<PAGE>
As filed with the Securities and Exchange Commission on April 28, 2000
Securities Act File No. 33-71142
Investment Company Act File No. 811-8128
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. [_]
Post-Effective Amendment No. 8 [X]
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 9 [X]
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W.P. STEWART & CO. GROWTH FUND, INC.
(Exact Name of Registrant as Specified in Charter)
527 Madison Avenue
New York, New York 10022
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 750-8585
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Copy to:
W. P. Stewart & Co., Inc. Joel H. Goldberg, Esq.
527 Madison Avenue Swidler Berlin Shereff Friedman, LLP
New York, New York 10022
Attn: Lisa D. Levey The Chrysler Building
(Name and Address of Agent for 405 Lexington Avenue
Service)
New York, New York 10174
----------------
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
It is proposed that this filing will become effective (check
appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[_] This post-effective amendment designates
a new effective date for a previously filed
post-effective amendment.
Title of Securities Being Registered.... Shares of Common Stock, $0.001
Par Value
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<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 28, 2000
<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
PRICING OF SHARES........................................................... 8
PURCHASE OF SHARES.......................................................... 9
REDEMPTIONS AND DISTRIBUTIONS............................................... 9
Redemptions............................................................... 9
Dividends and Distributions............................................... 10
TAXATION.................................................................... 10
Taxability of Dividends and Distributions................................. 10
Taxability of Transactions................................................ 10
FINANCIAL HIGHLIGHTS........................................................ 11
</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
<PAGE>
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 five 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*
1995 1996 1997 1998 1999
------ ------ ------ ------ -----
27.73% 30.64% 24.69% 33.30% 8.76%
* 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 5-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, 1999)
<TABLE>
<CAPTION>
Return Since
One Year Five Year Inception*
-------- --------- ------------
<S> <C> <C> <C>
W.P. Stewart & Co. Growth Fund, Inc.**...... 8.21% 24.58% 20.92%
S&P 500(R) Index***......................... 21.04% 28.51% 24.13%
</TABLE>
- --------
* 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
<PAGE>
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%
Annual Fund Operating Expenses (expenses that are deducted from Fund as-
sets)
Management Fees........................................................ 1.50%
Distribution (12b-1) Fees.............................................. None
Other Expenses......................................................... 0.40%
----
Total Fund Operating Expenses*......................................... 1.90%
====
</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, 1999, 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>
$1,231 $3,285 $5,466 $11,528
</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>
$974 $3,011 $5,175 $11,190
</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.
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. The Adviser and its affiliates have been providing
investment advisory services to individuals, trusts and pension funds since
1975. The Adviser'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.
Under the Investment Advisory Agreement between the Adviser and the Fund,
the Fund pays the Adviser a fee of 1.5% which is based on the Fund's average
daily net assets and is paid quarterly in arrears. For the fiscal year ended
December 31, 1999, the Fund paid the Adviser 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, 1999 is included in the Fund's 1999 Annual Report to
Shareholders, additional copies of which can be obtained free of charge upon
request in writing or by telephoning the Fund.
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
8
<PAGE>
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 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.
The Adviser may pay out of its own resources persons who sell shares of the
Fund.
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 0.50% 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
9
<PAGE>
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.
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
Fund expects that its distributions will consist primarily of long-term
capital gains. 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 long-
term 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.
10
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. 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 M.R. Weiser & 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 For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $213.59 $168.71 $152.65 $125.94 $101.06
------- ------- ------- ------- -------
Income or Loss From
Investment Operations
Net Investment Loss..... (2.03) (2.21) (1.87) (1.81) (1.15)
Net Gains or Losses on
Securities (both
realized and
unrealized)............ 20.40 $ 57.80 38.53 40.17 29.19
------- ------- ------- ------- -------
Total from Investment
Operations............. 18.37 55.59 36.66 38.36 28.04
Less Distributions
Distributions (from
capital gains)......... (13.00) (10.71) (20.60) (11.65) (3.16)
------- ------- ------- ------- -------
Total Distributions..... (13.00) (10.71) (20.60) (11.65) (3.16)
------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $218.96 $213.59 $168.71 $152.65 $125.94
======= ======= ======= ======= =======
TOTAL RETURN (a)........ 8.76% 33.30% 24.69% 30.64% 27.73%
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of
Period (in thousands).. $75,311 $50,650 $36,201 $19,829 $10,789
Ratio of Expenses to
Average Net Assets..... 1.90% 1.94% 2.13% 2.50% 2.50%
Ratio of Fees and
Expenses Waived and
Reimbursed by the
Adviser and
Administrator to
Average Net Assets..... -- -- .02% 0.28% 1.32%
Ratio of Net Investment
Loss to Average Net
Assets................. (1.10)% (1.26)% (1.35)% (1.51)% (1.36)%
Portfolio Turnover...... 32 % 34 % 79 % 76 % 76 %
</TABLE>
- --------
(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 0.50% were taken into account.
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.
11
<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, free of
charge, 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 electronic request at
the following E-mail address: [email protected], or by writing the Public
Reference Section of the Securities and Exchange Commission, Washington, D.C.
20549-0102. You can also review and copy such materials at the Securities and
Exchange Commission's Public Reference Room in Washington, D.C. (please call
1-202-942-8090 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 (2) I am not subject to backup withholding
for Taxpayer either because: (a) I am exempt from
Identification backup withholding, or (b) I have not been
("TIN") 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 28, 2000 and annual report as
of December 31, 1999 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 p.m., New York City time) 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, (ii) the decision to
invest the Plan's assets in the Fund by such fiduciaries was made with
appropriate consideration of and in compliance with, the investment duties
upon such fiduciaries under Section 404(a)(1)(B) of ERISA and the
diversification requirements of Section 404(a)(1)(C) of 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 in the Fund contemplated hereby are in
accordance with all requirements applicable to the Plan and its trust 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 28, 2000. Please retain this document
for future reference.
This Statement of Additional Information is not a prospectus. It relates to,
should be read in conjunction with and incorporates by reference 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, 1999 are
incorporated by reference into this Statement of Additional Information from
the Fund's Annual Report to Shareholders for the year ended December 31, 1999.
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 28, 2000
<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
Code of Ethics............................................................ 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........................................................ 15
FINANCIAL STATEMENTS........................................................ 15
CONTACT INFORMATION......................................................... 16
</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 28, 2000 (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 Fund's investment objective is a fundamental policy of the Fund, which may
not be changed without a vote of a majority of the outstanding shares. 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, 1999 and 1998 was 32% and 34.0%, respectively. 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 "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.
6
<PAGE>
<TABLE>
<CAPTION>
Position Held with Principal Occupation
Name, Age and Address+ the Fund During Past Five (5) Years
- ---------------------- ------------------ --------------------------
<S> <C> <C>
Marilyn G. Breslow (56)*. President and Director President, Director and portfolio
manager with the Adviser since 1998,
1993 and 1990, respectively. Ms. Breslow
has served as portfolio manager with the
Fund since mid-1997.
John C. Russell (65)*.... Vice President and Director and Managing Director of W.P.
Trinity Hall, Director Stewart & Co., Ltd., the Adviser's
43 Cedar Avenue parent, since mid-1998; Director of the
P.O. Box HM 2905 Adviser or its predecessor from 1996
Hamilton HM LX Bermuda through mid-1998; General Counsel of the
Adviser's predecessor 1996-1997; Chief
Operating Officer of the Adviser's
predecessor since 1997; Director and
Vice President/Chief Operating Officer
of W.P. Stewart Securities Ltd.; Partner
of Kroll & Tract (a law firm) from 1994
through 1996.
June Eichbaum (49)....... Director Ms. Eichbaum has been a principal of
570 Lexington Avenue Major, Hagen & Africa (New York) Inc.
New York, New York 10022 (an executive search firm) since 1992.
William Talcott May (37). Director Mr. May has held various officerships
575 Madison Avenue and directorships in May family
New York, New York 10022 controlled companies engaged in the real
estate brokerage and residential
property management business since 1988.
Thomas R. LeViness (59).. Director President of Pell & LeViness, P.C. (a
90 Park Avenue law firm)
New York, New York 10016
David J. Winkler (43).... Director Senior Vice President of HRH Company of
1211 Sixth Avenue New York (a commercial insurance
New York, New York 10036 broker).
Lisa D. Levey (43)*...... Secretary General Counsel and Assistant Secretary
of W.P. Stewart & Co., Ltd., the
Adviser's parent, since mid-1998;
General Counsel and 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).
Susan G. Leber (33)*..... Treasurer Deputy Finance Director of W.P. Stewart
& Co. Ltd., the Adviser's parent since
1999. From 1993 to 1999, Ms. Leber
served as Audit Manager at Lopez Edwards
Frank & Co., LLP (an accounting firm).
Alison A. Proshan (31)*.. Assistant Secretary Associate General Counsel and Assistant
Secretary of W.P. Stewart & Co., Ltd.,
the Adviser's parent and Associate
General Counsel and Assistant Secretary
of the Adviser since January 1999. From
1994 to 1999, Ms. Proshan served as an
associate at the law firm of Milbank,
Tweed, Hadley and McCloy, LLP.
</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, 1999:
<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
John C. Russell*................... -- None --
Vice President and Director
June Eichbaum...................... $5,000 None $5,000
Director
William Talcott May................ $5,000 None $5,000
Director
Thomas R. LeViness................. $5,000 None $5,000
Director
David J. Winkler................... $5,000 None $5,000
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 March 31, 2000, 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.
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......... Director and Vice President None
Lisa D. Levey........... Secretary General Counsel and Secretary
Susan G. Leber.......... Treasurer None
Alison A. Proshan....... Assistant Secretary Associate 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 years ended December 31,
1999 and 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 and its
predecessor an advisory fee of 1.5% of the average net assets of the Fund.
For the fiscal years ended December 31, 1999, 1998 and 1997, fees payable to
the Adviser and the predecessor adviser in accordance with the terms of the
Investment Advisory Services Agreement totaled $956,167, $629,727 and
$406,906, respectively. After voluntary fee waiver and/or expense
reimbursement, for the fiscal year ended December 31, 1997 the Fund paid the
predecessor adviser $402,270.
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.
Code of Ethics
The Fund and the Adviser have adopted a Code of Ethics which permits
officers and employees to invest in securities for their own accounts,
including securities that may be purchased or held by the Fund, subject to
certain restrictions. The Code of Ethics is on file with the Securities and
Exchange Commission and is available through the Securities and Exchange
Commission's EDGAR system.
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.
10
<PAGE>
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
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, 1999, 1998 and 1997, the Fund paid the Adviser's
predecessor or its affiliate brokerage commissions of $93,603, $47,414 and
$82,116, respectively. For the fiscal year ended December 31, 1999, the Fund
paid total brokerage commissions of $93,603, of which approximately 100% was
paid to W.P. Stewart Securities Limited for effecting 100% of the aggregate
amount of transactions in which the Fund paid brokerage commissions. The
aggregate amount of brokerage commissions paid by the Fund for the fiscal
years ended December 31, 1998 and December 31, 1997 was $47,574 and $83,484,
respectively.
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 225 Franklin Street, Boston, MA 02110 ("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.
11
<PAGE>
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).
INDEPENDENT AUDITOR
M.R. Weiser & Co., LLP, 135 West 50th Street, New York, NY 10020, 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.
The Adviser may pay out of its own resources persons who sell Shares of the
Fund.
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, 1999, the maximum offering
price of the Fund's shares was as follows:
<TABLE>
<S> <C>
Net Assets...................................................... $75,311,227
Number of Shares Outstanding.................................... 343,956
Offering Price per Share........................................ $ 218.96
</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.
By law, the Fund must withhold 31% of a shareholder's distributions and
redemption proceeds if such shareholder has not provided either a taxpayer
identification number or a social security number or if the number provided is
incorrect.
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.
14
<PAGE>
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 most qualified retirement plans and funded nonqualified plans of
deferred compensation (an "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 the persons
who are the fiduciaries responsible for investing the assets of an ERISA Plan,
including exclusive benefit of participants, prudence, diversification,
absence of prohibited transactions, conformity of governing documents, and
other standards. In determining whether a particular investment is appropriate
for an ERISA Plan, Department of Labor regulations provide that to meet the
prudence standard, 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 reasonably designed to further the ERISA Plan's purposes, the
diversification of the Plan's portfolio, an examination of the liquidity and
current return factors relative to cash flow needs, and the projected return
of the 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 the foregoing
responsibilities under ERISA. 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.
After an investment in the Fund has been made by an ERISA Plan, the
fiduciaries responsible for that ERISA Plan's investment decisions must
periodically review the investment to determine whether it continues to
satisfy the prudence and other requirements under ERISA. It is noted that,
since the Fund is a mutual fund, the underlying assets of the Fund are not
"plan assets," within the meaning of the applicable ERISA regulations.
Consequently, the fiduciaries of an investing ERISA Plan would not normally
have responsibility for the investment decisions made by or on behalf of the
Fund with respect to those underlying assets.
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 judical decisions and administrative
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
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, 1999 are
incorporated by reference into this Statement of Additional Information from
the Fund's Annual Report to Shareholders for the year ended December 31, 1999.
The Fund's Annual Report to Shareholders can be obtained free of charge upon
request in writing or by telephoning the Fund.
15
<PAGE>
The financial statements of the Fund included in the Annual Report to
Shareholders for the year ended December 31, 1999 have been incorporated
herein by reference, in reliance with respect to the Financial Statements, on
the report of M.R. Weiser & 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.
16
<PAGE>
PART C
OTHER INFORMATION
Item 23. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
(a) Amended Articles of Incorporation of the Fund. Incorporated by
reference from Exhibit 1 to Post-Effective Amendment No. 5 to the
Registration Statement filed on Form N-1A on May 7, 1998 (File No. 33-
71142).
(b) Amended By-Laws of the Fund. Incorporated by reference from Exhibit 2
to Post-Effective Amendment No. 6 to the Registration Statement filed
on Form N-1A on September 25, 1998 (File No. 33-71142).
(c) Portions of Articles of Incorporation and By-Laws of the Fund defining
the rights of holders of shares in the Fund. Incorporated by reference
from Exhibit 4 to Post-Effective Amendment No. 5 to the Registration
Statement filed on Form N-1A on May 7, 1998 (File No. 33-71142).
(d) Investment Advisory Services Agreement between the Fund and the
Adviser.*
(e) Not Applicable
(f) Not Applicable
(g) (i) Custodian Contract between the Fund and State Street Bank and
Trust Company. Incorporated by reference from Exhibit 8 to Post-
Effective Amendment No. 5 to the Registration Statement filed on Form
N-1A on May 7, 1998 (File No. 33-71142).
(ii) Amendment to Custodian Contract. Incorporated by reference from
Exhibit (g)(ii) to Post-Effective Amendment No. 7 to the Registration
Statement filed on Form N-1A on February 26, 1999 (File No. 33-71142).
(h) Administration Agreement and Transfer Agency and Service Agreement,
each between the Fund and State Street Bank and Trust Company.
Incorporated by reference from Exhibit 9 to Post-Effective Amendment
No. 5 to the Registration Statement filed on Form N-1A on May 7, 1998
(File No. 33-71142).
(i) Opinion of Sutherland, Asbill & Brennan, former counsel for the Fund.
Incorporated by reference from Exhibit 10 to Post-Effective Amendment
No. 5 to the Registration Statement filed on Form N-1A on May 7, 1998
(File No. 33-71142).
(j) (i) Consent of M.R. Weiser & Co., LLP, independent auditors for the
Fund.*
(ii) Consent of Swidler Berlin Shereff Friedman, LLP, legal counsel to
the Fund.*
(k) Not applicable
(l) Subscription Agreement between the Fund and WPS&Co., N.V. Incorporated
by reference from Exhibit 13 to Post-Effective Amendment No. 5 to the
Registration Statement filed on Form N-1A on May 7, 1998 (File No. 33-
71142).
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
(m) Not Applicable
(n) Not Applicable
(o) Not Applicable
(p) Code of Ethics*
(q) Powers of Attorney. Incorporated by reference from Exhibit 24 to Post-
Effective Amendment No. 5 to the Registration Statement filed on Form
N-1A on May 7, 1998 (File No. 33-71142) and Exhibit (o)(ii) to Post-
Effective Amendment No. 7 to the Registration Statement filed on Form
N-1A on February 26, 1999 (File No. 33-71142).
</TABLE>
- --------
* Filed herewith.
Item 24. Persons Controlled by or Under Common Control with Registrant
As of the date hereof, the Fund is not controlled by any person other than
the directors of the Fund and the Adviser, as members of its Board of
Directors and investment adviser to the Fund, in their respective capacities
as such.
Item 25. Indemnification
Every person who is or was a director, officer or employee of the Fund has
the right to be indemnified to the fullest extent permitted by law for any
liabilities incurred and reasonable expenses of defending against claims or
threatened claims in connection with his office, except in cases of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
in the conduct of his office. See Article Ninth of the Articles of
Incorporation and Article 9 of the Amended By-Laws for a more complete
description of matters related to indemnification.
Item 26. Business and Other Connections of Investment Adviser
The Adviser, including the Fund's predecessor adviser, has been engaged
since 1973 in the business of providing discretionary and non-discretionary
investment advisory services and brokerage services to various clients.
John A. Allison is a Director and portfolio manager of the Adviser and since
January 2000 has served as Chairman and Chief Executive Officer of W.P.
Stewart Asset Management Ltd., an affiliate of the Adviser.
Joseph S. Frelinghuysen, Jr. is an outside Director of the Adviser and since
1989 has served as President of J.S. Frelinghuysen & Co., Inc., an investment
banking firm.
Marilyn G. Breslow is President and Director of the Fund and has served as
President, Director and portfolio manager of the Adviser since 1998, 1993 and
1990, respectively.
Lisa D. Levey is Secretary of the Fund, General Counsel and Secretary of the
Adviser and since June 1998 has served as General Counsel and Assistant
Secretary of W.P. Stewart & Co., Ltd., the Adviser's parent, and several of
its affiliates.
Alison A. Proshan is Assistant Secretary of the Fund, Associate General
Counsel and Assistant Secretary of the Adviser and, since January 1999 has
served as Associate General Counsel and Assistant Secretary of W.P. Stewart &
Co., Ltd., the Adviser's parent, and several of its affiliates.
Item 27. Principal Underwriters
(a) Not applicable
(b) Not applicable
C-2
<PAGE>
Item 28. Location of Accounts and Records
<TABLE>
<CAPTION>
Name of
Account, Book or Other Document Person Maintaining
------------------------------- ------------------
(Numbers refer to Subparagraphs under Rule 31a-1(b)
of the Act)
<C> <S> <C>
(1) Journals (or other records or original entry) State Street Bank
containing an itemized daily record in detail and Trust Company
of all purchases and sales of securities, all
receipts and deliveries of securities, all
receipts and disbursements of cash and all
other debits and credits.
(2) General and auxiliary ledgers (or other State Street Bank
records) reflecting all asset, liability, and Trust Company
reserve, capital, income and expense accounts.
(3) Not applicable
(4) Corporate Charters, By-Laws and Minute Books The Adviser
(5) Record of each brokerage order given by or on State Street Bank
behalf of the Fund and Trust Company
(6) Record of all other portfolio purchases or State Street Bank
sales and Trust Company
(7) Record of Options (if any) and commitments State Street Bank
and Trust Company
(8) Trial balances State Street Bank
and Trust Company
(9) Brokerage Records The Adviser
and/or W.P.
Stewart
Securities
Limited
(10) Records of authorizations The Fund
(11) Advisory Material The Fund
All other records (if any) required to be The Fund
maintained by paragraph (a) of Rule 31a-1
</TABLE>
All records maintained by the Adviser or the Fund will be maintained at 527
Madison Avenue, New York, New York 10022.
All records maintained by W.P. Stewart Securities Limited will be maintained
at Trinity Hall, 43 Cedar Avenue, P.O. Box HM2905, Hamilton HM LX, Bermuda.
All records maintained by State Street Bank and Trust Company will be
maintained at 225 Franklin Street, Boston, MA 02110.
Item 29. Management Services
Not Applicable
Item 30. Undertakings
Not applicable.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it meets all of
the requirements for effectiveness under Rule 485(b) under the Securities Act
of 1933 and has duly caused this Amendment to Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the City
of New York, and State of New York on the 28th day of April, 2000.
W.P. Stewart & Co. Growth Fund, Inc.
*
By: _________________________________
Name: Marilyn G. Breslow
Title:President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<S> <C> <C>
Signature Title
Date
* Director and
_____________________________________ President
Marilyn G. Breslow
* Director and Vice
_____________________________________ President
John C. Russell
* Director
_____________________________________
June Eichbaum
* Director
_____________________________________
William Talcott May
* Director
_____________________________________
Thomas R. LeViness
* Director
_____________________________________
David J. Winkler
/s/ Lisa D. Levey April 28, 2000
*By: ____________________________
Lisa D. Levey
</TABLE>
Attorney-in-Fact
C-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
(d) Investment Advisory Services Agreement between the Fund and the
Adviser.
(j)(i) Consent of M. R. Weiser & Co. LLP
(j)(ii) Consent of Swidler Berlin Shereff Friedman, LLP
(p) Code of Ethics
</TABLE>
C-5
<PAGE>
Exhibit (d)
INVESTMENT ADVISORY SERVICES AGREEMENT
--------------------------------------
This Agreement is made as of the 28th day of October 28, 1998 between W.P.
Stewart & Co. Growth Fund, Inc., a Maryland corporation (the "Fund"), and W.P.
Stewart & Co., Inc., a Delaware corporation (the "Adviser").
WITNESSETH:
WHEREAS, the Fund desires to avail itself of the experience, sources of
information, advice, assistance and facilities available to the Adviser and to
have the Adviser manage the Fund and perform for the Fund various other services
appropriate to the operations of the Fund pertaining to assets of the Fund; and
WHEREAS, the Adviser is willing to furnish such management and other
services in accordance with the terms hereof;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereby agree as follows:
1. The Fund hereby engages the Adviser to manage the investment and
reinvestment of the assets of the Fund and to perform the other services
provided herein, subject to the supervision and control of the Board of
Directors of the Fund. The Adviser hereby accepts such engagement and agrees, at
its own expense, to render the services and to assume the obligations set forth
herein, for the compensation set forth herein.
2. As part of its obligations to manage the investment and reinvestment
of the assets of the Fund, the Adviser shall:
(a) obtain and evaluate such economic, statistical and financial data
and information and undertake such additional investment research as it
shall deem necessary or advisable in connection with the management of the
investment and reinvestment of the assets of the Fund in accordance with
the Fund's investment objectives and policies as adopted from time to time
and provided in writing to the Adviser;
(b) take such steps as are necessary to implement the investment
policies of the Fund by the purchase and sale of securities, consistently,
in its opinion, with the investment policies and objectives of the Fund
including the placing of orders for such purchase and sale;
(c) report regularly to the Board of Directors with respect to the
implementation of the investment policies of the Fund; and
1
<PAGE>
(d) determine the net asset value of the shares of the Fund as
required by applicable law.
3. All activities in connection with the management of the affairs of the
Fund undertaken by the Adviser pursuant to this Agreement shall at all times be
subject to the supervision and control of the Board of Directors, any duly
constituted committee thereof or any officer of the Fund acting pursuant to like
authority; and the Fund shall have ultimate responsibility and authority for
direction and control of the services provided hereunder. In particular, the
Fund shall at all times retain the ultimate responsibility for and control of
all investments made hereunder, and the Fund reserves the right to direct,
approve or disapprove any action taken on its behalf by the Adviser.
4. The Adviser agrees to make its principal executive officers available
as principal executive officers of the Fund at no expense to the Fund. The
Adviser shall furnish to the Fund at the Adviser's own expense or pay the
expenses of the Fund, subject to Section 5 and subject to possible reimbursement
by an entity other than the Fund, for the following:
(a) office space in such place or places as may be agreed upon from
time to time, and appropriate office supplies, facilities, and equipment;
(b) executive and other personnel appropriate for managing the
affairs of the Fund, including personnel to perform clerical, bookkeeping,
accounting, stenographic and other office functions (exclusive of those
related to, and to be performed under, contracts for custodial, transfer
agency, dividend disbursing, shareholder servicing agency and accounting
services by any financial institution selected to perform such services);
(c) compensation, if any, of directors of the Fund who are directors,
officers or employees of the Adviser or any affiliated person (other than a
registered investment company) of the Adviser; and
(d) all services, other than services of counsel, required in
connection with (i) the preparation of registration statements,
prospectuses and other disclosure documents, including amendments and
revisions thereto, (ii) all annual, semi-annual and periodic reports and
(iii) notices and proxy solicitation material furnished to shareholders of
the Fund or regulatory authorities.
5. Nothing in Section 4 hereof shall require the Adviser to bear, or to
reimburse the Fund for:
(a) any of the costs of printing and mailing the items referred to in
Subsection (d) of Section 4;
(b) any of the costs of preparing, printing and distributing sales
literature;
2
<PAGE>
(c) compensation of directors of the Fund who are not directors,
officers or employees of the Adviser or any affiliated person (other than a
registered investment company) of the Adviser;
(d) registration, filing and other fees in connection with
requirements of regulatory authorities;
(e) charges and expenses of independent accountants retained by the
Fund;
(f) charges and expenses of any transfer agents and registrars
(including the Adviser and any of its affiliates) appointed by the Fund;
(g) brokers' commissions (including those payable to the Adviser) and
other costs and issue and transfer taxes chargeable to the Fund in
connection with securities transactions to which the Fund is a party;
(h) taxes and fees payable by the Fund to Federal, state or other
governmental agencies;
(i) the cost of printing and mailing dividend notices, dividend
payments and stock certificates representing shares of the Fund;
(j) legal fees and expenses in connection with the affairs of the
Fund including registering and qualifying the Fund or its shares with
Federal and state regulatory authorities;
(k) expenses of meetings of shareholders and directors of the Fund;
(l) insurance premiums for fidelity and other coverage of the Fund's
operations;
(m) fees and dues of the Investment Company Institute;
(n) such non-recurring expenses as may arise, including those
relating to actions, suits or proceedings affecting the Fund and the legal
obligations which the Fund may have to indemnify its employees, officers
and directors with respect thereto; and
(o) interest, including interest on borrowings by the Fund, if any.
Notwithstanding the other provisions of this Section 5 and Section 4,
the Adviser shall pay or reimburse the Fund for all expenses of the organization
of the Fund and the initial registration of the Fund and its shares, including,
but not limited to, fees and disbursements of legal counsel and the accountants
of the Fund, all filing and other governmental fees and printing costs,
including the printing of the Fund's preliminary prospectus and up to 5,000
copies of the
3
<PAGE>
Fund's final initial prospectus (and an equal number of copies of the Statement
of Additional Information).
6. The services of the Adviser to the Fund hereunder shall not be deemed
exclusive, and the Adviser shall be free to render similar services, so long as
its services hereunder are not impaired thereby. When the Adviser determines
that it would be appropriate for the Fund and any other account managed by the
Adviser to participate in an investment opportunity, the Adviser will seek to
execute orders on a basis which is fair, reasonable and equitable to all such
accounts. In such situations, the Adviser may place orders for each account
simultaneously and if all such orders are not filled at the same price, the
Adviser may cause each account to pay or receive the average of the prices at
which the orders were filled for all accounts. If all such orders cannot be
fully executed under prevailing market conditions, the Adviser may allocate the
securities traded among the accounts on a basis which it considers equitable,
taking into account the size of the order placed for each such account as well
as any other factors which it deems relevant.
7. (a) As full compensation for all services rendered, facilities
furnished and expenses borne by the Adviser hereunder, the Fund shall pay the
Adviser compensation quarterly in arrears at an annual rate of one and one half
percent (1.5%) of the average daily net assets of the Fund (the "Advisory Fee").
Each payment of the Advisory Fee shall be due and payable promptly after the
last day of the fiscal quarter in respect of which such payment is payable. The
average daily net assets of the Fund shall be computed in accordance with
applicable provisions of the Fund's articles of incorporation and disclosure
document for investors, as each may be amended from time to time. For purposes
of this Agreement, the fiscal year of the Fund shall be deemed to end on
December 31 of each year.
(b) In the event of the expiration or termination of this Agreement
in accordance with the terms hereof other than on the last day of any fiscal
quarter, the Advisory Fee for the fiscal quarter which includes such expiration
or termination shall be prorated to the effective date thereof.
8. If the total of all ordinary business expenses of the Fund (including
investment advisory fees but excluding taxes, portfolio brokerage commissions,
interest and, where permitted, extraordinary expenses) for any fiscal year
exceeds the lowest applicable percentage of average net assets or income
limitations prescribed by any state, to the extent the Adviser would be required
to pay such excess if the Fund's securities were qualified for sale in such
state, the Adviser shall pay such excess annually before publication of the
Fund's Annual Report.
9. The Adviser shall place the portfolio transactions of the Fund with
brokers and negotiate any commissions paid on such transactions when not
effected by the Adviser or an affiliate of the Adviser acting as broker. In
placing portfolio transactions, the Adviser shall seek to obtain the best
execution for the Fund, taking 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 brokers involved and the broker's risk
in positioning a block of securities. When
4
<PAGE>
selecting brokers or effecting transactions directly on behalf of the Fund, the
Adviser shall comply with all applicable provisions of the Fund's disclosure
document for investors and the Investment Company Act of 1940 (the "1940 Act"),
including without limitation Section 17 thereof and the rules thereunder, as may
be amended from time to time.
10. It is understood that any of the shareholders, directors, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or agent of, or be otherwise interested in, the Adviser, any affiliated
person of the Adviser, any organization in which the Adviser may have an
interest or any organization which may have an interest in the Adviser; that the
Adviser, any such affiliated person or any such organization may have an
interest in the Fund; and that the existence of any such dual interest shall not
affect the validity hereof or of any transactions hereunder except as otherwise
provided in the articles of incorporation of the Fund and the Adviser,
respectively, or by specific provisions of applicable law.
11. This Agreement shall become effective as of the date of its execution
and delivery, and
(a) shall be in effect for two years after its date of execution and
shall continue in force from year to year thereafter, subject to prior
termination as provided herein, but only so long as its continuance shall
be approved specifically at least annually by (i) the Board of Directors of
the Fund, including specific approval by a majority of the Directors who
are not interested persons of any party to this Agreement (other than as
Directors of the Fund) by votes cast in person at a meeting specifically
called for such purpose ("Disinterested Director Vote") or (ii) the issued
and outstanding voting securities of the Fund by a majority vote and a
Disinterested Director Vote;
(b) may at any time be terminated either by vote of the Board of
Directors of the Fund or by vote of a majority of the outstanding voting
securities of the Fund (i) on sixty days' written notice to the Adviser or
(ii) if the Adviser fails to perform in a satisfactory manner;
(c) shall terminate automatically in the event of its assignment; and
(d) may be terminated by the Adviser on sixty days' written notice to
the Fund.
Termination of this Agreement pursuant to this Section 11 shall be without the
payment of any penalty.
12. The Adviser hereby acknowledges that all records necessary to the
operation of the Fund, including records pertaining to the Fund's shareholders
and investments, are the sole and exclusive property of the Fund, and in the
event that a transfer of management or investment advisory services to someone
other than the Adviser should ever occur, the Adviser will promptly, and at its
own cost, take all steps necessary to segregate such records and deliver them
5
<PAGE>
to the Fund, free from any claim or retention of rights by the Adviser. The
Adviser agrees to maintain and preserve, for the periods described by Rule 31a-2
pursuant to the 1940 Act, any books and records with respect to the Fund's
securities transactions and any other records required to be maintained by said
Rule which are not being maintained by a custodian or any other party pursuant
to an agreement with the Fund. The Adviser will provide materials relating to
its services as may be requested by the Fund or as may be required by any
governmental agency with proper jurisdiction. The Adviser also agrees to
maintain all such records and accounts in a confidential manner and agrees not
to disclose or use any records or information obtained hereunder in any manner
except as expressly authorized herein. The Adviser will keep confidential any
information obtained pursuant hereto and disclose such information only if the
Fund has authorized such disclosure, or if such disclosure is expressly required
by appropriate state or Federal regulatory authorities.
13. The Fund and the Adviser are not partners or joint venturers with each
other and nothing herein shall be construed so as to make them partners or joint
venturers or impose any liability as such on either of them. The Adviser shall
be deemed to be an independent contractor and, except as expressly provided or
authorized in this Agreement, shall have no authority to act for or represent
the Fund.
14. This Agreement shall be subject to all applicable provisions of law,
including without limitation the applicable provisions of the 1940 Act. To the
extent that any provisions herein contained conflict with any applicable
provisions of law, the latter shall control.
15. This Agreement is executed and delivered in the State of New York and
shall be construed in accordance with its laws, without regard to its rules
regarding conflict of laws.
16. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same instrument.
17. This Agreement may be amended only by mutual consent of the parties by
an instrument in writing signed by the parties, provided that such consent on
the part of the Fund shall be approved (i) by an affirmative vote of a majority
of the outstanding voting securities of the Fund and (ii) by a Disinterested
Director Vote.
18. For the purposes of this Agreement, the terms "vote of a majority of
the outstanding voting securities," "interested person," "affiliated person" and
"assignment" shall have the meanings set forth in the 1940 Act, subject to such
exemptions as may be granted by the Securities and Exchange Commission pursuant
to the 1940 Act.
19. Neither the Adviser nor any of its affiliates, officers, directors,
managers, members or employees shall have any liability to the Fund or any
shareholder of the Fund for any error of judgment, mistake of law or any loss
arising out of any investment, or for any other act or omission in the
performance by the Adviser of its duties hereunder, except for liability
6
<PAGE>
resulting from (i) willful misfeasance, bad faith or gross negligence in the
performance of its duties, or reckless disregard of its obligations and duties
hereunder and (ii) a breach of fiduciary duty with respect to the receipt of
compensation for services, but only to the extent specified in (S)36(b) of the
1940 Act.
IN WITNESS WHEREOF, the Fund and the Adviser have executed this Agreement
as of the day and year first above written.
W.P. STEWART & CO., INC. W.P. STEWART & CO. GROWTH FUND, INC.
By: By:
-------------------------- ---------------------------
Name: Name:
Title: Title:
7
<PAGE>
Exhibit (j)(i)
Weiser M.R.Weiser & Co.LLP
Certified Public Accountants
and Consultants
3000 Marcus Avenue
Lake Success, NY 11042-1066
Tel 516-488-1200
Fax 516-488-1238
April 25, 2000
Ms. Lisa D. Levey
W.P. Stewart & Co., Growth Fund Inc.
527 Madison Avenue
New York, NY 10022
Re: W.P. Stewart & Co. Growth Fund, Inc.
Dear Ms. Levey:
As independent public accountants of W.P. Stewart & Co. Growth Fund, Inc., we
hereby consent to the incorporation by reference of the annual report to
shareholders in the annual registration statement, as well to all references to
our firm included or made part of this registration statement.
Very truly yours,
/s/ David Schwartz
David Schwartz, CPA
M.R. Weiser & Co.LLP
cc: Judith Shandling, Esq.
<PAGE>
Exhibit (j)(ii)
CONSENT OF SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
We hereby consent to the reference to our firm included in the
prospectus and statement of additional information of W.P. Stewart & Co. Growth
Fund, Inc. filed as part of Registration Statement No. 33-71142.
/s/ Swidler Berlin Shereff Friedman, LLP
Swidler Berlin Shereff Friedman, LLP
New York, New York
April 28, 2000
<PAGE>
Exhibit (p)
W.P. STEWART & CO., LTD.
AND SUBSIDIARIES, INCLUDING
W.P. STEWART SECURITIES LIMITED
COMPLIANCE MANUAL AND
MANUAL OF SUPERVISORY PROCEDURES
August 1999
<PAGE>
TABLE OF CONTENTS
Page
I. INTRODUCTION ................................................ 1
II. W.P. STEWART'S SUPERVISORY SYSTEM ........................... 3
III. ACTIVE REGISTRATIONS - WPSSL STAFF .......................... 5
IV. SUPERVISORY ASSIGNMENTS OF PRINCIPALS ....................... 6
V. SUPERVISION OF REGISTERED REPRESENTATIVES AND OTHER
EMPLOYEES ................................................... 7
VI. NEW ACCOUNT PROCEDURES ...................................... 9
VII. ORDER PROCEDURES ............................................ 12
VIII. SUPERVISION OF DISCRETIONARY ACCOUNTS ....................... 13
IX. SUPERVISION OF ORDERS ....................................... 14
X. SUPERVISION OF GOVERNMENT SECURITIES TRANSACTIONS ........... 23
XI. EXCESSIVE MARK UPS .......................................... 24
XII. MARKET MAKER RESTRICTIONS AND RULES ......................... 26
XIII. BEST EXECUTION/TRADING THROUGH LIMIT ORDERS/THREE QUOTE
RULES ....................................................... 27
XIV. REVIEW OF DAILY TRADES ...................................... 28
XV. SUPERVISION OF SETTLEMENT TRANSACTIONS ...................... 30
XVI. FINANCIAL REPORTING ......................................... 31
XVII. REVIEW AND APPROVAL OF CORRESPONDENCE ....................... 32
XVIII. MAINTENANCE OF RECORDS ...................................... 35
XIX. SUPERVISION OF COMPLAINT FILE AND PROCEDURES ................ 37
XX. INSIDER TRADING, EMPLOYEE SECURITIES TRANSACTIONS AND
FRONT-RUNNING ............................................... 38
XXI. INVESTIGATION AND QUALIFICATION ............................. 42
XXII. REGISTRATION OF DIRECTORS AND EMPLOYEES ..................... 44
XXIII. ISSUER ACCOUNTS - MARKET REPURCHASES OF SECURITIES BY
ISSUERS..................................................... 45
XXIV. INSIDER ACCOUNTS ............................................ 48
XXV. SALE OF RESTRICTED AND CONTROL SECURITIES ................... 49
XXVI. OUTSIDE ACTIVITIES .......................................... 52
XXVII GIFTS AND GRATUITIES ........................................ 54
XXVIII.CONFIDENTIALITY AND COMMUNICATION WITH THE MEDIA ............ 55
XXIX. CONTINUING EDUCATION REQUIREMENTS ........................... 56
i
<PAGE>
I. INTRODUCTION
W.P. Stewart & Co., Ltd. ("WPS") is an investment adviser registered with the
United States Securities and Exchange Commission (" SEC"). W.P. Stewart
Securities Limited ("WPSSL"), a wholly-owned subsidiary of WPS, is a
broker-dealer registered with the SEC and the National Association of Securities
Dealers, Inc. ("NASD").
WPSSL is subject to the Securities Exchange Act of 1934, and is a Member of, and
subject to the rules and regulations promulgated by, the NASD. All employees
("Employees") of WPS and its affiliated companies, including WPSSL (collectively
referred to herein as "W.P. Stewart" or the "Firm") are advised that:
Section 15 (f) of the Securities Exchange Act of 1934 requires
registered broker-dealers to establish, maintain and enforce written
policies and procedures to prevent the misuse of material, non-public
information by such broker-dealers or their employees.
Rule 3010 of the Rules of Fair Practice of the NASD requires each NASD
member to establish and enforce written supervisory procedures to
enable persons with supervisory responsibilities to understand and
carry out their obligation to supervise Registered Representatives and
other Employees in compliance with federal and state securities laws
and NASD Rules. Related provisions contained in Rule 2510 (regarding
discretionary accounts) and Rule 311O (regarding record keeping) of
the NASD Rules impose additional obligations on NASD members. Although
WPSSL is not a member of the New York Stock Exchange ("NYSE"), WPSSL
directs a significant number of transactions to that market, and
intends to comply with all applicable NYSE rules and regulations. NYSE
Rule 472 requires member organizations to establish written
supervisory procedures applicable to NYSE members, allied members and
employees and the operation of the Member Organization.
In order to comply with its supervisory responsibilities and other obligations
under the federal and state securities laws and NASD Rules, WPSSL has
established a "supervisory system" comprised of certain policies and procedures
which govern the activities of all Employees. Under this system, certain
individuals with principal registrations ("Designated Principals") are assigned
to supervise the activities of other individuals, including those Employees who
are registered with the NASD as securities representatives and who serve the
clients of the Firm in the capacity of Portfolio Managers, Assistant Portfolio
Managers or Associate Portfolio Managers (each referred to herein as "Registered
Representatives"). Collectively, Designated Principals and Registered
Representatives shall be referred to in this Manual as "Registered Employees".
Every Employee registered with the NASD as a General Securities Representative,
whether or not he or she has client responsibilities, must comply with the
requirements in this Compliance Manual and Manual of Supervisory Procedures
("Manual") regarding Registered Representatives. This Manual shall also serve as
a guide and notice of the policies of the Firm for all Employees of W.P.
Stewart.
A person with supervisory responsibilities holds one of the most important
positions in the securities industry. In addition to his or her other duties, he
or she must determine whether clients are receiving appropriate service and
investment advice in keeping with their objectives, while simultaneously seeing
that W.P. Stewart is protected from the occasional unreasonable
<PAGE>
client. His or her responsibility entails making sure that W.P. Stewart
complies with all laws, regulations, rules and policies.
This Manual provides instruction to all of W.P. Stewart's Principals on how to
supervise activities in compliance with existing regulations. All Employees are
expected to familiarize themselves with the Firm's Compliance Manual and Manual
of Supervisory Procedures.
Executive Management and the Compliance Officer will annually review this Manual
with consideration given to any changes in regulatory requirements and W.P.
Stewart's lines of business, and will revise this Manual accordingly.
Except where otherwise specified, supervisory responsibility for all policies
and procedures stated in this Manual rests with the Designated Principal to whom
the applicable Employee reports, and that Designated Principal shall institute
such systems and procedures necessary to ensure compliance with these
procedures.
2
<PAGE>
II. W.P. STEWART'S SUPERVISORY SYSTEM
Rule 3010 of the NASD's Rules of Fair Practice requires that a member's
supervisory system provide at least the following:
The establishment and maintenance of written procedures which includes
the names, titles, registration status and locations of the required
supervisory personnel as well as their individual supervisory
responsibilities and the dates on which their responsibilities became
effective;
The designation of a Registered Principal with overall authority to
carry out the supervisory responsibilities for each type of business
in which WPSSL is engaged;
The designation of "Offices of Supervisory Jurisdiction" (OSJ's);
The designation of one or more Principals with overall authority to
carry out all supervisory responsibilities in a given OSJ;
The assignment of each registered person to a Designated Principal who
shall be responsible for supervising that person's activities;
Reasonable efforts must be made to determine that all supervisory
personnel are qualified by virtue of experience or training;
The participation of each Registered Representative, no less than
annually, in an interview at which compliance matters are discussed;
and
The identification of one or more Principals who shall review the
supervisory system, procedures and inspections implemented by W.P.
Stewart and recommend actions to management designed to ensure
compliance with applicable securities laws and regulations.
This Manual addresses each of the requirements above. The Manual will be kept
current, and one will be issued to each Registered Employee. In the event that
it is needed, a copy will be available from your supervising Designated
Principal or the Compliance Officer, Stewart A. Bent (the "Compliance Officer").
The distribution of the Manual including applicable revisions is the
responsibility of the Compliance Officer. Any changes in the Manual must be
approved by the Compliance Officer.
The NASD makes clear that the design of a given firm's supervisory system is
very much a function of that firm's lines of business, size and complexity. In
this regard, the business and structure of WPSSL are simple and straightforward.
Customers are not offered investment banking or corporate finance services, and
WPSSL does not trade in futures, options, commodities or municipal securities.
WPSSL's main office is located at Trinity Hall, 43 Cedar Avenue, Hamilton, HM 12
Bermuda (the "Main Office" as defined by the NASD).
Employees should keep in mind that the Manual is not all-inclusive. Questions
may arise with respect to a particular account or trade, for example, which
cannot be answered in general terms.
3
<PAGE>
In such instances, and prior to any action, the Employee should contact the
Compliance Officer, who in turn might request the assistance of legal counsel.
It is imperative to remember that no system can be effective without continuous
supervision by management. It is the obligation of management to establish,
maintain and enforce written policies and procedures designed to service and
protect the client and prevent misconduct.
Except where otherwise expressly provided, these policies and procedures are
binding on all Firm Employees and shall be strictly enforced.
W.P. Stewart will review and update these procedures from time to time in order
to remain in compliance with federal and state securities laws and NASD rules.
4
<PAGE>
III. ACTIVE REGISTRATIONS - WPSSL STAFF
A. The following Employees hold active NASD Principal registrations (GSP -
General Securities Principal; FOP - Financial Operations Principal) and are
located in the Main Office:
<TABLE>
<CAPTION>
Name Title Registration Approval Date
<S> <C> <C> <C>
William P. Stewart, Jr. President GSP, Series 24, 10/23/96
GSR, (Series 1) 4/9/59
FOP, Series 27 10/23/96
Stewart A. Bent Vice President GSP, Series 24 4/l8/97
Operations GSR, Series 7 12/5/96
FOP, Series 27 7/30/98
Sylvia A. Cart Manager GSP, Series 24 7/28/98
GSR, Series 7 l/9/97
</TABLE>
B. The following Employee supervises WPSSL's Registered Representatives,
and holds the registrations set forth below:
Approval
Name Registration Date
Sylvia A. Cart Manager,
GSP, Series 24 7/28/98
GSR, Series 7 l/9/97
These registrations have been confirmed by the Compliance Officer's
verification via NASD Central Registration Depository, and the registrations of
any newly-hired supervisors will be similarly verified.
5
<PAGE>
IV. SUPERVISORY ASSIGNMENTS OF PRINCIPALS
William P. Stewart, Jr., WPSSL's President, Stewart A. Bent, its Vice President
of Operations, and Sylvia A. Cart, its Branch Manager (the "Supervisory
Principals"), will have overall responsibility for supervising all activities
and Employees of the Firm, including activities of the Registered
Representatives.
WPSSL is also authorized to execute trades in U.S. Government Securities.
WPSSL's Form BD reflects the Firm's activity in this business.
Ms. Cart, and any other Designated Principals, will supervise the following
activities of the Firm:
Activity
New Account Procedures
Supervision of Orders/Trades
Supervision of Settlements
Supervision of Discretionary Accounts
Approval of Correspondence
Review of Incoming Mail
Performance Reporting
Maintenance of Records
Complaint File and Procedures
Insider Trading, Employee Transactions,
Front-Running
Internal Inspections
Financial Reporting
Investigation and Qualification
Supervision of Proxy Voting
6
<PAGE>
V. SUPERVISION OF REGISTERED REPRESENTATIVES AND OTHER EMPLOYEES
Designated Principals have the responsibility for supervising the conduct and
actions of the Firm's Employees and in particular the Registered Representatives
assigned to them. This Section sets forth the specific responsibilities of such
individuals.
Each supervisor should hold periodic meetings (no less than
annually) with Registered Representatives and other Employees under
their supervision to review procedures, individual operations and to
discuss any unusual compliance-related issues;
Each supervisor should review all correspondence written to or from
clients and potential clients and approve any correspondence to
clients before it is sent pursuant to the policies set forth in this
Manual;
Each supervisor should discuss with the Registered Representatives
under their supervision all proposed discussions with clients
regarding the securities market and specific securities;
Each supervisor must refer any written client complaints or oral
client complaints to the Compliance Officer on an immediate basis;
Each supervisor should constantly impress upon Registered
Representatives that if they have any doubt as to a particular
transaction, they should inquire before the transaction is effected;
Each supervisor should ensure that trainees (Employees without NASD
registration) do not accept any orders from clients, discuss any
securities with clients, or offer any investment advice to clients
until such time as they are registered with the NASD;
Each supervisor should immediately discuss with the Compliance Officer
any activity of which they become aware that may constitute a
violation of any of the applicable securities laws and regulations as
well as the rules of the NASD;
Each supervisor has the responsibility to see that no Registered
Representative whom he or she supervises becomes an officer, director,
partner or trustee of any organization or trust without prior written
approval from the Compliance Officer;
Each supervisor has the responsibility to see that no Registered
Representative whom he or she supervises engages in any business
(during or after business hours) other than that of W.P. Stewart and
its affiliates or receives compensation in any form from any
organization, trust, family holding company, etc. (other than
affiliates of WPSSL), or maintains any office space outside of the
office of W.P. Stewart without prior written approval from the
Compliance Officer.
In addition to the above, it is the responsibility of W.P. Stewart to ensure
that an adequate independent investigation has been made into the background of
an applicant for registration. A Firm Principal is required to contact all of
the applicants' employers during at least the previous three years. It is a
Supervisory Principal's responsibility to ensure that registration forms for
7
<PAGE>
Registered Representatives are completed accurately and forwarded to the
appropriate persons and regulatory agencies as required.
8
<PAGE>
VI. NEW ACCOUNT PROCEDURES
The rules of the SEC and the various stock exchanges require that the Firm and
the Registered Representative responsible for each account know the customer.
This means that the Registered Representative must learn the essential facts
relative to each customer prior to opening the account and maintain current
information about the account. The essential facts include ascertaining who the
actual owner of the account is, investment objectives, financial resources and
all other information requested on the new account form.
The Firm will not enter an initial trade for a new account until instructed to
do so by the Compliance Officer, following his or her approval of the new
account. Before approving the account, the Compliance Officer is responsible for
determining that all material information deemed necessary has been obtained and
recorded on the new account forms, and that all legal documents are in place.
The Registered Representative or his or her assistant must update the client
files with any changes in the customer's situation and notify the New Accounts
Department at Neuberger Berman LLC ("Neuberger Berman") of any changes.
For all accounts, the Registered Representative shall make reasonable efforts to
obtain and verify the following information:
1. the customer's age, occupation, employer name and
address
2. the customer's financial status
3. the customer's tax status
4. the customer's investment objectives
5. other information used or considered to be reasonable
and necessary by the Designated Principal
No account can be opened for a minor, as defined by state law, or for an
incompetent. If you have any question about the age or competency of a potential
new account holder, contact your Designated Principal.
Discretion, short sales and margin transactions are generally not authorized for
the following types of accounts: pension or profit sharing plans, trusts,
guardian, custodian, estates and any other instances where any person acts as a
fiduciary. Exceptions to this rule can only be made if the instrument which
creates the entity explicitly authorizes discretion, short sales or margin
trades. The designated compliance Principal, after reviewing the documentation,
shall determine whether an exception can be made.
Rules 2310 and 3110 of the NASD Rules of Fair Practice require members to
make reasonable efforts to obtain additional information pertaining to customer
accounts. In addition, Rule 3050 of the NASD's Rules of Fair Practice requires
an Associated Person to notify an executing member firm of his employment
relationship in writing prior to opening an account or placing an initial order.
9
<PAGE>
The procedure for new accounts under the Firm's supervisory system requires that
the Designated Principal confirms that the Registered Representative obtains all
relevant information from a potential client and completes all new account
forms, and, upon completion of all required documentation, the Compliance
Officer approves the new account and instructs the Registered Representative
that they may proceed with an initial order (see Section IX following on
supervision of orders).
Following these steps, the originals of all new account documents are filed in
the appropriate client files.
For each account, the Registered Representative shall obtain and the Firm shall
maintain the following:
1. customer's name;
2. customer's residence;
3. date of birth (to ensure customer is of legal age);
4. signature of Registered Representative introducing the
account;
5. signature of principal who approves the account; and
6. for legal entities (corporations, partnerships, etc.),
the name of the person authorized to transact business
on behalf of the entity.
For each non-institutional account, the Firm shall obtain and maintain:
1. customer's Social Security or tax identification
number;
2. customer's occupation;
3. name and address of customer's employer; and
4. whether customer is associated person of another
broker-dealer.
It is the Registered Representative's responsibility to obtain and verify the
basic information required to complete the appropriate new account form. The
completed new account form must be sent to the New Accounts Department at
Neuberger Berman when the account is opened. The New Accounts Department is
responsible for processing the account form and assigning the account number.
All new accounts must be approved by the appropriate Designated Principal of
W.P. Stewart. When the initial order in a new account is a sale, the securities
are to be received by Neuberger Berman before the order is entered, unless the
Registered Representative demonstrates to the satisfaction of the Designated
Principal that the client has the necessary securities in deliverable form and
will make delivery by settlement date.
A. Telemarketing
The policy of W.P. Stewart is that solicitations or "cold calls" are prohibited.
If for any reason a Registered Representative or any Employee is instructed to
---
engage in telemarketing or "cold calling," that Employee is to immediately and
directly contact the Compliance Officer to obtain engages in cold calling, and
that any activities undertaken by any Employee which involve telephone calls to
---
any person or entity not presently a client of the Firm shall comply fully with
NASD Rule 2211, whose provisions include (among others) restrictions on the
time, content, and
10
<PAGE>
nature of such calls, and requirements as to the originator of any such call,
identification of the caller and the organization represented, and other
important information.
Any customer or other person who indicates at any time their preference not to
receive telephone solicitations shall be placed promptly on a "Do Not Call" list
for W. P. Stewart, which list shall include who received the information, when
and how, and when the name was added to the list. Any person making or
authorizing any telephone calls on behalf of W.P. Stewart shall check the "Do
Not Call" list against those who are to be called, and delete from the list of
calls to be made any name appearing on the "Do Not Call" list.
In the event that the Firm's policy should be amended to permit telemarketing
calls, compliance and supervisory procedures consistent with NASD Rule 2210
shall be drafted, adopted and implemented.
B. SIPC Protection
WPSSL is a Member of the Securities Investors Protection Corporation
("SIPC")which affords certain protections to the customers of WPSSL. The firm
will advise its customers that it is a member of SIPC through inclusion of the
SIPC symbol (or the official SIPC advertising statement or explanatory
statement) in appropriate places, including any advertising, and place a
notification of that Membership on prominent public display in the offices of
WPSSL. Any display or mention of the SIPC name, initials, or logo must clearly
indicate that WPSSL is the entity which is the member of SIPC. Any questions
from customers as to what protections are afforded by SIPC shall be referred to
the Compliance Officer.
11
<PAGE>
VII. ORDER PROCEDURES.
In addition to the obligation to know your client, the Firm is required to make
a reasonable judgment concerning the ability to fulfill each order, including
whether securities can be freely purchased or sold and whether the client or
custodian will be able to pay or make good delivery of the security. In
addition, Registered Representatives should bring to the attention of the
Designated Principal any suspicious financial activity, excessive secrecy or
urgency of clients to transfer, deposit or convert cash or liquid assets, or
lack of investment strategy.
A. Unacceptable Checks and Cash
----------------------------
1. The Firm will not accept a check to be credited to the account of
an individual if that check is drawn against funds of a
corporation of which he or she is an officer or against funds
which he or she draws as a director, agent, attorney, executor,
administrator, guardian or fiduciary.
2. The Firm will not accept third party checks into an account.
3. Any exception to this policy can only be made by a Designated
Principal.
4. No currency may be accepted at any time for any account
transaction or deposit without expressed authorization by a
Designated Principal. No Employee may assist or counsel clients
in the exchange of cash for money orders or other instruments to
circumvent this policy.
B. Securities from Other Than Registered Owner
-------------------------------------------
Only certificates registered in the client's name (or street name if coming from
another broker or bank) should be accepted from the client for deposit into his
account.
C. Discretionary Accounts and Power of Attorney
--------------------------------------------
Discretionary authority may not be exercised in a client's account without first
obtaining the written authorization of the client. Written authorization is also
needed for a Firm director or Employee to place discretionary orders for his
spouse or close relative. This authorization is embodied in the advisory
agreements of WPS, W.P. Stewart & Co., Inc. or W.P. Stewart Asset Management
Ltd. or their affiliates.
No instructions should be accepted from a third person unless the Firm has an
effective power of attorney on file. This applies even if the third person is
the spouse or a close relative of the client. A power of attorney terminates
immediately upon the death of the client, and may also terminate if a client
becomes incompetent. If a Registered Representative has reason to believe that a
power of attorney being used is no longer valid, this should immediately be
brought to the attention of the Designated Principal.
D. Purchase of Stocks Selling for Less Than $5.00
----------------------------------------------
The Firm does not allow the purchase of any stock selling for less than $5.00
per share for the account of any client without prior approval from a Designated
Principal.
12
<PAGE>
VIII. SUPERVISION OF DISCRETIONARY ACCOUNTS
With respect to discretionary accounts of WPSSL, it is not necessary for
supervising Principals to check individual trades against written authorizations
from clients. However, all Principals should note the following:
o No discretion may be exercised in a client account without a
signed Account Agreement in place which gives designated
individuals the authority to trade the account with discretion;
o Any oral or written statement from a client regarding the
cessation of WPSSL's discretion to trade an account is to be
immediately communicated to the Compliance Officer; such
instruction must be promptly put in writing by the client;
o No discretion may be exercised for any client's account to direct
transactions for purchase or sale which are excessive in size or
frequency in view of the financial resources, character and
objectives of such account;
o All discretionary accounts shall be reviewed at least quarterly
by the appropriate Principal in order to detect and prevent
transactions which are excessive in size or frequency in view of
the financial resources and character of the account.
In addition to the above, the Compliance Officer will periodically review a
sample of discretionary accounts as part of WPSSL's required internal inspection
effort.
13
<PAGE>
IX. SUPERVISION OF ORDERS
A. It is the responsibility of a Principal to see that order tickets are
properly completed and that:
o The initial order for a new account is so marked;
o Orders from a third party for the account of a customer should
not be accepted by a Registered Representative unless WPSSL has
received written trading authorization for such third party to
act on behalf of the customer;
o No order is entered unless it bears the account name and that the
trade is not booked to another customer after execution, without
the approval of a Principal;
o Employee or Employee-related orders are so designated on the
order ticket and do not receive priority;
o Discretionary account orders are marked to indicate whether
discretion was used, and if not, whether the order was solicited
or unsolicited and approved by a Designated Principal on the day
of the trade;
o Discretionary and "insider" orders to buy or sell against W.P.
Stewart's pattern of discretionary trades in the same security on
the same day must be promptly documented as to the reason for the
order by the Registered Representative involved and attached to
the order ticket;
o In accordance with NASD Rule 2320, in any transaction for a
customer, reasonable diligence shall be used to ascertain the
best inter-dealer market for the subject security and execute the
transaction in such a market so that the resultant price to the
customer is as favorable as possible under prevailing market
conditions. This obligation does not relate to the reasonableness
of commission rates, markups or markdowns.
o Immediately upon the discovery of any error in an executed order,
action is to be taken immediately and the error corrected as soon
as practicable. The Compliance Officer is to be notified promptly
of both the error and the action taken to correct the error. In
the absence of the Compliance Officer, another Principal must be
promptly notified. All errors must be documented by the
representative whose account is involved, stating the
circumstances and resolution, and the documentation must be
approved by the Compliance Officer. A copy of such documentation
shall be provided to and maintained by the Compliance Officer. No
adjustment in the price of a transaction may be made without the
approval of the aforementioned Principals.
B. Short Sales
-----------
WPSSL may not effect a short sale for itself or a customer in a Nasdaq National
Market security at or below the current best (inside) bid if that bid is below
the preceding best (inside) bid. Such restriction, however, does not apply to
bona fide market making activity, odd lots, certain special
14
<PAGE>
arbitrage accounts, and long sales, among other things. WPSSL may not utilize,
directly or indirectly, the offices of a third party to avoid application of
this requirement, or, by itself or in concert with another person manipulate the
best bids in the market to create an "up bid" and thereby avoid the application
of this requirement.
The Compliance Officer will no less than semi-annually sample short sales and
compare them to available market data to determine if any short sale violations
occurred.
C. Affirmative Determinations of Securities Being Bought/Sold
----------------------------------------------------------
Purchases. Pursuant to NASD Rule 3370 ("Prompt Receipt and Delivery of
- ---------
Securities"), no Registered Representative may accept a customer's purchase
order for any security unless he has first ascertained that the customer placing
the order or its agent agrees to receive securities against payment in an amount
equal to any execution, even though such an execution may represent the purchase
of only a part of a larger order.
Long Sales. Also pursuant to Rule 3370, when a WPSSL Registered Representative
- ----------
receives a customer's order to sell a security, the Registered Representative
must first ascertain that the security is indeed available to complete the
settlement of the trade within three business days. If the customer is entering
an order to sell "long," the Registered Representative must verify availability
of the security in one of the following ways:
1. W.P. Stewart has possession of the security;
2. the customer is long in his account;
3. the Registered Representative makes an "affirmative
determination" that the customer owns the security and will
deliver it in good deliverable form within three business
days of the execution of the order; or
4. the security is on deposit in good deliverable form with a
registered broker/dealer or any organization subject to
state or federal banking regulations, and that instructions
have been forwarded to that depository to deliver the
securities against payment.
To make such an affirmative determination for long sales, the Registered
Representative must make a notation on the order ticket at the time the order
is taken which reflects the conversation with the customer as to the present
location of the securities in question, whether they are in good deliverable
form and the customer's ability to deliver them to W.P. Stewart within three
business days.
In the case of a public offering of securities, these requirements shall not
apply during the period from the commencement of the public offering until
seven (7) business days following the date of settlement between the
underwriter and issuer of the securities; provided, however, that the
Registered Representative believes in good faith that the customer has
purchased the securities.
Short Sales. No Registered Representative shall accept a short sale order for
-----------
any customer in any security unless he makes an affirmative determination that
WPSSL can borrow the security on behalf of the customer for delivery by
settlement date or that WPSSL will receive delivery of
15
<PAGE>
the security from the customer. This requirement shall not apply, however, to
transactions in corporate debt securities.
To make such an affirmative determination for customer short sales, the
Registered Representative must keep a written record which includes the
following:
1. if the Registered Representative locates the stock, the
identity of the individual and firm contacted who offered
assurance that the shares would be delivered or that were
available for borrowing by settlement date and the number of
shares needed to cover the short sale; or,
2. if a customer assures delivery (e.g., to a broker-dealer or
an institution), the present location of the securities in
question, whether they are in good deliverable form and the
customer's ability to deliver them to WPSSL within three
business days.
W.P. Stewart and Registered Representatives may rely on "blanket" or standing
assurances that securities will be available for borrowing on settlement date to
satisfy the affirmative determination requirements under Rule 3370, provided:
(i) the information used to generate the "blanket" or standing assurance is less
than 24-hours old; and (ii) W.P. Stewart actually delivers the security on
settlement date. Should W.P. Stewart rely on a blanket or standing assurance
but then fail to deliver the security on settlement date, the NASD may deem such
conduct inconsistent with the terms of Rule 3370 unless there are mitigating
circumstances that are adequately documented by W.P. Stewart.
The Compliance Officer will sample customer purchases and sales on a monthly
basis to determine compliance with these requirements, including a review of
order tickets and any other logs or records created and maintained for these
purposes. A record will be kept of such review, including who conducted the
review, when, what documents, by what sample, and what the results of the review
were.
D. Transaction Reporting Procedures -- ACT
---------------------------------------
Requirements:
- ------------
All trades executed on the Nasdaq National Market, SmallCap Market, OTC
Bulletin Board or any other market regulated by NASD Regulation, Inc. must be
reported pursuant to NASD rules. Generally, any trades compared and cleared via
the Automated Confirmation Transaction Service ("ACT") must be reported within
90 seconds of execution. This includes trades executed via Instinet (as
discussed below), as Instinet does not report such trades to ACT. Any trades not
reported within 90 seconds must be reported with the appropriate identifier to
indicate that the report is a late report. (Note, however, that a series of late
trade reports, whether identified as "late" or not, may be viewed by NASD
Regulation Inc. ("NASDR") as a "pattern" of late trade reporting in
contravention of NASD rules; therefore, all market makers and traders must make
every attempt to timely report trades to ACT.) Any bunched trades must also be
identified as such, including when they are reported late.
WPSSL as market maker: In general, WPSSL does not engage in market making.
- ---------------------
However, in the event that the Firm acts as a market maker in a security it
shall so register and be classified as
16
<PAGE>
a "registered reporting market maker" ("RRMM") in that security under NASD
rules and will be required to report transactions to ACT. In that event,
appropriate procedures will be added to the Compliance System.
Reporting Correct Number of Trades
- ----------------------------------
Generally, each transaction by WPSSL (whether agent or principal, as whether as
market maker or not) is to be reported individually to ACT with prices that do
not include mark-ups, mark-downs or service charges. However, for dual agency
trades (i.e., where WPSSL "crosses" two customer buy and sell orders at one
price), only one trade shall be reported to ACT.
Riskless Principal: A similar exception applies to a "riskless principal"
transaction. A riskless principal transaction is one in which WPSSL, when not
registered or acting as a market maker in the security, receives from a customer
an order to buy (sell), and then purchases (sells) the security as principal to
resell to the customer and satisfy the customer's order. Such occurrences shall
be reported as one transaction in the same manner as a dual agency transaction.
In the event that WPSSL engages or plans to engage in Riskless Principal
transactions or as a Prime Broker in Prime Brokerage transactions, the Firm
shall implement such procedures as are necessary to ensure compliance with
applicable laws and rules.
C. Publication of Quotes in Non-Nasdaq Securities
----------------------------------------------
SEC Rule 15c2-11 governs the submission and publication of quotations by brokers
and dealers for certain non-Nasdaq over-the-counter equity securities.
Specifically, the rule applies to WPSSL's initiation or resumption of quotations
for such securities in any inter-dealer quotation medium, including the NASD's
OTC Bulletin Board and National Quotation Bureau, Inc.'s "Pink Sheets" ("pink
sheets"). Pursuant to the rule, WPSSL traders are required to review and
maintain specified information about the issuer of the security before
publishing a quotation for that security. Compliance and Supervisory procedures
will be established in the event that the Firm engages in activities which come
under these requirements.
Unless an exception to Rule 15c2-11 is available, the rule can be satisfied in
one of only five ways:
(1) WPSSL must have in its possession a prospectus specified by Section
1O(a) of the Securities Act of 1933 (Securities Act) that has been
filed with the Commission and which has been in effect less than 90
calendar days, or
(2) WPSSL must have a copy of the offering circular provided for under
Regulation A of the Securities Act and the effective date must be
within the preceding 40 days; or
(3) the issuer must be current in its filings with the Commission and
WPSSL must have in its possession the issuer's latest Form 10-K and
all subsequent Form 10-Qs and Form 8-Ks; or
(4) the issuer must be exempt from Section 12(g)of the Securities Exchange
17
<PAGE>
Act of 1934 (Exchange Act) pursuant to Rule 12g3-2(b) and
WPSSL must have in its possession all the information
furnished to the Commission during the issuer's last fiscal
year; or
(5) WPSSL must have in its possession 16 items of information
about the issuer, including financial information which
shall be reasonably current in relation to the day the
quotation is submitted.
Paragraph (g)(1) of Rule 15c2-11 provides that the required financial
information with respect to the issuer will be presumed to be reasonably
current, unless WPSSL has information to the contrary, if the balance sheet is
as of a date less than 16 months before the submission or publication of the
quotation; the statements of profit and loss and retained earnings are for the
12 months preceding the date of such balance sheet; and, if such balance sheet
is not as of a date less than six months before the submission or publication of
the quotation. It shall be accompanied by additional statements of profit and
loss and retained earnings for the period from the date of such balance sheet to
a date less than six months before the submission or publication of the
quotation.
Information that does not satisfy the time frame of paragraph (g)(l) of Rule
15c2-11, is presumptively not reasonably current. If WPSSL seeks to rely on
information outside of the time frame, it must affirmatively establish that the
financial information is reasonably current.
Documentation compiled by WPSSL pursuant to Rule 15c2-11 must be reviewed and
approved by the Compliance Officer, and then filed with the NASD pursuant to
NASD Rule 6740 together with a completed Form 211 at least three business days
prior to entering a quotation in a quotation medium. Upon receipt, the NASD
conducts a substantive review of the material and within three business days,
notifies WPSSL whether the application has cleared such that quotation activity
may begin or, alternately identifies deficiencies in the submission which must
be resolved prior to WPSSL being permitted to enter a quotation in a quotation
medium.
D. Confirmations
-------------
Among other rules, WPSSL must comply with SEC Rule l0b-10 regarding
confirmations. Rule l0b-10 requires WPSSL to report on its confirmations to
customers various information regarding every transaction WPSSL enters into on
behalf of the customer, including but not limited to the date and time of the
transaction and the security, shares and price involved; whether WPSSL acted as
principal or agent; what commission or other remuneration WPSSL received; and
whether WPSSL received payment-for-order-flow. The Compliance Officer shall no
less than annually review a sample of confirmations to ensure that such
information is correctly reflected on confirmations, and create and maintain a
record of such review.
E. Payment for Order Flow
-----------------------
If WPSSL receives payment-for-order-flow it must comply with SEC Rules l0b-10
and 11Acl-3. Rule l0b-10(d)(9) defines payment-for-order-flow as "any monetary
payment, service, property, or other benefit that results in remuneration,
compensation, or consideration to a broker or dealer from any broker or dealer,
national securities exchange, registered securities association, or exchange
member in return for the routing of customer orders" to such entity, and
provides further examples of remuneration or compensation that is considered
payment-for-
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order-flow.
SEC Rule 11Ac1-3 requires WPSSL to inform customers in writing when a new
account is opened about the Firm's policies on the receipt of
payment-for-order-flow, including whether it is received and a detailed
description of the nature of compensation received. WPSSL must also disclose
information on order-routing decisions, including whether market orders are
subject to price improvement opportunities. Rule 11Ac1-3 also requires the
dissemination of an annual update of this information to all customers.
SEC Rule l0b-10 requires WPSSL to indicate on all confirmations whether it
receives payment-for-order-flow and the availability of further information, on
request.
The Compliance Officer will review no less than annually WPSSL's confirmations,
new account forms and annual mailings for compliance with these requirements, as
well as all agreements WPSSL may have regarding payment-for-order-flow.
F. Required Order Ticket Information
---------------------------------
SEC and NASD rules require that each order ticket contain the following
information:
1. Name of security
2. Amount of shares
3. Buy or sell (indicate buy or sell by use of appropriate order
ticket)
4. If a sale is long or short
5. Short sales (including "short sales against the box") - indicate
whether and from where the custodian is able to borrow the
security (which must be ascertained before the order is entered)
6. Account name or number
7. Price or instructions with regard to price
8. Whether account is a discretionary account
9. When a client places the order in a discretionary account, the
order ticket must be marked "client directed"/"unsolicited"
10. Whether the transaction is for an insider account
11. Account's Registered Representative
12. No change in account name or number shall be made unless the
change has been authorized by a Supervisory Principal; prior to
giving his approval of such change, the Principal shall be
personally informed of the essential facts relative thereto, and
shall indicate his approval of such change by initialing the
order ticket
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Where appropriate, the following information will also be set forth in addition
to any other information required by the NASD or SEC:
1. Comparative trade information: i.e., when selling vs. purchase
date and purchase price
2. When on regional exchange, name of exchange and broker on other
side
3. Discount, when applicable
4. Trade to be made "when issued"
5. Trade to be made "when distributed"
6. Cash trade
7. Next day settlement
8. Short exempt
9. Substitution
E. Checking Order Tickets
----------------------
Before any Employee sends an order to Neuberger Berman or WPSSL, if the Firm
solicits other brokers, the trader shall check that:
1. No order from an account is crossed with or filled from any other
account without the consent of the client. When such a cross
takes place, it shall be noted on the order ticket and shall be
noted on the client's confirmation.
2. No short sales are effected for Employee accounts in securities
held by our clients and, generally, no trades are made for
Employee accounts before or while completing client transactions
in the same security.
3. In general, the order submitted should not conflict with W.P.
Stewart's fiduciary obligations between discretionary and
non-discretionary accounts.
In the event there is any question concerning the propriety of the trade, the
trader taking the order shall refer the order to the Supervisory Principal for
review.
F. Order Audit Trail System ("OATS") and Time Stamping
---------------------------------------------------
OATS is an integrated audit trail system that enables NASDR to perform
surveillance for a number of NASD rules and policies regarding trading by NASD
members in the Nasdaq market. NASD Rules 6950 through 6957 (the "OATS
Rules") require firms to 1) synchronize all clocks used in time stamping orders,
and 2) submit details of "events" that occur in the life span of a customer or
proprietary order. OATS reporting requirements apply to NASD transactions in
NASDAQ National Market, NASDAQ Small Cap Market, and convertible bonds. OATS
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reporting requirements do not apply to transactions in OTC Bulletin Board, OTC
Pink Sheets, mutual funds and listed securities.
All computer system clocks and mechanical clocks used by the Firm to record the
date and time of any order "Event" (defined as order entry, modification,
cancellation or execution, or order routing to another NASD member firm or to
another department) must be synchronized to within three seconds of the National
Institute of Standards and Technology atomic clock by July 1, 1999. The
three-second tolerance is designed to account for the following: difference
between atomic clock and WPSSL's clock; transmission delay from atomic clock to
WPSSL's clock; and "drift" in WPSSL's clock. By July 31, 2000 (or whenever
WPSSL begins reporting to OATS, whichever is earlier), the time stamps marked by
such clocks must include seconds, and must be calibrated to Eastern Time.
The Events must be reported to OATS by no later than 4:00:00 a.m. on trade
date plus one (referred to as "T+l"). The designated Employees shall serve as
the following:
1. Administrator - Edward Butler - the primary contact at WPSSL for
OATS. He will manage user IDs and passwords; update WPSSL data on
OATS; and regularly disseminate OATS information to WPSSL
personnel.
2. Technical Support Contact - Edward Butler - assists NASD in
resolving OATS-related technical difficulties.
3. Compliance Contact -Stewart Bent -assists in resolving
OATS-related compliance issues.
The Compliance Officer is responsible for supervising the OATS activities of the
aforementioned OATS personnel.
The OATS Administrator, or a designee, shall make sure that any clock used to
record Events is synchronized at least once a day before the market opening, and
shall check such clocks again at pre-determined times later in each trading day
and as circumstances dictate (e.g., evidence of faulty clocks). The Firm shall
maintain (and the OATS Administrator shall confirm the keeping of) a
synchronization log ("Log") to insure that this procedure is followed. The Log
will record the following synchronization information for each clock used to
record events, whether or not the clock is to be used on that day:
o Identity of the clock;
o Person performing the synchronization check (if applicable);
o Atomic clock time (including seconds);
o Simultaneous system or mechanical clock time (including seconds);
o Any difference between the Firm's clock and the simultaneous
reading on the Atomic clock;
o The cause, if known, of the discrepancy; and
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o Any steps taken and plans to report and correct discrepancies.
To the extent WPSSL relies on automated synchronizations, a random manual test
of such synchronizations of all clocks shall be conducted weekly by the OATS
Administrator (or designee), and a record shall be kept detailing all test
methods and results. If said manual tests reveal no faulty automated
synchronizations after three months, such tests shall be conducted monthly.
The OATS Administrator and the MIS/Systems Department must be immediately
advised of any discrepancies of more than three seconds in any clock recording
Events, and must immediately correct same. An analysis of the discrepancy and a
plan to resolve any ongoing discrepancies must be submitted timely to the
Compliance Director, and the execution of the resolution plan will be regularly
supervised by the Compliance Officer until the discrepancy is resolved.
The Firm intends to submit OATS records through Neuberger Berman via NASD
private network, or by any one of the other means of reporting approved by the
OATS Rules. Because WPSSL handles all orders in Nasdaq securities manually, the
date when the Firm must begin reporting Events to OATS is July 31, 2000, unless
a different reporting date is assigned or determined. In any event, a record of
OATS Events will be maintained beginning no later than July 31, 2000. The OATS
Administrator must be prepared to begin reporting Events by that date, and the
Compliance Officer must review the procedures for this reporting to insure that
reporting can begin by the required date.
Order information to be included in OATS reports shall include: order identifier
(eight-character Firm-generated identification unique to each order), MPID (the
four-digit NASD identifier for the Firm), Event type, date and time in seconds,
number of shares, type of order (buy or sell, market, limit, stop, etc.), limit
or stop price, date and time of order entry, account type code.
OATS reports must be tested for accuracy and compliance when the system is
implemented and periodically thereafter. The Compliance Officer shall see that
these tests are satisfactorily completed.
NASD Rule 3110 and SEC Rule 17a-4(b) apply to OATS records pursuant to NASD Rule
6954, meaning that OATS records must be preserved at least three years, the
first two years in a readily accessible place.
OATS records need not be maintained in the electronic format in which they were
submitted to OATS. They may be retained in paper or microfiche formats. Where
there are multiple executions on one order, each Event will be individually
clocked at the time of each execution. At the end of the day, a Supervisory
Principal shall review all orders placed. The Designated Principal must indicate
his review by entering his or her initials.
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<PAGE>
X. SUPERVISION OF GOVERNMENT SECURITIES TRANSACTIONS
WPSSL may, consistent with its registration, engage in transactions involving
Government Securities, as that term is defined in Section 3, Paragraph 42 of the
Securities Exchange Act of 1934. Government Securities transactions shall be
executed in the same manner and following the same procedures as set forth for
other securities herein, as appropriate. W.P. Stewart personnel are required to
review and must be aware of NASD Notice to Members 96-66 entitled "SEC Expands
Scope of Conduct Rules and Other NASD Rules to Government Securities; Approves
New Suitability Interpretation."
In transactions involving Government Securities, WPSSL Representatives and
Supervisors are governed by, and shall comply with, the applicable provisions of
the Securities Exchange Act of 1934, and the Rules, Regulations, and Statements
of Policy promulgated thereunder, and the applicable Rules of the Treasury
Department and the NASD. A Supervisor shall be designated to carry out the
supervisory procedures, and a copy of these procedures shall be kept in each
office of the Firm. That Supervisor shall be Stewart Bent or his designated
successor (the "Designated Supervisor").
The Designated Supervisor shall:
1. Monitor all transactions involving Government Securities as
they take place;
2. Annually inspect all completed transactions for compliance
with applicable regulations; and
3. Annually review and update policies and procedures
pertaining to Government Securities transactions.
No WPSSL Representative shall engage in any transaction involving Government
Securities without approval of the designated Supervisor prior to engaging in
such transaction, and without first satisfying the designated Supervisor that
the Representative is duly registered pursuant to Section 15 and Section 15C of
the Securities Exchange Act of 1934, and any WPSSL Representative engaging in
such transaction shall obtain such information and make and keep such records as
are required by those provisions. The Designated Supervisor, and any other
Supervisor engaged in Government Securities transactions, shall be duly
registered pursuant to Section 15 and Section 15C of the Securities Exchange Act
of 1934, and shall comply with all requirements thereof.
WPSSL shall not advertise in any way the offer, purchase or sale of Government
Securities.
23
<PAGE>
XI. EXCESSIVE MARK UPS
W.P. Stewart's policy and procedures regarding mark-up and mark-downs relate to
practically all transactions involving customers, excluding public
underwritings. Such transactions include, but are not limited to the following:
o riskless principal transactions (e.g., where WPSSL buys a
security to fill a customer's order and charges the customer
a higher price than it paid);
o selling to a customer from inventory (i.e., charging a
mark-up from the current representative market) (NOTE: in
this instance, the price WPSSL paid to acquire the security
should not be a factor in the price charged the customer);
o purchasing a security from a customer (i.e., charging a
mark-down from the current representative market);
o buying or selling on behalf of a customer (i.e., the
commission on an agency trade); and
o buying and selling different securities from a customer
contemporaneously (i. e., where a customer's sale finances
his purchase, in which case the WPSSL shall only charge a
single mark-up, not two, from the respective current
representative markets for the securities).
The SEC states that the anti-fraud provisions of the federal securities laws
proscribe charging excessive mark-ups to retail customers without proper
disclosure to the customers. NASD rules also proscribe excessive mark-ups on the
sale of securities in a principal transaction, regardless of whether or not the
mark-up is disclosed. The SEC further states that it has consistently held that
mark-ups in excess of five percent (5%) above the prevailing market price are
fraudulent in the sale of equity securities and that mark-ups in the sale of
debt securities generally are expected to be lower than those on equities.
The NASD has stated that the 5% measure is a guide, not a rule or a safe harbor.
A member may not justify mark-ups on the basis of expenses which are excessive.
The prevailing market price should be the base price used in calculating the 5%
mark-up in principal transactions with customers. In the absence of other bona
fide evidence of the prevailing market, a member's own contemporaneous cost is
the best indication of the prevailing market price of a security. A mark-up
pattern of 5% or even less may be considered unfair or unreasonable under the
"5% Policy." Determination of the fairness of mark-ups must be based on a
consideration of all the relevant factors, including, among other things, the
following:
o percentage of mark-up;
o cost of services and facilities provided customers (i.e.,
the higher the cost to WPSSL, the greater the mark-up
allowed);
o the type of security involved (e.g., a common stock
transaction customarily involves a higher percentage of
mark-up than a bond transaction of the same size);
o the availability of the security in the market (i.e., an
inactive security typically
24
<PAGE>
justifies a higher percentage of mark-up);
o the price of the security (i.e., the percentage of mark-up
or rate of commission generally increases as the price of
the security decreases);
o the amount of money involved in a transaction (i.e., the
smaller the amount of money, the higher the percentage of
mark-up, to cover the expenses of handling).
In sum, a mark-up should not approach 5% unless several of the above factors
justify it. In addition, all Registered Representatives should be consistent in
their mark-ups with both their own customers, and all other Registered
Representatives. The sales supervisor will routinely sample mark-ups, mark-downs
and commissions for compliance with these policies and procedures, and the
Compliance Officer will periodically review such samples.
For further information and detailed discussion of case law in the area of
mark-ups, background and application of the NASD's Mark-Up Policy, and MSRB
Rules G-17 and G-30 as they relate to mark-ups, see SEC Release No. 34-24368
(April 21, 1987) and NASD IM-2440 ("Mark-Up Policy").
25
<PAGE>
XII. MARKET MAKER RESTRICTIONS AND RULES
WPSSL does not presently act as a Market Maker. It is the policy of the Firm
that neither the Firm nor any Employee or Employees shall engage in activities
which are or may be construed as market making activities. At such time as W.P.
Stewart may choose to engage in market making activities, in addition to
necessary registration and amendments, the Firm will institute policies
concerning the activities contemplated.
A. Limit Order Handling and Two-Sided Quotation Rules
--------------------------------------------------
The SEC has determined that a broker-dealer who has a limit order has a
fiduciary duty to its client prior to trading for its own account. As stated
herein, it is the policy of W.P. Stewart that client orders are given priority
to any order for the Firm or for the Account of any Employee. SEC Rule 11Acl-4
imposes requirements on Market Makers to display orders which meet certain
criteria. As WPSSL does not make markets in securities, these rules only apply
to W.P. Stewart in its capacity as an agent for customer orders and Firm
orders. Designated Principals will carefully monitor the activities of
Registered Representatives and traders to be sure that the Firm does not engage
in activities which could be construed as Market Making. Further, the Principals
of W.P. Stewart will monitor the Firm's transactions to insure that Limit Order
Handling Rules, Two-Sided Quotation Rules and other rules applicable to Market
Makers are complied with by the Firm to the extent, if any, that they apply.
B. Order Display
-------------
The Compliance Officer is responsible to ensure that any obligations or
requirements to display or report quote details for transactions of the Firm
under Rule 11Acl-1 and/or any order display rules promulgated by the SEC or the
NASD are met.
For the impact of the Best Execution and "Trading Through" Rules on executions
involving limit orders, see the applicable sections of this Manual.
26
<PAGE>
XIII. BEST EXECUTION/TRADING THROUGH LIMIT ORDERS/THREE
QUOTE RULES
The following Best Execution procedures apply to executing brokers. In the event
that W.P. Stewart executes any transactions, these procedures shall apply.
Best Execution: In any transaction for or with a customer, a broker shall use
reasonable diligence to ascertain the best inter-dealer market for the security
and buy or sell in such market so that the resultant price to the customer is as
favorable as possible under prevailing market conditions. Best execution
requirements apply to an agent, as well as where retail transactions are
executed as principal and contemporaneously offset (i.e., riskless principal
transactions).
Trading Through Limit Orders: Generally, a representative or trader may not
"trade through" a customer's order (i.e., trade as principal when in possession
of a customer order executable at the same price on the same side of the
market) in National Market, SmallCap and exchange-listed securities. Such
activity is not expressly prohibited in OTC Bulletin Board stocks, but other
requirements (i.e., Best Execution and Three-Quote Rules) do apply to those
transactions.
Limit Order Protection Rule ("Manning Rule"): Pursuant to various NASD Rules
and interpretations (particularly IM-2110-2 and Rule 6440), where a Member firm
is a market maker in a stock (National Market, Nasdaq or exchange-listed) and
possesses a customer limit order in said stock that is priced better than the
firm's bid or offer, it must provide such better price to any equal or
lesser-sized customer market order entered on the other side of the market. In
other words, the market maker may not in such a circumstance execute the
market order at the market price, then trade with the limit order at the limit
price (and thereby profit from the difference). However, negotiated terms and
conditions are allowed where the order either is entered by an institutional
customer (as defined in NASD Rule 3110(c)(4)), or is 10,000 or greater shares
in size and $100,000 or more in value.
Three-Quote Rule: A broker executing transactions in non-Nasdaq securities
(especially, but not exclusively, OTC Bulletin Board securities) on behalf of
customers, it must contact a minimum of three dealers (or all dealers, if three
or less) and obtain quotations in determining the best inter-dealer market.
Under the best execution interpretation, any market maker, trader or Registered
Representative is generally required to use reasonable diligence to ascertain
the best inter-dealer market for a security, and to buy or sell in that market
so that the resultant price to the customer is as favorable as possible under
prevailing market conditions. Also, the market maker, trader or Registered
Representative must indicate on the order ticket for each such transaction
security the name of each dealer contacted and the quotation received to
determine the best inter-dealer market. Limited exceptions to these requirements
are potentially available from NASDR, especially as regards foreign listed
securities.
For each of the above-listed requirements, the Compliance Officer shall conduct
periodic samplings (no less than semi-annually) of order tickets, market data
(including quotes), internal order and trade reports and any other applicable
documents to review compliance, and shall create and maintain a memorandum
describing such reviews.
27
<PAGE>
XIV. REVIEW OF DAILY TRADES
The Compliance Officer will review (personally or via a designee) the daily
trade blotter on the day following trade date. Additionally, the Compliance
Officer must review all order tickets no later than the day following the trade
date. This review of order tickets is intended to complement the review of the
blotter since the blotter will not indicate whether all required information was
on the order ticket. Reviews of order tickets and the trade blotter must be
evidenced by the signature of the Compliance Officer, the date on which they
were reviewed, and any relevant comments. Any problems or issues which were
discussed with Registered Representatives as a result of these reviews should be
noted in memo form and submitted to the Compliance Officer.
In the review of trades, the Compliance Officer should consider whether any
transaction or series of transactions might involve the following:
o Churning of accounts;
o Unsuitable investment for an account;
o Sales of possible restricted stock or control stock that might
have been received in a new account;
o Any relationship between transactions for "insiders" and
transactions for customers;
o Any "insider" receiving a better price than any client for the
purchase or sale of the same security ("front running");
o Proper documentation of reason for discretionary or "insider"
orders against the pattern of discretionary trades;
o Unauthorized transactions;
o Switching of securities between client accounts;
o Purchase of securities not approved by W.P. Stewart.
In reviewing order tickets, the Compliance Officer should see that the
following information is provided:
o The client's name and account number;
o Adequate description of the security and amount to be purchased
and/or sold;
o Orders should be marked "market" or show a limit, and indicate
duration (open till, GTC, etc.);
o Sell orders should be marked "long" or "short", and indicate the
source of the securities to be delivered;
28
<PAGE>
o Orders where discretion was used should be so noted;
o Orders should be properly time-stamped for time of entry;
o Orders should be marked "insider," as applicable, and should be
approved by a designated principal prior to execution.
Any evidence of Employee misconduct regarding transactions must be immediately
brought to the attention of the Compliance Officer.
29
<PAGE>
XV. SUPERVISION OF SETTLEMENT TRANSACTIONS
As WPSSL's clearing agent, Neuberger Berman performs the actual settlement
function for client accounts and provides the appropriate supervision. However,
all Principals should note:
o no transfer of money or securities from one account to another
occurs unless specific written instructions allowing the same
have been obtained from the clients involved and a Principal has
approved the transaction;
o no payment request to a client may be ordered without the
approval of the appropriate supervising Principal (note that no
payment request to a client will be processed by Neuberger Berman
without the signature of a designated Principal at WPSSL); and no
check payment is to be given to a Registered Representative or
other Employee for delivery to a client without the approval of
the appropriate Principal;
o no corporate check will be accepted for credit to the account of
an individual without the approval of a Principal; and
o no Registered Representative's check will be accepted for credit
to a client's account.
Neuberger Berman publishes a compliance manual detailing their clearing and
supervision procedures; copies are available to W.P. Stewart's staff.
Reporting of Currency and Foreign Transactions (SEC Rule 17a-8) and Anti-money
Laundering
In connection with the daily review of customer account activity, Registered
Representatives should consider whether activity in a client's account is
"suspicious." There is no clear definition of what is "suspicious." However,
activity in an account should be considered suspicious if, for example, it
reflects money wired into and then out of an account from a foreign location, or
if an account is credited with regular deposits toward the purchase of U.S.
Treasury securities which are subsequently delivered out of the account to
another location. If anyone detects potential money laundering in an account, it
should be brought to the attention of the Compliance Officer, who will undertake
his or her own review of the facts and circumstances.
Among the factors which are to be considered in determining the appropriate
course of action are the dollar amount of the transactions in an account (in
relation to the overall value of the account), the frequency with which money is
wired into or out of the accounts, whether money is wired into or out of an
account from a foreign location, the type of account (individual or entity), and
the relationship between the customer and WPSSL.
As Neuberger Berman serves as clearing broker for in-house accounts, its
policies relating to anti-money laundering are an integral part of these
procedures. Current policy is that Neuberger Berman will not accept cash,
traveler's checks or third party checks into an account. Furthermore, requests
to wire out of an account funds of US$l,000,000 or more must be approved by
the Compliance Officer. Third party transfers of US$l,000 or more require the
written authorization of all owners or fiduciaries of an account; transfer
requests unaccompanied by such proper written instructions require the approval
of the Compliance Officer.
30
<PAGE>
XVI. FINANCIAL REPORTING
All Employees with access to information which is required to ensure that the
financial reporting of the Firm is accurate and complete are required to provide
such information to the Financial Operations Manager of the Firm in a manner and
time which would permit the timely and accurate reporting of such information.
The Firm has certain financial reporting responsibilities in addition to those
records described in section XIX herein. Please note, the reporting requirements
of the Firm may change depending upon the activity of the Firm and our
customers.
FOCUS Reports Parts I and II, or IIA, as appropriate, must be timely and
accurately filed electronically.
Transactions and other entries must be posted to books and records accurately
and on a timely basis.
Trial balances should be accurate and agree with corresponding balances in the
general ledger.
Subledger balances should agree with general ledger balances, and subledger
securities positions should agree with the Firm's position record.
Month-end trial balance proprietary positions should agree with the Firm's
position record.
Customer complaint records should be maintained and reported as required.
Currency and foreign transactions must be reported. Currency transactions are
not permitted under W.P. Stewart policies. In the event that an exception is
made or for any other reason a currency transaction takes place, currency
reporting requirements (including SEC Rule 17a-8) and IRS requirements must be
met.
Net capital must be computed and maintained in accordance with SEC Rule 15c3-1,
and notifications must be sent as required to the Firm's designated examining
authority, the NASD.
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<PAGE>
XVII. REVIEW AND APPROVAL OF CORRESPONDENCE
The following procedures and guidelines are designed to ensure compliance
with SEC and NASD rules and policies requiring W.P. Stewart to monitor all
incoming mail, regardless of whether addressed to a Registered Representative or
to the Firm itself. The procedures should also insure that all mail received is
processed, acted upon, filed, routed and addressed in an expeditious manner.
A. Incoming Mail Procedures
Registered Representatives and other Employees must arrange to have all
personal mail (i.e., non-business) addressed to somewhere other than their
respective offices. Only mail related to W.P. Stewart's business is to be
addressed to the W.P. Stewart's office location.
1. The Principal will designate a person or persons (with
appropriate alternates) to sort and disseminate all incoming
mail, except that marked "personal" or "Personal and
Confidential." The contents will be inspected and all
correspondence will be referred to the Principal. The Principal
is responsible for insuring that response is made to all
inquiries and that complaints are promptly handled. Copies of all
letters should be kept for a period of three years. Naturally,
money or other contents which require action or correction by a
principal must be turned over to that individual. Mail containing
routine matters, advertisements, bulk mail, Advisory Service
Reports, etc. will be distributed directly to the Registered
Representative.
2. Personnel involved in mail distribution must be instructed to
immediately deliver mail to a Principal for all Employees who
are absent for any reason. Under no circumstances is mail to be
left unattended on any Registered Representative's desk.
3. Special attention is to be paid to incoming checks and
securities. Principals will have these items referred at once to
the administrative office with appropriate notification to the
Registered Representative. The Firm will maintain a daily log of
incoming checks, listing the account to be credited, the amount
of the check and the name(s) of the sender/drawer. The Principal
shall see that this log is maintained.
4. All return mail envelopes will be opened, regardless of any
notations on the envelope. However, other mail marked "Personal,"
"Confidential," or "Personal and Confidential" will be given
directly to the Principal for opening in the Registered
Representative's presence.
The Designated Principal must review and initial (or cause to be reviewed
and initialed) prior to mailing a copy of all correspondence by Registered
Representatives (except that the correspondence of the senior Registered
Representatives may be reviewed and initialed promptly after mailing), whether
handwritten, typed, printed or in the form of electronic mail,
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<PAGE>
which is being sent to a client, or potential client or otherwise pertains to
W.P. Stewart's business. Regular correspondence, and in particular quarterly
performance summaries, sent by Portfolio Managers to clients, including W.P.
Stewart's Investment Advisory clients, must be approved and initialed by two
Portfolio Managers and a by representative designated by the General Counsel or
the Compliance Officer for that purpose before it is sent. This policy applies
to all but routine administrative correspondence.
The initialed copies of all correspondence must be kept in designated
correspondence files organized by each Registered Representative. The Designated
Principal shall regularly check that these correspondence files are maintained.
In reviewing correspondence, Designated Principals should be conscious of
prohibiting any which contains:
o Enclosures of internal materials not made available for distribution by
W.P. Stewart;
o Unreasonable claims, exaggerated language, or rumors;
o Predictions of earnings or price changes of securities;
o Tax advice;
All mail addressed to the business address of the Firm shall be deemed to
be business mail for the purpose of review, even if it is addressed to a
particular person and marked "Personal and Confidential."
The above outlined procedures do not apply to inter-office mail dealing
with internal Firm matters. Inter-office mail marked "Personal,"Confidential,"
or "Personal and Confidential" will continue to be delivered unopened to the
addressee.
B. Outgoing Mail Procedures
------------------------
The following procedures apply to all mailings by Registered
Representatives of written or electronic (i.e., e-mail or Internet)
correspondence pertaining to the solicitation or execution of securities
transactions:
1. All outgoing mail (written or electronic) except for routine
administrative correspondence (which must be reviewed in advance
and approved by the appropriate Designated Principal) shall be
approved in advance by 2 Portfolio Managers and a representative
designated for this purpose by the General Counsel or the
Compliance Officer. The approving Principals must note approval
of the following: (a) if outgoing written correspondence, by
written endorsement, signature or initial on an internal record;
or, (b) if outgoing electronic correspondence, by written
endorsement, signature or initial on a hard copy, or by
electronic notation on an electronic copy. Copies of the
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<PAGE>
correspondence shall be retained (if electronic
correspondence, it may be stored electronically).
2. Handwritten correspondence is prohibited unless approved in
advance by the Designated Principal and a copy of the
correspondence is retained in W.P. Stewart's files.
3. The Compliance Officer shall periodically sample
Employees'e-mail to ensure that no correspondence relating
to executions or solicitations of securities transactions
have been sent without prior approval.
4. It is the policy of W.P. Stewart that the letterhead of
W.P. Stewart may not be used for personal correspondence.
C. Internet/E-Mail
---------------
All communications including those disseminated through electronic media must
comply with the approval, record keeping and filing requirements of the NASD
rules. The immediacy of the use of E-mail and the Internet create special
concerns for the Firm in supervising the activities of its Employees. As in the
case of written correspondence, all E-mail and other electronically transmitted
communications must be approved by a Designated Principal of the Firm as
specified above. In the event that an Employee receives an E-mail and replies
thereto, the information should be immediately referred to and discussed with a
Designated Principal to ensure that the response is appropriate. Communications
received via E-mail should, whenever possible, be transferred to hard copy in
order for a written record to be created and maintained in the Firm's files. Ln
the event that E-mail is used to communicate with customers and investors as to
the merits of a particular security, each Registered Representative is
responsible to ensure that he or she has reasonable grounds for believing that
the recommendation is suitable for such customer on the basis of the facts
available, including the customers other security holdings, financial situation
and needs. Registered Representatives should not blindly trust information on
a recommended security received through the Internet, on-line communications or
other electronic media. The Firm's Designated Principals have the authority to
remove the privilege of any Registered Employee or any person associated with
the Firm from utilizing E-mail, Internet and other electronic media to
communicate with outside parties in any situation that indicates that the
information is being misused or has not been approved by a Designated Principal.
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XVIII. MAINTENANCE OF RECORDS
WPSSL clears through Neuberger Berman and carries no customer accounts. As a
result, certain record-keeping requirements related to customer accounts and
transactions are the responsibility of Neuberger Berman as clearing broker.
However, WPSSL is nonetheless subject to substantial record-keeping requirements
under NASD rules, as well as regulations contained in Rules 17a-3 and 17a-4 of
the Securities Exchange Act of 1934, and (as is all W.P. Stewart personnel)
Rules 204-2 and 206(4)-3 of the Investment Advisers Act of 1940. Additionally,
the ERISA regulations promulgated by the U.S. Department of Labor require the
retention of certain records by advisors to ERISA plans.
It is the Compliance Officer's responsibility to see that all such required
records are maintained and kept current in W.P. Stewart's files. SEC Rule 17a-3
describes what records must be maintained and kept current by a broker-dealer
relating to its business. All Principals should be familiar with each type of
required document produced by Registered Representatives for whom they are
responsible, and assist the Compliance Officer in ensuring the maintenance of
all required files.
In general, required records are of the following types:
1. Insider accounts and transactions;
2. Customer account documents such as new account forms,
powers-of-attorney and disclosure letters;
3. Customer transaction records such as confirmations and
statements;
4. Trading records such as order tickets, blotters and error
reports;
5. Firm financial records and regulatory filings such as the general
ledger, FOCUS reports and 13-F filings;
6. Correspondence files (to and from clients and potential clients);
7. Advertising files;
8. Complaint file;
9. ERISA documents such as brokerage-direction letters and proxy
voting records;
10. Supervisory reports:
11. Personnel files for Registered Employees including investigatory
findings.
All Principals should be familiar with each type of required document produced
by Registered Representatives for whom they are responsible, and assist the
Compliance Officer in ensuring the maintenance of all required files.
35
<PAGE>
Below is a listing of all required records and their duration of retention by
the Firm.
<TABLE>
<CAPTION>
SEC Rule 17a-3 SEC Rule 17a-4 SEC Rule 17a-4
Records that must be Time period the records Time period the records
maintained and kept must be preserved must be kept in a
current by broker-dealers readily accessible place
- --------------------------------------------------------------------------------
<S> <C> <C>
Blotters (records of 6 years First 2 years
original entry)
General ledger 6 years First 2 years
Subsidiary records 3 years First 2 years
Security position records 6 years First 2 years
(Record of each long and '
short position)
Client accounts 6 years First 2 years
Trial balance 3 years First 2 years
- --------------------------------------------------------------------------------
Employment applications Until 3 years after Until 3 years after
for each associated person person has terminated person has terminated
employment with employment with
broker-dealer
Order tickets 3 years First 2 years
Directors' minutes Life of enterprise First 2 years
Stock certificate books Life of enterprise First 2 years
Checkbooks, bank 3 years First 2 years
statements
Partnership articles of Life of enterprise First 2 years
incorporation
</TABLE>
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<PAGE>
XIX. SUPERVISION OF COMPLAINT FILE AND PROCEDURES
The Compliance Officer is responsible for supervising W.P. Stewart's complaint
file and W.P. Stewart's procedures for handling complaints from customers. Rule
3110 of the NASD rules, among other rules, requires that a separate file of all
written complaints from customers and the disposition of these complaints be
kept and preserved by account name.
A complaint is considered to be any written or statement by a customer or by any
person acting on his behalf referring to a grievance involving the activities of
those persons under the control of W.P. Stewart in connection with the
solicitation or execution of any transaction or the disposition of securities or
funds of that customer. A memorandum of oral complaints is not required but
should be prepared wherever the complaint is of a serious nature.
Registered Representatives receiving a complaint should immediately notify their
supervisor and proceed under his direction.
All complaints should also be brought promptly to the attention of the
Compliance Officer.
Any adjustments to an account as a result of a complaint must be approved in
advance by the Compliance Officer.
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<PAGE>
XX. INSIDER TRADING, EMPLOYEE SECURITIES TRANSACTIONS AND FRONT-RUNNING
Federal and state securities laws prohibit any purchase or sale of securities by
a person having material non-public information. In addition, "tipping" of
others about such information is prohibited. Rule l0b-5 under the Securities
Exchange Act of 1934 makes it unlawful for any person to use, either directly or
indirectly, material inside information that has not been publicly disseminated.
This area of the law is ever-expanding to include almost all activity by anyone
who acts upon information, no matter how innocently obtained, which is not
generally available to the public. The persons covered by these restrictions are
not only "insiders" of publicly traded companies, but also any other person who,
under certain circumstances, learns of material non-public information about a
company.
Violation of these restrictions has severe consequences for both employees and
employers. Under federal law, trading on inside information or communicating
inside information to others is punishable by imprisonment of up to ten years
and a criminal fine of up to US$l,000,000. In addition, employers may be
subjected to liability for insider trading or tipping by employees. Under the
federal statute, broker-dealers may be held liable for failing to take measures
to deter securities law violations where such failure is found to have
substantially contributed to or permitted a violation.
In view of these provisions of the securities laws, W.P. Stewart has adopted
the general policy that a Firm Employee may not trade in securities of any
company about which the Employee possesses material non-public information or
any company on the Restricted List of the Firm, nor "tip" others about such
information. The policies and procedures set forth below are intended to
implement this general policy.
Definitions
Firm Personnel - The policies and procedures set forth below apply to all Firm
personnel. For purposes of this policy, all references to Firm personnel or
Employees herein include spouses, family members and others living in their
households, business partners and any other persons who might receive material
information from any of such persons;
Material Non-Public Information - Material non-public information includes any
information not publicly available which, if disclosed to the public, could be
expected to affect the market price for a company's securities or affect a
reasonable investor's decision to invest. There are several categories of
information that are particularly market-sensitive and therefore clearly qualify
as material. For example, knowledge of business combinations such as mergers or
joint ventures, changes in financial results, changes in dividend policy,
significant litigation exposure, new product or service announcements, plans for
a recapitalization, repurchase or shares or other reorganization, and similar
matters;
When Information Has Become Public - Inside information is generally not deemed
to have become public until such information has been publicized through a press
release or other official announcement sufficient to provide the investing
public a reasonable opportunity to evaluate the information. For purposes of
this policy, employees in possession of material nonpublic information shall
allow at least 30 minutes to elapse following the moment of adequate
38
<PAGE>
public disclosure (e.g., announcement on the Dow Jones News Service) of such
previously non-public information before trading in any securities of the
company that is the subject of such information. The 30 minute delay has been
chosen since it is W.P. Stewart's understanding that such period is sufficient
for a broad dissemination of the development in light of the communications and
news services available to the investing public in the United States.
All Principals should be thoroughly familiar with W.P. Stewart's policy with
regard to insider transactions, as follows:
A. Contacts with Public Companies
------------------------------
1. "Contacts" with public companies refers to all
relationships, conversations, or meetings with a public
company, or its directors, officers or agents.
2. It is a policy of W.P. Stewart to discourage directors or
Employees from becoming directors of public companies.
Exceptions can only be made with the prior approval of a
Designated Principal.
3. All contacts with public companies must first be cleared
with a Designated Principal.
B. Prohibition Regarding the Use of Inside Information
---------------------------------------------------
1. Persons who are in possession of any "material inside
information" that has not been publicly disseminated are
prohibited from:
a. Purchasing or selling securities for their own
accounts, insider accounts or accounts over which they
exercise discretion;
b. Soliciting client's orders to either purchase or sell
the securities;
C. Disclosing such information or any conclusions based
thereon to any other person in or outside W.P.
Stewart, except a Designated Principal.
2. In determining whether the information obtained comes within
the above definition, and is therefore unusable, the
following terms apply:
a. "Material Information" is any information which a
reasonable investor might consider important in making
an investment decision. The following is a list of the
types of information that are likely to be deemed
"material": dividend increases or decreases, earnings
estimates, changes in previously released earnings
estimates, significant expansion or curtailment of
operations, a significant increase or decline in
orders, significant merger or acquisitions, proposals
or agreements, significant new developments, tender
offers, purchase or sale of substantial assets.
39
<PAGE>
b. "Publicly Disseminated" means information which is
generally available to the public and about which the
public has had a reasonable opportunity to make an
investment decision.
c. "Solicited Orders" include all orders where the
inducement to purchase or sell comes from within WPSSL
and/or its affiliates, including orders in
discretionary accounts initiated by a director or
Employee of such firm(s).
C. Disclosure
----------
Whenever possible, the public company should be encouraged to publicly
disseminate the information which might be deemed to be inside information. Once
the information has been publicly disseminated, the trading restrictions no
longer apply.
D. Compliance Procedure
--------------------
A Designated Principal should be consulted in all instances where a person feels
that he might be in possession of material information that has not been
publicly disseminated.
Confidentiality of Inside Information
Material non-public information acquired by Firm personnel shall be maintained
in strict confidence. Firm personnel shall take all appropriate steps to
preserve the confidentiality of such information.
Trading by Firm Personnel
An Employee may not engage in any transaction involving securities of a company
about which such Employee possesses material non-public information or any
company on the Firm's Restricted List (excepting only documented unsolicited
customer orders), whether for the account of W.P. Stewart, a client, such
Employee, or any other person. Any violation of this rule will automatically
result in the termination of employment with W.P. Stewart. Except in those
instances where trading is clearly prohibited, Firm personnel should consult
with the Compliance Officer or such other individual as may be appointed before
effecting a transaction if there is any question whether the transaction could
to any degree have been motivated by knowledge of nonpublic information.
In order to enforce compliance with this trading restriction, it is W.P.
Stewart's policy that every Employee who shall trade in securities for his or
her own account shall conduct such transactions through accounts established and
maintained with W.P. Stewart. Any outside account for the purpose of trading in
securities established by an Employee prior to the commencement of his or her
employment at W.P. Stewart shall be closed, provided, however, that where
closing such account would cause undue hardship to such Employee, or where
approval of the Compliance Officer has been obtained, W.P. Stewart may require
as an alternative that any trading conducted by such Employee in such account be
reported expeditiously to W.P. Stewart through duplicate confirmations and
statements. No matter where the Employees' accounts are maintained, the
Compliance Officer will review all Employee trading as it occurs to look for
irregular patterns or activity that may indicate insider trading.
40
<PAGE>
Prohibition of Front-Running
W.P. Stewart has established a policy that neither it nor its Employees or their
related "insiders" (see Chapter XXIV, "Insider Accounts," for a complete
definition of "insiders") will execute a transaction in a security for W.P.
Stewart's account or an account in which W.P. Stewart or an Employee or Insider
has a beneficial interest or exercises investment discretion, when a customer's
order for the same security, same way, at the same or better price (whether
limit or market order) remains unexecuted. Further, no transaction in any
account in which W.P. Stewart or an Employee or Insider has a beneficial
interest shall be executed at a better price than any transaction executed on
that same day in the same security for another W.P. Stewart account. In addition
to this same market front-running prohibition, pursuant to NASD Notice to
Members 87-69, each Employee and Insider is prohibited from buying or selling an
option while in possession of non-public information concerning a block
transaction in the underlying stock, or buying or selling an underlying security
while in possession of non-public information concerning a block transaction in
an option covering that security ("inter-market front-running"), for an account
in which W.P. Stewart or such Employee or Insider has an interest or with
respect to which W.P. Stewart or such Employee or Insider exercises investment
discretion. This prohibition extends to trading in stock index options and stock
index futures while in possession of non-public information concerning a block
transaction in a component stock of an index. "Block transaction" means a
transaction involving 10,000 shares or more of an underlying security or options
covering 10,000 shares or more of such security. In the case of a thinly traded
security, fewer than 10,000 shares may constitute a block transaction.
E. Trades in Anticipation
----------------------
No trades can take place for securities in anticipation of an impending trade in
the same stock.
F. Tender Offers
-------------
A person who has non-public material inside information about a tender offer is
prohibited from making or causing trades in the securities of any company
involved in or potentially affected by the tender offer.
G. Rumors
------
Directors and Employees are prohibited from circulating rumors about any
securities or issuer in any manner whatsoever. Discussion of unsubstantiated
information published in widely circulated public media is permitted when its
sources and unsubstantiated nature is disclosed.
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<PAGE>
XXI. INVESTIGATION AND QUALIFICATION
A. Rule 3010 of the NASD's Rules of Fair Practice requires that a member
firm, prior to certifying to the Association that a candidate for Registered
Representative is qualified, determine through investigation the good character,
business repute, qualifications and experience of a candidate. It is the
responsibility of the Compliance Officer to conduct such investigations, which
shall include obtaining the candidate's Form U-5 within 60 days of employment.
All Principals should be aware that, should a candidate not be qualified for
NASD registration, he must pass the Association's qualification examination. A
Supervisory Principal must certify for W.P. Stewart that, prior to passing this
qualification examination and becoming registered, a candidate will not solicit
recommend or execute any securities transactions, or otherwise transact business
in securities until the applicant's registration is made effective by the NASD
and any required state licensing is effective.
If a candidate has been working for another firm in the securities business, a
Supervisory Principal must certify for W.P. Stewart that he has advised the
candidate's previous employer of the applicant's employment with W.P. Stewart.
Inherent in this requirement is W.P. Stewart's obligation to inquire as to any
adverse information about the candidate that the former employer may have. All
information derived from such investigations is to be filed by the Compliance
Officer in W.P. Stewart's personnel files.
B. Employment Forms
----------------
The following forms shall be completed in addition to various health and
insurance forms by all Employees at the time of their employment.
1. Firm Application of Employment
2. Request For Background Information
3. U-4 Employee Record
4. Written indication of whether or not Employee or spouse has
an account with any firm other than WPSSL
5. Employee's Withholding Exemption Certificate (W-4)(where
applicable)
6. The following documents will be kept on file in our office:
o Social Security Number (where applicable)
o Armed Forces Discharge Papers
o Alien Registration Card (or work permit documentation)
42
<PAGE>
C. An initial screening interview of all Employees shall be conducted by a
Manager designated by a Firm Principal. A Principal who will supervise the
applicant shall interview applicants passing the screening interview.
D. A telephone check will be made by the Compliance Officer of applicant's
employment history as set forth in the employment application.
E. The fingerprints of each new Employee will be taken and sent to the
NASD.
All fingerprint cards, records and information required will be retained for a
period of not less than three years after termination.
Each Employee must bring any changes in any of their aforementioned employment
forms to the attention of the Compliance Officer immediately, especially if the
Employee becomes subject to arrest, customer complaint, securities-related
lawsuit, bankruptcy or disciplinary investigation or action, or if the Employee
violates any securities regulation or law.
Any Employee subject to "disqualification" from association with an NASD member
shall not be employed by W.P. Stewart, unless otherwise permitted by NASD and
SEC rules and/or decisions. "Disqualification" (defined in Article III, Section
4 of the NASD By-laws) includes but is not limited to expulsion, bar or
suspension by the SEC or any self-regulatory organization; revocation of license
by same; association with a disqualified person; and conviction of any felony,
or any securities or fraud-related crime, within the last 10 years. The
Compliance Officer must promptly be made aware of any circumstances that might
lead to a disqualification or would otherwise be reportable under NASD Rule
3070, and must timely make the appropriate reports with the NASD, the Firm's
designated examining authority. Upon an Employee's termination of employment or
registration, the Compliance Officer shall promptly file Form U-5.
43
<PAGE>
XXII. REGISTRATION OF DIRECTORS AND EMPLOYEES
A. NASD and State Registration
In order to do any of the following, a director, officer or Employee must be
registered with the NASD and any applicable State regulatory bodies, if an
exemption from such registration is not available.
1. Either write order tickets or call in orders to the trader
2. Receive oral execution reports from the trader
3. Discuss investments with clients
4. Accept telephone orders from clients directing executions of
orders
B. Blue Sky Registration
Designated Principals and Registered Representatives must also be registered in
any state where they have clients, unless an exemption from such registration is
available.
C. Registration Procedure
The Compliance Officer must be contacted to coordinate all necessary training
courses required in order to become and remain registered.
Each applicant must pass both the General Securities Representative Examination
(Series-7 and the Uniform Securities Agent State Law Examination (Series-63), if
a state where he has clients requires such registration, in order to become
registered.
D. Termination of Registration
Upon the termination of employment of any registered Employee, the Compliance
Officer shall cause to be timely prepared and filed a form U-5 Notice of
Termination. A copy of that form U-5 shall be provided to the terminated
Employee within 30 days of filing.
44
<PAGE>
XXIII. ISSUER ACCOUNTS -MARKET REPURCHASES OF SECURITIES BY ISSUERS
A. Issuer Accounts
---------------
Issuers of publicly traded securities ("Issuers") who are clients of the Firm
("Issuer Clients") may, from time to time transact purchase transactions in
their own securities in secondary markets through accounts at WPSSL. While this
is permitted under both regulatory governance and Firm policy, there are certain
restrictions which apply to such transactions in addition to all other
applicable provisions of this Manual.
A Corporate account must be so designated on the New Account form, and the
Registered Representative who opens an account for an Issuer Client must
immediately:
o Become familiar with the provisions of this section of the
Manual; and
o Report to their supervising Manager that they have received an
application to open an account for a publicly traded Corporation.
Each Issuer Client will be required to provide account information and corporate
authority documentation (resolutions, by-laws, etc.) to the Firm before any
transactions are accepted or executed. Information provided by the Issuer Client
will be reviewed by the Designated Principal prior to the Firm opening any
account for the Issuer Client. The corporate authority documents provided by the
Issuer Client must include:
o the names of persons authorized to transact business on behalf of
the Issuer;
o the limitation on the timing, volume, and frequency of orders to
purchase Issuer stock;
o a representation that the Issuer will send to the Firm copies of
all press releases issued and all 8-K forms filed by the Issuer;
and
o a representation that no orders will be placed while the Issuer
is in possession of material non-public information about the
Issuer or its stock.
The Designated Principal will review the Issuer Account form and any ancillary
and/or supporting documentation, and will review Issuer Account activity
periodically and/or at any time that the Registered Representative believes that
there is any reason to question the current status of information provided to
the Firm by the Issuer Client. Issuer Clients will be further required to
identify to the Firm one or more primary contact person(s) (the "Client
Contact") delegated and authorized by the Issuer Client to provide current
updated information to the Firm concerning any changes in policy, personnel or
organizational structure that affects the relationship between the Firm and the
Issuer Client. Any Employee who has reason to question or suspect that any
information about the Issuer Client has changed shall immediately call this to
the attention of the Designated Principal who shall review the information with
the Client Contact.
The provisions of this Manual which apply to Issuers also apply to affiliates of
Issuers (to the
45
<PAGE>
extent known by the Firm), and shall be so enforced to the extent known by the
Firm. An "Affiliate" is defined as any person that directly or indirectly
controls, is controlled by, or is under common control with, an Issuer.
Purchases of an Issuer's securities by an Affiliate are thereby subject to the
terms and provisions of this Manual that apply to Issuers.
B. Issuer Client Trading Restrictions
Securities Exchange Act Rule l0b-18 promulgated and enforced by the Securities
and Exchange Commission provides a "Safe Harbor" (the "Safe Harbor") from
liability for violations of certain anti-fraud provisions of the securities laws
by Issuers purchasing their own securities.
The provisions of the Safe Harbor include:
o Issuer must effect all purchases and bids from or through
only one broker-dealer on any single day;
o An Issuer purchase may not be the opening transaction on any
day, nor may it be effected within the last half hour of any
trading day;
o The size of the order may not exceed 25% of the average
daily trading volume for the security over the preceding
four weeks (or, in certain situations, l/20th of one percent
of the outstanding shares); and
o The price of the purchase may not be higher than the
published bid or highest current independent bid or the last
sale price, whichever is higher (Note: For OTC traded
securities, no purchase may be effected without a current
independent bid ).
Issuer transactions which fulfill all of the terms of the Safe Harbor do not, by
themselves, constitute violations of these laws (although such transactions may
be found to be violative if they are otherwise fraudulently effected). It is the
policv of the Firm to accept and execute only those orders from Issuer Clients
which fall within this Safe Harbor. Any request, order or inquiry from an Issuer
Client for a transaction that does not fully comply with all of the requirements
of the Safe Harbor shall be brought immediately to the attention of the
Designated Principal, and no such order shall be entered, executed or confirmed
unless and until it is approved by the Designated Principal and/or by the
Compliance Officer. Further, at the time that any such request, order or inquiry
is received, the Issuer Client shall be notified immediately that such request,
order or inquiry is being referred to the Manager and will not be acted upon
unless and until it is approved by the Firm.
Issuer transactions which meet the conditions of the Safe Harbor but which, for
any reason, appear to any Employee to be suspicious or unusual in nature, must
be reported immediately to the Compliance Department.
The Registered Representative responsible for an Issuer Account must also become
familiar with the full text of Securities Exchange Act Rule l0b-18, which
contains provisions not included in this section. For example, for securities
not traded on a national securities exchange or NASDAQ there are separate volume
restrictions for purchases by Issuers. The Manager must seek the assistance of
the Compliance Department with any questions about, or potential
46
<PAGE>
violations of, the procedures of Rule l0b-18.
If and when any observation or review reveals potential problems with an Issuer
Account, the Registered Representative shall notify the Designated Principal,
who shall conduct a prompt initial inquiry and, unless that initial inquiry
satisfies the Designated Principal that no problem or deficiency existed at any
time, the Designated Principal will report the potential problem to the
Compliance Department as soon as is practicable along with the proposed steps to
further investigate and/or remedy the deficiency. The Compliance Department will
then monitor the continuing inquiry until the matter is resolved, and will
satisfy any reporting requirements regarding the incident which gave rise to the
initial inquiry.
47
<PAGE>
XXIV. INSIDER ACCOUNTS
A. Insider Accounts
----------------
For the purpose of this Chapter, insider accounts include the spouse, parents,
grandparents, mother-in-law, father-in-law, children, grandchildren, son-in-law,
daughter-in-law, brother, sister, brother-in-law and sister-in-law of any
director or Employee. Insider accounts also include any relative to whose
support a director or Employee contributes, either directly or indirectly, or
any other members of his family living in the same household.
"Insider accounts" also include the accounts of directors and employees of any
affiliated organization of W.P. Stewart, any estate or trust where a director
or employee is an executor or trustee or other fiduciary with a beneficial
interest in the account, and any person having knowledge of any proposed
purchase and/or sale of securities.
B. Insider Transactions
--------------------
All Registered Representatives must identify insider orders on the order ticket,
and, in the case of block transactions, advise how much of the order is for
allocation to insider accounts.
C. Trading Priority. Avoiding Other Potential Conflicts of Interest
----------------------------------------------------------------
1. All solicited trades involving institutions in which insider
accounts are on the other side can be made only after
disclosure prior to taking the order, the confirmation slip
shall bear a legend confirming such disclosure. A
contemporaneous memorandum of such disclosures shall be
placed in the files.
2. No insider account shall reject a transaction in any
security in contemplation of a transaction in a security for
a client.
D. Price Switching-Insider Accounts Belonging to Directors or
----------------------------------------------------------
Employees of W.P. Stewart and its Affiliates, or their Spouses,
---------------------------------------------------------------
Children and Grandchildren.
---------------------------
On any given day, orders for any insider accounts may neither be accepted nor
entered at any time that a customer's order is open with WPSSL for the same
security, on the same side of the market, and at the same price or better, or
for a related option. (See Chapter XX, "Insider Trading," for further details.)
On any given day, no insider account can receive a more favorable execution
price than that received by any Firm investment advisory or discretionary
account. It is the policy of W.P. Stewart to switch prices between insider and
client accounts to ensure that insiders do not receive a more favorable price.
On any given day, none of the accounts specified in Paragraph I can receive a
more favorable execution price than that received by any Firm investment
advisory or discretionary account which is managed by the related director or
Employee. Where the related director or Employee works with another person or
group, the price switching policy extends to these investment advisory or
discretionary accounts managed by that other person or group as well.
48
<PAGE>
XXV. SALE OF RESTRICTED AND CONTROL SECURITIES
The purpose of this chapter is to assist Registered Representatives in their
general discussions with clients concerning the sale of restricted or control
securities. The law in this area is quite complex, and any specific questions
regarding these sales should be directed to a Supervisory Principal.
Restricted securities are those securities that may not be freely sold because
of the way a client obtained them. Most commonly, restricted securities are
acquired from the issuer either 1) through private placement; 2)the exercise of
option; 3) a result of a merger or acquisition of a corporation in which the
client was an officer, director or substantial stockholder. In addition to these
classic types of restricted securities, there are numerous instances in which
securities acquired from a control person or from the company will be deemed
restricted. WARNING: THE ABSENCE OF A LEGEND ON THE CERTIFICATE IS NOT IN ITSELF
SUFFICIENT EVIDENCE TO PRESUME THAT THE SECURITY IS NOT RESTRICTED.
Control securities are securities that may not be freely sold because they are
owned by a person who is in a position, either directly or indirectly, to
influence that corporation's affairs. This includes officers, directors and
major shareholders. It should be noted that the prohibition on the sale of
control stock applies whether the stock was acquired directly from the company,
in the open market or otherwise. Anytime a person or a member of his family has
any special relationship with a company, the Supervisory Principal, as stated in
the supervisory Manual, must be consulted prior to selling that company's stock
for the individual.
The following are some specific policies and procedures regarding sales of
restricted or control securities:
A. It is the primary responsibility of each Registered Representative to be
aware of the possibility that any sell order received may be for the sale of
restricted or control securities. This responsibility goes further than just
asking the seller whether the stock is restricted or control stock. The
following are some guides that may alert Employees to the possibility of
attempted sales of restricted or control stock:
o Where seller wants to sell unusually large quantities of stock;
o Where seller acquired the stock in a private transaction with the
company or some control person;
o Where seller, his spouse, relatives or in-laws have some special
relationship with the company or any parent, subsidiary or affiliated
company;
o Where the stock certificate has a restricted legend on it.
B. Where the possibility exists that the seller may wish to sell restricted
or control securities the proposed sales should immediately be brought to the
attention of the Designated Principal as referred to in this Manual. The
Designated Principal will then advise 1) whether the sale is permissible, and
2) what specific steps must be taken before the order is accepted.
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C. Under no circumstances may an order be accepted to sell restricted or
control securities until after the Supervisory Principal has given his or her
approval.
Rule 144 of the Securities Act of 1933
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D. IT IS THE POLICY OF W.P. STEWART TO ONLY PERMIT SALES OF RESTRICTED OR
CONTROL SECURITIES UNDER THE PROVISIONS OF RULE 144. Exceptions based upon
effective registration or legal opinions are available providing the Designated
Principal gives prior approval.
E. A "kit" will be given to Registered Representatives by the Compliance
Department of Neuberger Berman in connection with each Rule 144 sale. The "kit"
contains a letter to the client setting forth the requirements which must be met
before Neuberger Berman can process the sale and documents which must be
completed by the client.
Briefly stated, Rule 144 permits unregistered sales of restricted or
control securities providing that all of the following provisions of the rule
are complied with.
1. Holding Period: Securities must have been fully owned by the
seller for a period of at least one year. In determining this one
year period, any period during which the seller was short the
security or had an option to dispose of the security must be
excluded. This holding period does not, however, apply to
securities acquired in the open market by control persons.
2. Holding Limit: The maximum amount that may be sold within any
three month period is the greater of 1% of the outstanding shares
or the average weekly volume for the four weeks prior to the
sale. If volume figures are not available through an exchange,
NASDAQ, or the consolidated tape, the amount limitation is 1% of
the outstanding shares.
Non-affiliates who have held securities for at least two years may sell those
securities without a volume limitation. Persons who formerly were affiliates of
an issuer are required to wait three months after their status as affiliates has
terminated before they may utilize the two year holding period to eliminate the
volume restriction.
In determining the volume limitation, sales by the following must be aggregated
with the sellers:
a. Sales by all persons to act in concert with the seller
b. Sales by seller's spouse or any relatives of either seller
or his spouse who resides with him
C. Sales by any trust or estate in which a person or persons
described in (a) or (b) above collectively own ten percent
(10%) or more of the total beneficial interest or of which
any such person serves as a trustee, executor or in any
similar capacity
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d. Sales by any corporation or other organization (other than
the issuer) in which seller or any person described in (a)
or (b) are owners collectively of ten percent (10%) or more
of any class of equity securities or ten percent (10%) or
more of the equity interest
e. Sales of prior owner or pledgor if seller has chosen to
include that person's time in order to meet the one year
holding requirement
f. Sales by any persons to which seller has transferred or
pledged shares of this stock
3. Solicitation Prohibition: Neither the seller nor W.P. Stewart
may solicit buy orders, and the only payment that can be made to
anyone is the normal brokerage commission to W.P. Stewart. This
requirement does not apply to non-affiliates who have held
securities for at least two years.
4. Issuer Reporting Requirement: The issuer must have a) been
registered under the Securities Act of 1933 or the Securities
Exchange Act of 1934; b) been subject to SEC periodic reporting
requirements, as set forth under Section 13 or 15(d) of the 1934
Act, for at least 90 days; and c) filed all required reports,
including the most recent required annual report. There is no
reporting requirement for non-affiliates who have held stock at
least two years.
5. SEC Form 144: Form 144 must be prepared in triplicate by the
seller and mailed to the SEC on the day of the sale or within the
preceding 90 days. A copy must also go to the principal exchange
where the stock is traded. Such form need not be filed if: 1) the
number of shares to be sold during any three month period does
not exceed 500 shares or $10,000; or 2) no form need be filed for
non-affiliates who have held securities for at least two years.
Failure to strictly comply with all the technical requirements of Rule 144 may
result in sales being deemed an illegal distribution by W.P. Stewart and our
client, subject to civil and criminal penalties. PRIOR APPROVAL OF NEUBERGER
BERMAN'S COMPLIANCE DEPARTMENT IS REQUIRED BEFORE EXECUTING ANY RULE 144 SALES.
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XXVI. OUTSIDE ACTIVITIES
A. Outside Employment
------------------
No director or Employee of W.P. Stewart shall engage in any outside
employment, including that of investment adviser, without first obtaining the
consent of a Supervisory Principal.
B. Serving as Officers or Directors of Public Companies
----------------------------------------------------
It is against W.P. Stewart's policy to permit any of its directors or Employees
to become officers or directors of public companies without prior written notice
to and approval from the Supervisory Principal.
C. Private Securities Transactions, Private Placements or Tax
----------------------------------------------------------
Shelters
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In accordance with NASD Rule 3040, no W.P. Stewart director or Employee may
participate in any manner in a private securities transaction except in
accordance with the following (for purposes of this section, the director or
Employee potentially participating in the transaction shall be referred to as
"you"):
1. Transactions where you will receive compensation:
If you anticipate receiving any type of compensation,
directly or indirectly, from a private securities
transaction, the following must take place:
a. Prior to entering into the transaction, you must give a
Supervisory Principal a memo detailing: a) the proposed
transaction; b) your role in the transaction; c) the
amount of any compensation you may receive.
b. The Designated Principal will then provide you with
written acknowledgment stating whether W.P. Stewart
approves or disapproves of the transaction.
C. If W.P. Stewart approves, the transaction must be
recorded on W.P. Stewart books and W.P. Stewart has
an obligation to supervise the transaction as if it
were executed on behalf of W.P. Stewart.
d. If W.P. Stewart disapproves, you are prohibited from
participating in any manner, directly or indirectly.
2. Transactions where you will not receive compensation:
a. Prior to entering into a Private Securities transaction
where no compensation will be received, you must give
the Supervisory Principal a memo detailing: a) the
proposed transaction; b) your role in the transaction;
c) a statement that you will not be receiving any
compensation.
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b. The Supervisory Principal will then give to the
Registered Representative a written acknowledgment.
W.P. Stewart may require that specific conditions be
adhered to in connection with your participation in the
transaction.
3. The rules regarding Private Securities transactions do not
apply to:
a. Transactions between you and members of your immediate
family if you do not receive any compensation
b. Purchases for your personal account
D. Accounts with Other Broker-Dealers
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No Employee may maintain an account in which he has any interest at any other
broker-dealer without prior written approval by both W.P. Stewart and the other
broker-dealer. If such an account is maintained, the Employee shall ensure that
duplicate confirmations and account statements are timely delivered to the
W.P. Stewart Compliance Officer for regular review.
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XXVII. GIFTS AND GRATUITIES
Prior approval by a Supervisory Principal is required in order to give or
receive gratuities, whether cash or gift of equal value, in excess of $100 per
person per year. This rule covers gifts of service and/or the use of facilities
that would be valued at $100 or above.
This requirement applies to gifts to or from clients, public companies,
financial institutions, exchanges and brokerage firms other than WPSSL.
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XXVIII. CONFIDENTIALITY AND COMMUNICATION WITH THE MEDIA
A. Any information learned about W.P. Stewart, its affiliates, its
methods, its trades, stock positions, clients, or its investment ideas are
highly confidential and must not be revealed to any outside source. Any such
information should only be discussed within W.P. Stewart on a need-to-know
basis.
B. Communications with the Media
-----------------------------
No director or Employee of W.P. Stewart shall communicate with the media
without obtaining the advance consent of the Compliance Officer.
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XXIX. CONTINUING EDUCATION REQUIREMENTS
The Firm will adhere to the NASD's Continuing Education Requirements, as set
forth in Rule 1120. In this regard, the Firm will ensure the following:
A. Regulators Element.
-------------------
1. Each registered person shall complete the "Regulatory Element" on
the second anniversary of their initial securities registration
and every three years thereafter throughout their careers.
Registered persons no longer graduate from the program after
their 10th registration anniversary. On each of occasion, the
Regulatory Element must be completed within 120 days after the
person's registration anniversary date. The content of the
"Regulatory Element" shall be as prescribed by the NASD.
2. Registered persons who have been continuously registered in their
respective registration for 10 years as of July 1, 1998 shall be
exempt from participation in the Regulatory Element, provided
such persons have not been subject to any of the following
disciplinary actions during the past years:
a. any statutory disqualification as defined in Section
3(a)(39) of the Exchange Act;
b. suspension or the imposition of a fine of $5,000 or more for
violation of any provision of any securities law or
regulation, or any agreement with or rule or standard of
conduct of any securities governmental agency, securities
self-regulatory organization, or as imposed by any such
regulatory or self-regulatory organization in connection
with a disciplinary proceeding; or
C. ordered as a sanction in a disciplinary action to re-enter
the continuing education program by any securities
governmental agency or self-regulatory organization.
The "grandfather" clause only applies if the registered person
has been in his/her current registration status (i.e., registered
representative or registered supervisory principal) for 10 years
or more as of July 1, 1998. For example, if a supervisor has held
a Series 7 for 15 years but a Series 24 for only eight years as
of July 1, 1998, he must continue his participation in the
Continuing Education program as a "supervisor" (using his Series
24 registration date as the determining event for computing which
years he must participate in the Regulatory Element of the
Continuing Education program). But if he chooses to surrender his
supervisor registration, he would then revert to representative
status and be "grandfathered" out of the program.
3. Any registered persons who have not completed the Regulatory
Element within the prescribed time frames will have their
registrations deemed inactive until such time as the requirements
of the program have been satisfied. Any person whose registration
has been deemed inactive will cease
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all activities as a registered person and shall be prohibited
from performing any duties and functioning in any capacity
requiring registration. A registration that is inactive for a
period of two years will be administratively terminated and may
be reactivated only by reapplying for registration and meeting
the qualification requirements of the NASD By-Laws.
4. Unless otherwise determined by the NASD, a registered person will
be required to re-enter the Regulatory Element and satisfy all
its requirements in the event such person is subject to a
disciplinary action as described in paragraph (b)(i-iii) above.
5. Any registered person who joins the Firm within two years of
being associated with another NASD member firm shall participate
in the Regulatory Element at such anniversaries that apply based
on their initial registration anniversary date rather than based
on their date of association with the Firm.
B. Firm Element.
-------------
1. The "Firm Element" applies to all persons registered with the
Firm who have direct contact with customers in the conduct of the
Firm's securities sales activities, and to the immediate
supervisors of such persons (collectively, "Covered Registered
Persons").
2. Standards for the Firm Element.
a. The Firm will maintain a continuing and current education
program for its Covered Registered Persons to enhance their
securities knowledge, skill and professionalism. W.P.
Stewart will at least annually evaluate and prioritize its
training needs and develop a written training plan, which
takes into consideration the Firm's size, organizational
structure and scope of business activities, as well as
regulatory developments and the performance of Covered
Registered Persons.
b. W.P. Stewart's training plan will cover the following:
(i) general investment features of securities and
associated risk factors;
(ii) suitability and sales practice considerations; and
(iii) regulatory requirements applicable to sales practices.
C. Participation. Covered Registered Persons must take all
appropriate and reasonable steps to participate in
continuing education programs as required by W.P. Stewart.
Designated Principals will keep records of the continuing
education participation of the Employees under their
supervision, and take
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appropriate action to see that the requirements for
continuing education are met.
C. Firm Element/Annual Review. The Firm will administer its continuing
--------------------------
education programs in accordance with its annual evaluation and written plans
and will maintain records documenting the completion and results of the
Regulatory Element/Computer-Based Testing Program and the completion of the Firm
Element program by the appropriate covered registered persons. The Firm will
also collect feedback from its Employees on the Firm Element program as part of
its annual Needs Analysis.
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