
reduction for losses from the sale or other disposition of securities) be
derived from interest, dividends, payments with respect to securities loans,
and gains from the sale or other disposition of securities or options thereon
or foreign currencies, or other income derived with respect to its business of
investing in such securities or currencies; (b) 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, U.S.
Government securities and other securities limited in respect of any one
issuer to an amount not greater than 5% of the market value 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 U.S. government securities); and (c) the Fund
distribute to its shareholders at least 90% of its net taxable investment
income (including short- term capital gains) other than long-term capital
gains and 90% of its net tax exempt interest income in each year.
Any gain realized by a shareholder on the redemption or other disposition of
Shares by a shareholder who is not a dealer in securities generally will be
treated as capital gain. Any such capital gain derived by an individual will
be subject to tax at the maximum rate of 20% with respect to Shares held for
more than 12 months. The maximum long-term capital gains rate for corporate
shareholders is the same as the maximum tax rate for ordinary income, which
currently is 35%.
13
<PAGE>
Any capital loss realized by a shareholder on the redemption or other
disposition of Shares will be treated as long-term capital loss if such Shares
were held for more than one year. Any loss realized by a shareholder on the
redemption or other disposition of Shares which he has held for six months or
less will be treated for federal income tax purposes as a long-term capital
loss to the extent of any capital gains distributions received by the
shareholder with respect to such Shares; any capital loss on such shares in
excess of such distribution will be treated as short-term capital loss. Any
loss realized on a sale or exchange of Shares will be disallowed to the extent
that the Shares disposed of are replaced (including, for example, by receipt
of dividends paid in Shares) within a 61-day period beginning 30 days before
and ending 30 days after the date the Shares are disposed of. In such a case,
a shareholder will adjust the basis of the Shares acquired to reflect the
disallowed loss.
Since, at the time of an investor's purchase of Shares, a portion of the per
share net asset value by which the purchase price is determined may be
represented by realized or unrealized appreciation in the Fund's portfolio or
undistributed income of the Fund, subsequent distributions (or a portion
thereof) on such Shares may in reality represent a return of his capital.
However, such a subsequent distribution would be taxable to such investor even
if the net asset value of his Shares is, as a result of the distributions,
reduced below his cost for such Shares. Prior to purchasing Shares of the
Fund, an investor should carefully consider such tax liability which he might
incur by reason of any subsequent distributions of net investment income and
capital gains.
The Fund would be subject to a 4% non-deductible excise tax on certain
amounts if they are not distributed (or not treated as having been
distributed) on a timely basis in accordance with a calendar year distribution
requirement. The Fund intends to distribute to shareholders each year an
amount sufficient to avoid the imposition of such excise tax.
Dividends and interest received by the Fund may give rise to withholding and
other taxes imposed by foreign countries. Such taxes will reduce shareholders'
return.
Dividends and distributions generally are taxable to shareholders in the
year in which they are received. Dividends declared in October, November and
December payable to shareholders of record on a specified date in October,
November and December and paid in the following January will be treated as
having been paid by the Fund and received by shareholders in such prior year.
Under this rule, a shareholder may be taxed in one year on dividends or
distributions actually received in January of the following year.
In addition to federal income taxes, shareholders of the Fund may be subject
to state, local or foreign taxes on distributions from the Fund and on
repurchases or redemptions of Shares. Shareholders should consult their tax
advisors as to the application of such taxes and as to the tax status of
distributions from the Fund and repurchases or redemptions of Shares in their
own states and localities. Non-U.S. shareholders, present in the U.S. for
substantial periods of time during a taxable year, maintaining an office or
"tax home" in the U.S., or conducting business in the U.S. with which their
Shares may be "effectively connected," should consult their tax advisors as to
whether such presence or such activities may subject them to U.S. tax as a
U.S. person or otherwise. Each shareholder who is not a U.S. person should
also consult his tax advisor regarding the federal, state, local and foreign
tax consequences of ownership of Shares of the Fund.
ERISA CONSIDERATIONS
Persons who are fiduciaries with respect to an employee benefit plan subject
to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
including a qualified retirement plan, Keogh plan or other
14
<PAGE>
arrangement ("ERISA Plan") should consider, among other things, the matters
described below before determining whether to invest in the Fund.
ERISA imposes certain general and specific responsibilities on persons who
are fiduciaries with respect to an ERISA Plan, including prudence,
diversification, prohibited transaction and other standards. In determining
whether a particular investment is appropriate for an ERISA Plan, Department
of Labor regulations provide that a fiduciary of an ERISA Plan must give
appropriate consideration to, among other things, the role that the investment
plays in the ERISA Plan's portfolio, taking into consideration whether the
investment is designed reasonably to further the ERISA Plan's purposes, the
diversification of the portfolio, an examination of the risk and return
factors, the portfolio relative to the anticipated cash flow needs of the
ERISA Plan and the projected return of the total portfolio relative to the
ERISA Plan's funding objectives. Before investing the assets of an ERISA Plan
in the Fund, a fiduciary should determine whether such an investment is
consistent with its fiduciary responsibilities and the foregoing regulations.
As described in Department of Labor regulations, a fiduciary may need to take
other factors into consideration if the ERISA Plan permits participants to
direct the investment of their accounts and the Fund is offered as an
investment alternative under the ERISA Plan. If a fiduciary with respect to
any such ERISA Plan breaches his responsibilities with regard to selecting an
investment or an investment course of action for such ERISA Plan, the
fiduciary may be held personally liable for losses incurred by the ERISA Plan
as a result of such breach.
The provisions of ERISA are subject to extensive and continuing
administrative and judicial interpretation and review. The discussion of ERISA
contained in this Statement of Additional Information is, of necessity,
general and may be affected by future publication of regulations and rulings.
Potential investors should consult with their legal advisors regarding the
consequences under ERISA of the acquisition and ownership of Shares.
FINANCIAL STATEMENTS
The Fund will furnish to its shareholders annual reports containing
financial statements examined by the Fund's independent auditors as soon as
practicable after the end of the fiscal year of the Fund. The Fund will also
furnish quarterly reports reviewing the Fund's results for such quarter. The
Fund will furnish, without charge, copies of its latest Semi-Annual and Annual
Reports to Shareholders upon request.
The audited financial statements and Report of the Fund's Independent
Accountants for the Fund's fiscal year ended December 31, 1998 are
incorporated by reference into this Statement of Additional Information from
the Fund's Annual Report to Shareholders for the year ended December 31, 1998.
The Fund's Annual Report to Shareholders can be obtained free of charge upon
request in writing or by telephoning the Fund.
The financial statements of the Fund included in the Annual Report to
Shareholders for the year ended December 31, 1998 have been incorporated
herein by reference, in reliance with respect to the Financial Statements, on
the report of Lopez Edwards Frank & Co., LLP, independent auditors, given on
the authority of that firm as experts in auditing and accounting.
CONTACT INFORMATION
For further information regarding the Fund or to request copies of the
Fund's Prospectus or Registration Statement free of charge, telephone or write
to W.P. Stewart & Co., Inc., 527 Madison Avenue, New York, New York 10022,
Telephone: 212-750-8585, Facsimile: 212-980-8039.
15
