As filed via EDGAR with the Securities and Exchange Commission on June 5, 1996
Registration Nos. 33-81748
811-8640
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 2 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 3 |X|
(Check appropriate box or boxes)
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
(Exact name of Registrant as specified in charter)
237 Park Avenue, Suite 910
New York, New York 10017
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (800) 618-9510
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Copy to:
Stephen Brent Wells, Esq. Carl Frischling, Esq.
OFFITBANK Kramer, Levin, Naftalis & Frankel
520 Madison Avenue, 919 Third Avenue
New York, New York 10022 New York, New York 10022
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
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|_| Immediately upon filing pursuant to |_| on ( ) pursuant to
paragraph (b) paragraph (b)
|_| 60 days after filing pursuant to |_| on ( ) pursuant to
paragraph (a)(1) paragraph (a)(1)
|X| 75 days after filing pursuant to |_| on ( ) pursuant to
paragraph (a)(2) paragraph (a)(2) rule 485.
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If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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The Registrant has registered an indefinite number or amount of its shares of
common stock for each of its five series of shares under the Securities Act of
1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940 on July 20,
1994. The Registrant intends to file a Rule 24f-2 Notice by February 29, 1997.
<PAGE>
The OFFITBANK Variable Insurance Fund, Inc.
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
Registration Statement on Form N-1A
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CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
Under the Securities Act of 1933
N-1A Item No. Location
Part A Prospectus Caption
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Item 1. Cover Page .................................... Cover Page
Item 2. Synopsis ...................................... Not Applicable
Item 3. Condensed Financial
Information ................................... Not Applicable
Item 4. General Description of
Registrant .................................... The Company; Investment Objectives and
Policies; Investment Policies and
Techniques; Special Risk Considerations;
Limiting Investment Risks; Appendix A
Item 5. Management of the Fund ........................ Management
Item 5A. Management's Discussion of Fund
Performance.................................... Not Applicable
Item 6.
Capital Stock and Other How Distributions Are Made: Tax
Securities .................................... Information; Shareholder Communications
Item 7. Purchase of Securities
Being Offered ................................. About Your Investment; How the
Company Values Its Shares
Item 8. Redemption or Repurchase ...................... About your Investment; Redemption of
Shares
Item 9. Pending Legal Proceedings ..................... Not Applicable
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(i)
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The OFFITBANK Variable Insurance Fund, Inc.
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Part B Statement of Additional
Information Caption
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Item 10. Cover Page..................................... Cover Page
Item 11. Table of Contents.............................. Table of Contents
Item 12. General Information and History................ Not Applicable
Item 13. Investment Objectives and Policies............. Additional Information on Portfolio
Instruments and Techniques; Additional
Risk Considerations; Investment
Limitations
Item 14. Management of the Fund......................... Management of the Fund
Item 15. Control Persons and Principal
Holders of Securities.......................... General Information
Item 16. Investment Advisory and
Other Services................................. Management of the Fund
Item 17. Brokerage Allocation and
Other Practices................................ Portfolio Transactions
Item 18. Capital Stock and Other
Securities..................................... General Information
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered.................... Management of the Fund; Purchase of
Shares; Redemption of Shares
Item 20. Tax Status..................................... Additional Information Concerning Taxes
Item 21. Underwriters................................... Distributor
Item 22. Calculation of Performance Data................ Performance Calculations
Item 23. Financial Statements........................... Statement of Assets and Liabilities
Part C
Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to this
Registration Statement.
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(ii)
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The OFFITBANK Variable Insurance Fund, Inc.
PART A
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PROSPECTUS
THE OFFITBANK VARIABLE INSURANCE FUND, INC. , 1996
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OFFITBANK VIF-U.S. GOVERNMENT SECURITIES FUND
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OFFITBANK VIF-U.S. Government Securities Fund (the "Fund") is an investment
portfolio of the OFFITBANK Variable Insurance Fund, Inc. (the "Company"), an
open-end, management investment company. The Fund's investment objective is to
seek current income consistent with preservation of capital. The Fund seeks to
achieve its objective by investing, under normal circumstances, at least 80% of
its total assets in U.S. Government Obligations. There can be no assurance that
the Fund's investment objective will be achieved.
OFFITBANK, a trust company specializing in global fixed income management,
serves as the Fund's investment adviser (the "Adviser"). The Adviser currently
manages in excess of $7 billion in assets. The address of the Company is 237
Park Avenue, Suite 910, New York, New York 10017. Yield and other information
regarding the Fund may be obtained by calling 1-800-618-9510.
SHARES OF THE FUND ARE SOLD ONLY TO CERTAIN LIFE INSURANCE COMPANIES
(COLLECTIVELY, "PARTICIPATING COMPANIES") AND THEIR SEPARATE ACCOUNTS
(COLLECTIVELY, THE "ACCOUNTS") TO FUND BENEFITS UNDER VARIABLE ANNUITY CONTRACTS
("CONTRACTS") AND VARIABLE LIFE INSURANCE POLICIES ("POLICIES") TO BE OFFERED BY
THE PARTICIPATING COMPANIES. THE ACCOUNTS INVEST IN SHARES OF THE FUND IN
ACCORDANCE WITH ALLOCATION INSTRUCTIONS RECEIVED FROM CONTRACT AND POLICY OWNERS
("CONTRACT OWNERS" OR "POLICY OWNERS," AS APPROPRIATE). SUCH ALLOCATION RIGHTS
ARE FURTHER DESCRIBED IN THE ACCOMPANYING ACCOUNT PROSPECTUS. SHARES ARE
REDEEMED TO THE EXTENT NECESSARY TO PROVIDE BENEFITS UNDER THE CONTRACTS AND
POLICIES.
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus in conjunction with the prospectus for the Contract or Policy which
accompanies this Prospectus and retain this Prospectus for future reference.
Additional information about the Fund, contained in a Statement of Additional
Information dated ________, 1996, as amended or supplemented from time to time,
has been filed with the Securities and Exchange Commission (the "Commission")
and is available to investors without charge by calling 1-800-618-9510. The
Statement of Additional Information is incorporated in its entirety by reference
into this Prospectus.
INVESTORS ARE ADVISED THAT (A) THE COMPANY IS NOT AUTHORIZED TO ENGAGE IN THE
BUSINESS OF BANKING AND (B) SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR ENDORSED OR GUARANTEED BY, OFFITBANK OR ANY AFFILIATE OF OFFITBANK, NOR
ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
WHAT YOU NEED TO KNOW
The Company........................ About Your Investment......................
Investment Objective and Policies.. How the Company Values Its Shares..........
Investment Policies and Techniques. How Distributions Are Made: Tax Information
Special Risk Considerations........ Shareholder Communications ................
Limiting Investment Risks.......... Performance Information....................
Management......................... Counsel; Independent Accountants...........
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THE COMPANY
The Company is designed to serve as a funding vehicle for Contracts and Policies
offered by the Accounts of Participating Companies. Shares of the Fund are
offered only to the Accounts through OFFIT Funds Distributor, Inc. (the
"Distributor"), the principal underwriter for the Company. The Fund is a
no-load, separate investment portfolio of the Company, an open-end management
investment company. The Company is not authorized to engage in the business of
banking.
Shares of the Company are offered to Accounts of Participating Companies that
may not be affiliated with each other. The Participating Companies and their
Accounts may be subject to insurance regulation that varies between states and
to state insurance and federal tax or other regulation that varies between
Contracts and Policies. The Company does not currently foresee any disadvantages
to Contract or Policy Owners arising from these circumstances. However, it is
theoretically possible that the interests of Contract or Policy Owners
participating in the Company through the Accounts might at some time be in
conflict. In some cases, one or more Accounts might withdraw their investment in
the Fund, which could possibly force the Company to sell portfolio securities at
disadvantageous prices. The Company's Directors intend to monitor events in
order to identify any material irreconcilable conflicts that may possibly arise
and to determine what action, if any, should be taken in response thereto.
INVESTMENT OBJECTIVE AND POLICIES
The Fund has an investment objective which it pursues through investment
policies as described below. The objectives and policies of the Fund can be
expected to affect the return of the Fund and the degree of market and financial
risk to which the Fund is subject. For more information about the investment
strategies employed by the Fund, see "Investment Policies and Techniques." The
investment objectives and policies of the Fund may, unless otherwise
specifically stated, be changed by the Directors of the Company without a vote
of the shareholders. As a matter of policy, the Directors would not materially
change the investment objectives of the Fund without shareholder approval. There
is no assurance that the Fund will achieve its objectives.
Additional portfolios may be created from time to time with different investment
objectives and policies for use as funding vehicles for the Accounts or for
other insurance products. In addition, the Directors may, subject to any
necessary regulatory approvals, create more than one class of shares in the
Fund, with the classes being subject to different charges and expenses and
having such other different rights as the Directors may prescribe.
The Fund's investment objective is to seek current income consistent with
preservation of capital. The Fund seeks to achieve its objective by investing,
under normal circumstances, at least 80% of its total assets in U.S. Government
obligations. In addition, the Fund may invest up to 20% of its total assets in
sovereign obligations of Australia, Canada, Denmark, France, Germany, Japan, New
Zealand and The United Kingdom. Any fund investments denominated in any foreign
currency will be hedged against fluctuations in value versus the U.S. dollar.
See "Limiting Investment Risks".
Obligations of the U.S. Government in which the Fund may invest are in two broad
categories and include the following: (a) direct obligations of the U.S.
Treasury, which differ only in their interest rates, maturities and times of
issuance, including U.S. Treasury Bills (maturities of one year or less), U.S.
Treasury Notes (maturities of one to ten years), and U.S. Treasury Bonds
(generally, maturities greater than ten years); and (b) obligations issued or
guaranteed by the agencies or instrumentalities of the U.S. Government which are
supported by: (i) the full faith and credit of the U.S. Government (e.g.,
Government National Mortgage Association ("GNMA") Certificates, See below); (ii)
the right of the issuer to borrow an amount limited to a specific amount of
credit from the U.S. Government; (iii) the credit of the instrumentality (e.g.,
bonds issued by the Federal National Mortgage Association ("FNMA")); or (iv) the
discretionary authority of the U.S. Government to purchase certain obligations
of U.S. Government agencies or instrumentalities (collectively, "Government
Securities").
The agencies and instrumentalities that issue Government Securities include,
among others, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Farm Credit Banks,
Student Loan Marketing Association and U.S. Maritime Administration.
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Securities issued by the U.S. Government differ with respect to maturity and
mode of payment. The modes of payment are coupon paying and capital
appreciation. Coupon paying bonds and notes pay a periodic interest payment,
usually semi-annually, and a final principal payment at maturity. Capital
appreciation bonds and Treasury bills accrue a daily amount of interest income,
and pay a stated face amount at maturity. Most U.S. Government capital
appreciation bonds were created as a result of the separation of coupon paying
bonds into distinct securities representing the periodic coupon payments and the
final principal payments. This is referred to as "stripping". The separate
securities representing a specific payment to be made by the U.S. Government on
a specific date are also called "zero coupon bonds." Current federal tax law
requires the Fund to accrue as income daily a portion of the original issue
discount at which each zero coupon bond was purchased. Amortization of this
discount has the effect of increasing the Fund's income, although it receives no
actual cash payments. The Fund distributes this income to its shareholders as
income dividends and such income is reflected in the Fund's quoted yield. (See
"Other Investment Policies - Zero Coupon Securities, Pay-In Kind Bonds and
Discount Obligations").
At any given time, there is a relationship between the yield of the U.S.
Government obligation and its maturity. This is called the "yield curve". Since
Government Securities are assumed to have negligible credit risks, the main
determinant of yield differential between individual securities is maturity.
When the yield curve is such that longer maturities correspond to higher yields,
the yield curve has a positive slope and is referred to as a "normal" yield
curve. At certain times shorter maturities have high yields and the yield curve
is said to be "inverted". Even when the yield curve is "normal" (i.e. has a
positive slope), the relationship between yield and maturity for some Government
Stripped Securities is such that yields increase with maturity up to some point,
and then after peaking, decline so that the longest maturities are not the
highest yielding. This is called a "humped" curve. The highest yielding point on
the yield curve for such securities is referred to as the "stripper's hump".
U.S. Government securities of the type in which the Fund may invest have
historically involved little risk of principal if held to maturity. The
Government's guarantee of the securities in the Fund, however, does not
guarantee the net asset value of the shares of the fund. There are market risks
inherent in all investments in securities and the value of an investment in the
fund will fluctuate over time. Normally, the value of the Fund's investments
varies inversely with changes in interest rates. For example, as interest rates
rise, the value of the Fund's investments will tend to decline and as interest
rates fall, the value of the Fund's investments will tend to increase. Because
of these factors, the Fund's share value and yield are not guaranteed and will
fluctuate. The magnitude of these fluctuations generally will be greater when
the average maturity of the Fund's portfolio securities is longer.
The Fund is not limited to the maturities of the securities in which it may
invest. Debt securities with longer maturities generally tend to produce higher
yields and are subject to greater market fluctuation as a result of changes in
interest rates than debt securities with shorter maturities.
The Advisor seeks an enhanced fixed income return through the active management
of portfolio duration and sector allocation. Investment decisions are based on a
continual evaluation of the supply and demand for capital, the current and
future shape of the yield curve, underlying trends in the direction of interest
rates and relative value among market sectors. The selection of individual
investment reflects the Advisor's view of relative value within and among market
sectors. The Advisor manages duration and maturity to take advantage of interest
rates and yield curve trends. A minimum of 80% of the Fund will be invested in
Government Securities.
Up to 20% of the Fund may be allocated to the sovereign obligations and other
fixed income securities, in each case denominated in non-U.S. currencies or
composite currencies, including: debt obligations issued or guaranteed by
foreign national, provincial, state, municipal or other governments with taxing
authority or by their agencies or instrumentalities of Australia, Canada,
Denmark, France, Germany, Japan, New Zealand and The United Kingdom; debt
obligations of supranational entities; and debt obligations of the U.S.
Government issued in non-dollar securities.
The obligations of foreign governmental entities, including supranational
issuers, have various kinds of government support. Obligations of foreign
governmental entities include obligations, issued or guaranteed by national,
provincial, state or other governments with taxing power or by their agencies.
These obligations may or may not be supported by the full faith and credit of a
foreign government. Supranational entities include international organizations
designated or supported by governmental entities to promote economic
reconstruction or development
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and international banking institutions and related government agencies. Examples
include the International Bank for Reconstruction and Development (the World
Bank), the European Steel and Coal Community, the Asian Development Bank and the
Inter-American Development Bank. The governmental agencies, or "stockholders,"
usually make initial capital contributions to the supranational entity and in
many cases are committed to make additional capital contributions, if the
supranational entity is unable to repay its borrowings. Each supranational
entity's lending activities are limited to a percentage of its total capital
(including "callable capital" contributed by members at the entity's call),
reserves and net income.
INVESTMENT POLICIES AND TECHNIQUES
MORTGAGE-RELATED SECURITIES
The Fund may invest in mortgage-related securities, consistent with its
investment objective and policies, that provide funds for mortgage loans made to
residential homeowners. These include securities which represent interests in
pools of mortgage loans made by lenders such as savings and loan institutions,
mortgage bankers, commercial banks and others. Pools of mortgage loans are
assembled for sale to investors (such as the Fund) by various governmental,
government-related and private organizations. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their residential mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Prepayments are caused by repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs which may be incurred.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may
in addition be the originators of the underlying mortgage loans as well as the
guarantors of the mortgage-related securities. Pools created by such
non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government guarantees of payments in such pools. However, timely payment of
interest and/or principal of these pools is supported by various forms of
insurance or guarantees, including individual loan, title, pool or hazard
insurance. There can be no assurance that the private insurers can meet their
obligations under the policies. The Fund may buy mortgage-related securities
without insurance or guarantees if through an examination of the loan experience
and practices of the poolers the Adviser determines that the securities meet the
Fund's investment criteria. Although the market for such securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable.
The Adviser expects that governmental, governmental-related or private entities
may create mortgage loan pools offering pass-through investments in addition to
those described above. The mortgages underlying these securities may be second
mortgages or alternative mortgage instruments, that is, mortgage instruments
whose principal or interest payments may vary or whose terms to maturity may
differ from customary long-term fixed rate mortgages. As new types of
mortgage-related securities are developed and offered to investors, the Adviser
will, consistent with the Fund's investment objective and policies, consider
making investments in such new types of securities. For additional information
regarding mortgage-related securities and the risks associated with investment
in such instruments, see "Additional Information on Portfolio Instruments -
Mortgage-Related Securities" in the Statement of Additional Information.
ASSET-BACKED SECURITIES
The Fund may invest in asset-backed securities in accordance with its investment
objective and policies. Assetbacked securities represent an undivided ownership
interest in a pool of installment sales contracts and installment loans
collateralized by, among other things, credit card receivables and automobiles.
In general, asset-backed securities and the collateral supporting them are of
shorter maturity than mortgage loans. As a result, investment in these
securities should result in greater price stability for the Fund.
Asset-backed securities are often structured with one or more types of credit
enhancement. For a description of the types of credit enhancement that may
accompany asset-backed securities, see the Statement of Additional
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Information. The Fund will not limit its investments to asset-backed securities
with credit enhancements. Although asset-backed securities are not generally
traded on a national securities exchange, such securities are widely traded by
brokers and dealers, and to such extent will not be considered illiquid for the
purposes of the Fund's limitation on investment in illiquid securities.
REVERSE REPURCHASE AGREEMENTS
The Fund may borrow by entering into reverse repurchase agreements. Pursuant to
such agreements, the Fund would sell portfolio securities to financial
institutions, such as banks and broker-dealers, and agree to repurchase them at
an agreed upon date, price and interest payment. When effecting reverse
repurchase transactions, securities of a dollar amount equal in value to the
securities subject to the agreement will be maintained in a segregated account
with the Fund's custodian. A reverse repurchase agreement involves the risk that
the market value of the portfolio securities sold by the Fund may decline below
the price of the securities the Fund is obligated to repurchase, which price is
fixed at the time the Fund enters into such agreement.
SECURITIES LOANS, REPURCHASE AGREEMENTS, WHEN-ISSUED AND FORWARD COMMITMENTS
TRANSACTIONS
The Fund may lend portfolio securities in an amount up to 30% of its assets to
broker-dealers, major banks or other recognized domestic institutional borrowers
of securities. The Fund may also enter into repurchase agreements with dealers,
domestic banks or recognized financial institutions which, in the opinion of the
Adviser, present minimal credit risks. These transactions must be fully
collateralized at all times, but involve some risk to the Fund if the other
party should default on its obligations and the Fund is delayed or prevented
from recovering the collateral. The Fund may also purchase securities on a
when-issued basis or for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the value of the securities
declines prior to the settlement date.
ZERO COUPON SECURITIES AND DISCOUNT OBLIGATIONS
The Fund may invest in zero coupon securities and a substantial portion of the
Fund's sovereign debt securities may be acquired at a discount. These
investments involve special risk considerations. Zero coupon securities are debt
securities that pay no cash income but are sold at substantial discounts from
their value at maturity. When a zero coupon security is held to maturity, its
entire return, which consists of the amortization of discount, comes from the
difference between its purchase price and its maturity value. This difference is
known at the time of purchase, so that investors holding zero coupon securities
until maturity know at the time of their investment what the return on their
investment will be. Certain zero coupon securities also are sold at substantial
discounts from their maturity value and provide for the commencement of regular
interest payments at a deferred date.
Zero coupon securities and debt securities acquired at a discount are subject to
greater price fluctuations in response to changes in interest rates than are
ordinary interest-paying debt securities with similar maturities; the value of
zero coupon securities and debt securities acquired at a discount appreciates
more during periods of declining interest rates and depreciates more during
periods of rising interest rates. Under current federal income tax law, the Fund
is required to accrue as income each year the value of a portion of the original
issue discount with respect to zero coupon securities and other securities
issued at a discount to the stated redemption price. In addition, the Fund will
elect similar treatment for any market discount with respect to debt securities
acquired at a discount. Accordingly, the Fund may have to dispose of portfolio
securities under disadvantageous circumstances in order to generate current cash
to satisfy certain distribution requirements.
FOREIGN SECURITIES
The Fund may invest in securities of foreign issuers. When the Fund invests in
foreign securities, they may be denominated in foreign currencies. Thus, the
Fund's net asset value may be affected by changes in exchange rates.
See "Special Risk Considerations."
HEDGING AND OTHER STRATEGIC TRANSACTIONS
The Fund may use, as a portfolio management strategy, cross currency hedges,
interest rate transactions, commodity futures contracts in the form of futures
contracts on securities, securities indices and foreign currencies, and related
options transactions. The Fund also may enter into forward foreign currency
contracts and options transactions to hedge in connection with currency and
interest rate positions and in order to enhance the Fund's income or gain.
See "Special Risk Considerations--Hedging and Other Strategic Transactions."
5
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FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may purchase or sell forward foreign currency exchange contracts
("forward contracts") as part of its portfolio investment strategy to hedge all
non-dollar investments with the U.S. dollar. A forward contract is an obligation
to purchase or sell a specific currency for an agreed price at a future date
which is individually negotiated and privately traded by currency traders and
their customers. The Fund may enter into a forward contract, for example, when
it enters into a contract for the purchase or sale of a security denominated in
a foreign currency in order to "lock in" the U.S. dollar price of the security
("transaction hedge"). Unanticipated changes in currency prices may result in
poorer overall performance for the Fund than if it had not entered into such
contracts. If the party with which the Fund enters into a forward contract
becomes insolvent or breaches its obligation under the contract, then the Fund
may lose the ability to purchase or sell a currency as desired.
ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including securities which are not readily marketable, time
deposits and repurchase agreements not terminable within seven days. Illiquid
assets are assets which may not be sold or disposed of in the ordinary course of
business within seven days at approximately the value at which the Fund has
valued the investment. Securities that have readily available market quotations
are not deemed illiquid for purposes of this limitation (irrespective of any
legal or contractual restrictions on resale). The Fund may purchase securities
that are not registered under the Securities Act of 1933, as amended, but which
can be sold to qualified institutional buyers in accordance with Rule 144A under
that Act ("Rule 144A securities"). Rule 144A securities generally must be sold
to other qualified institutional buyers. If a particular investment in Rule 144A
securities is not determined to be liquid, that investment will be included
within the 15% limitation on investment in illiquid securities. The ability to
sell Rule 144A securities to qualified institutional buyers is a recent
development and it is not possible to predict how this market will mature. The
Adviser will monitor the liquidity of such restricted securities under the
supervision of the Board of Directors.
OTHER INVESTMENT COMPANIES
The Fund reserves the right to invest up to 10% of its total assets in the
securities of other investment companies. The Fund may not invest more than 5%
of its total assets in the securities of any one investment company or acquire
more than 3% of the voting securities of any other investment company. The Fund
does not intend to invest in such investment companies unless, in the judgment
of the Adviser, the potential benefits of such investment justify the payment of
any premium to net asset value of the investment company or of any sales charge.
The Fund will indirectly bear its proportionate share of any management fees and
other expenses paid by investment companies in which it invests in addition to
the advisory fee paid by the Fund.
FUTURE DEVELOPMENTS
The Fund may, following notice to its shareholders, take advantage of other
investment practices which are not at present contemplated for use by the Fund
or which currently are not available but which may be developed, to the extent
such investment practices are both consistent with the Fund's investment
objective and legally permissible for the Fund. Such investment practices, if
they arise, may involve risks which exceed those involved in the activities
described above.
TEMPORARY STRATEGIES
The Fund retains the flexibility to respond promptly to changes in market and
economic conditions. Accordingly, consistent with the Fund's investment
objective, the Adviser may employ a temporary defensive investment strategy if
it determines such a strategy is warranted. Under such a defensive strategy, the
Fund temporarily may hold cash and/or invest up to 100% of its assets in U.S.
money market instruments and most or all of the Fund's investments may be made
in the United States and denominated in U.S. dollars.
In addition, pending investment of proceeds from new sales of Fund shares or to
meet ordinary daily cash needs, the Fund temporarily may hold cash and may
invest any portion of its assets in high quality domestic money market
instruments.
PORTFOLIO TURNOVER
The Fund will not trade in securities with the intention of generating
short-term profits but, when circumstances warrant, securities may be sold
without regard to the length of time held. It is not anticipated that, under
normal conditions, the portfolio turnover rate for the Fund will exceed 100% in
any one year. A high rate of portfolio
6
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turnover (100% or more) involves correspondingly greater brokerage commission
expenses and/or markups and markdowns, which will be borne directly by the Fund
and indirectly by the Fund's shareholders. High portfolio turnover may also
result in the realization of substantial net capital gains.
SPECIAL RISK CONSIDERATIONS
GENERAL
The Fund's net asset value will fluctuate, reflecting fluctuations in the market
value of its portfolio positions. The value of the Fund's fixed income
securities generally fluctuates inversely with interest rate movements and fixed
income securities with longer maturities tend to be subject to increased
volatility. There is no assurance that the Fund will achieve its investment
objectives.
INTEREST RATE FLUCTUATIONS
The performance of the Fund depends in part on interest rate changes. As
interest rates increase, the value of the fixed income securities held by the
Fund tends to decrease. This effect will be more pronounced with respect to
investments by the Fund in mortgage-related securities, the value of which are
more sensitive to interest rate changes. There is no restriction on the maturity
of the Fund's portfolio or any individual portfolio security, and to the extent
the Fund invests in securities with longer maturities, the volatility of the
Fund in response to changes in interest rates can be expected to be greater than
if the Fund had invested in comparable securities with shorter maturities. The
performance of the Fund will also depend on the quality of its investments.
While U.S. Government securities generally are of high quality, government
securities that are not backed by the full faith and credit of the U.S. Treasury
may be affected by changes in the creditworthiness of the agency that issued
them. Guarantees of principal and interest on obligations that may be purchased
by the Fund are not guarantees of the market value of such obligations, nor do
they extend to the value of shares of the Fund. Other fixed-income securities in
which the Fund may invest, while of investment-grade quality, may be of lesser
credit quality than U.S.
Government securities.
SOVEREIGN DEBT SECURITIES
Investing in sovereign debt securities will expose the Fund to the direct or
indirect consequences of political, social or economic changes in the countries
that issue the securities. The ability and willingness of sovereign obligors or
the governmental authorities that control repayment of their external debt to
pay principal and interest on such debt when due may depend on general economic
and political conditions within the relevant country. Additional factors which
may influence the ability or willingness to service debt include, but are not
limited to, a country's cash flow situation, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of its debt
service burden to the economy as a whole, and its government's policy towards
the International Monetary Fund, the World Bank and other international
agencies.
The ability of a foreign sovereign obligor to make timely and ultimate payments
on its external debt obligations will also be strongly influenced by the
obligor's balance of payments, including export performance, its access to
international credits and investments, fluctuations in interest rates and the
extent of its foreign reserves. A country whose exports are concentrated in a
few commodities or whose economy depends on certain strategic imports could be
vulnerable to fluctuations in international prices of these commodities or
imports. To the extent that a country receives payment for its exports in
currencies other than U.S. dollars, its ability to make debt payments
denominated in dollars could be adversely affected. If a foreign sovereign
obligor cannot generate sufficient earnings from foreign trade to service its
external debt, it may need to depend on continuing loans and aid from foreign
governments, commercial banks and multilateral organizations, and inflows of
foreign investment. The commitment on the part of these foreign governments,
multilateral organizations and others to make such disbursements may be
conditioned on the government's implementation of economic reforms and/or
economic performance and the timely service of its obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may curtail the willingness of such third parties
to lend funds, which may further impair the obligor's ability or willingness to
service its debts in a timely manner. The cost of servicing external debt will
also generally be adversely affected by rising international interest rates,
because many external debt obligations bear interest at rates which are adjusted
based upon international interest rates. The ability to service external debt
will also depend on the level of the relevant government's international
currency reserves and its
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access to foreign exchange. Currency devaluations may affect the ability of a
sovereign obligor to obtain sufficient foreign exchange to service its external
debt.
As a result of the foregoing, a governmental obligor may default on its
obligations. If such a default occurs, the Fund may have limited legal recourse
against the issuer and/or guarantor. Remedies must, in some cases, be pursued in
the courts of the defaulting party itself, and the ability of the holder of
foreign sovereign debt securities to obtain recourse may be subject to the
political climate in the relevant country. In addition, no assurance can be
given that the holders of commercial bank debt will not contest payments to the
holders of other foreign sovereign debt obligations in the event of default
under their commercial bank loan agreements.
HEDGING AND OTHER STRATEGIC TRANSACTIONS
The Fund is authorized to use a variety of investment strategies to hedge
various market risks (such as interest rates, currency exchange rates and broad
or specific market movements), to manage the effective maturity or duration of
debt instruments held by the Fund, or, with respect to certain strategies, to
seek to increase the Fund's income or gain (such investment strategies and
transactions are referred to herein as "Hedging and Other Strategic
Transactions"). Currently, the Fund may use, as portfolio management strategies,
interest rate transactions, commodity futures contracts in the form of futures
contracts on securities, securities indices and foreign currencies, and related
options transactions. The Fund also may enter into forward foreign currency
contracts and options transactions to hedge in connection with currency and
interest rate positions and in order to enhance the Fund's income or gain.
A discussion of the risks associated with Hedging and Other Strategic
Transactions follows below. The Fund does not make any representation as to the
availability of these techniques at this time or at any time in the future. In
addition, the Fund's ability to pursue certain of these strategies may be
limited by the Commodity Exchange Act, as amended, applicable rules and
regulations of the Commodity Futures Trading Commission ("CFTC") thereunder and
the federal income tax requirements applicable to regulated investment companies
which are not operated as commodity pools. To the extent not otherwise
restricted by the Commission, the CFTC, the Code or its investment objective and
policies, the Fund may utilize, without limitation, Hedging and Other Strategic
Transactions. For further information see "Additional Information on Investment
Policies and Techniques - Hedging and Other Strategic Transactions" and
"Additional Information Concerning Taxes" in the Statement of Additional
Information.
IN GENERAL
Subject to the constraints described above, the Fund may (if and to the extent
so authorized) purchase and sell (or write) exchange-listed and over-the-counter
put and call options on securities, index futures contracts, financial futures
contracts and fixed income indices and other financial instruments, and enter
into financial futures contracts, interest rate transactions and currency
transactions (collectively, these transactions are referred to in this
Prospectus as "Hedging and Other Strategic Transactions"). The Fund's interest
rate transactions may take the form of swaps, caps, floors and collars, and the
Fund's currency transactions may take the form of currency forward contracts,
currency futures contracts, currency swaps and options on currencies or currency
futures contracts.
Hedging and Other Strategic Transactions may generally be used to attempt to
protect against possible changes in the market value of securities held or to be
purchased by the Fund resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
securities, to facilitate the sale of those securities for investment purposes,
to manage the effective maturity or duration of the Fund's securities or to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities. Although the Fund intends to fully
hedge its exposure to foreign currencies versus the U.S. dollar, the Fund may
use any or all types of Hedging and Other Strategic Transactions which it is
authorized to use at any time; no particular strategy will dictate the use of
one type of transaction rather than another, as use of any authorized Hedging
and Other Strategic Transaction will be a function of numerous variables,
including market conditions. The ability of the Fund to utilize Hedging and
Other Strategic Transactions successfully will depend on, in addition to the
factors described above, the Adviser's ability to predict pertinent market
movements, which cannot be assured. These skills are different from those needed
to select the Fund's securities. The Fund is not a "commodity pool" (i.e., a
pooled investment vehicle which trades in commodity futures contracts and
options thereon and the operator of which is registered with the Commodity
Futures Trading Commission (the "CFTC")) and Hedging and Other Strategic
Transactions involving futures contracts and options on futures contracts will
be
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purchased, sold or entered into only for bona fide hedging, and non-hedging
purposes to the extent permitted by CFTC regulations; provided that the Fund may
enter into futures contracts or options thereon for purposes other than bona
fide hedging if immediately thereafter, the sum of the amount of its initial
margin and premiums on open contracts would not exceed 5% of the liquidation
value of the Fund's portfolio; provided further, than in the case of an option
that is in-the-money at the time of the purchase, the in-the-money amount may be
excluded in calculating the 5% limitation. A detailed discussion of various
Hedging and Other Strategic Transactions, including applicable regulations of
the CFTC appears in the Statement of Additional Information.
RISKS OF HEDGING AND OTHER STRATEGIC TRANSACTIONS
Hedging and Other Strategic Transactions have special risks associated with
them, including possible default by the Counterparty to the transaction,
illiquidity and, to the extent the Adviser's view as to certain market movements
is incorrect, the risk that the use of the Hedging and Other Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options could result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, or cause the Fund to hold a security it might otherwise sell.
The use of futures and options transactions entails certain special risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related securities position of the
Fund could create the possibility that losses on the hedging instrument are
greater than gains in the value of the Fund's position. In addition, futures and
options markets could be illiquid in some circumstances and certain
over-the-counter options could have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses. Although the Fund's use of futures and options transactions
for hedging should tend to minimize the risk of loss due to a decline in the
value of the hedged position, at the same time it will tend to limit any
potential gain to the Fund that might result from an increase in value of the
position. Finally, the daily variation margin requirements for futures contracts
create a greater ongoing potential financial risk than would purchases of
options, in which case the exposure is limited to the cost of the initial
premium.
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to the Fund if the currency being hedged fluctuates in value to a degree
or in a direction that is not anticipated. Currency transactions are also
subject to risks different from those of other portfolio transactions. Because
currency control is of great importance to the issuing governments and
influences economic planning and policy, purchases and sales of currency and
related instruments can be adversely affected by government exchange controls,
limitations or restrictions on repatriation of currency, and manipulations or
exchange restrictions imposed by governments. These forms of governmental
actions can result in losses to the Fund if it is unable to deliver or receive
currency or monies in settlement of obligations and could also cause hedges it
has entered into to be rendered useless, resulting in full currency exposure as
well as incurring transaction costs. Buyers and sellers of currency futures
contracts are subject to the same risks that apply to the use of futures
contracts generally. Further, settlement of a currency futures contract for the
purchase of most currencies must occur at a bank based in the issuing nation.
Trading options on currency futures contracts is relatively new, and the ability
to establish and close out positions on these options is subject to the
maintenance of a liquid market that may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
Losses resulting from the use of Hedging and Other Strategic Transactions will
reduce the Fund's net asset value, and possibly income, and the losses can be
greater than if Hedging and Other Strategic Transactions had not been used.
RISKS OF HEDGING AND OTHER STRATEGIC TRANSACTIONS OUTSIDE THE UNITED STATES
When conducted outside the United States, Hedging and Other Strategic
Transactions may not be regulated as rigorously as in the United States, may not
involve a clearing mechanism and related guarantees, and will be subject to the
risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of positions taken as
part of non-U.S. Hedging and Other Strategic Transactions also could be
adversely affected by: (1) other complex foreign political, legal and economic
factors, (2) lesser availability of data on which to make trading decisions than
in the United States, (3) delays in the Fund's ability to act upon
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economic events occurring in foreign markets during non-business hours in the
United States, (4) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States and (5) lower
trading volume and liquidity.
LIMITING INVESTMENT RISKS
To further protect investors, the Fund has adopted the following investment
limitations:
1. The Fund may not invest 25% or more of the value of its total
assets in securities of issuers in any one industry; provided that
there is no limitation with respect to investment in obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
2. The Fund may (i) borrow in an amount up to 25% of its total assets
(including the amount borrowed), less all liabilities and
indebtedness other than the borrowing and (ii) enter into reverse
repurchase agreements.
3. The Fund may not invest an amount equal to 15% or more of the
current value of its net assets in investments that are illiquid.
The foregoing investment limitations and certain of those described in the
Statement of Additional Information under "Investment Limitations" are
fundamental policies of the Fund that may be changed only when permitted by law
and approved by the holders of a "majority" of the Fund's outstanding shares. If
a percentage restriction on investment or use of assets contained in these
investment limitations or elsewhere in this Prospectus or Statement of
Additional Information is adhered to at the time a transaction is effected,
later changes in percentage resulting from any cause other than actions by the
Fund will not be considered a violation; provided, that the restrictions on
borrowing described in (2) above shall apply at all times. As used in this
Prospectus and in the Statement of Additional Information, the term "majority",
when referring to the approvals to be obtained from shareholders in connection
with matters affecting the Fund (e.g., approval of investment advisory
contracts), means the vote of the lesser of (i) 67% of the shares of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of the Fund are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of the Fund. Shareholders are entitled to one vote for
each full share held and to fractional votes for fractional shares held.
MANAGEMENT
The business and affairs of the Fund are managed under the general direction and
supervision of the Company's Board of Directors. The Fund's day-to-day
operations are handled by the Company's officers.
INVESTMENT ADVISER
OFFITBANK provides investment advisory services to the Fund pursuant to an
Investment Advisory Agreement with the Company (the "Advisory Agreement").
Subject to such policies as the Company's Board of Directors may determine, the
Adviser makes investment decisions for the Fund.
The Advisory Agreement provides that, as compensation for services, the Adviser
is entitled to receive from the Fund a monthly fee at the annual rate of _____%
of the average daily net assets of the Fund. The investment advisory fee for the
Fund is higher than that paid by most investment companies, but is comparable to
that paid by other investment companies that have strategies focusing on high
yield and international investments.
The Adviser is a New York State chartered trust company. Under its charter, the
Adviser may neither accept deposits nor make loans except for deposits or loans
arising directly from its exercise of the fiduciary powers granted it under the
New York Banking Law. The Adviser's principal business is the rendering of
discretionary investment management services to high net worth individuals and
family groups, foundations, endowments and corporations. The Adviser specializes
in global assets management and offers its clients a complete range of
investments in capital markets throughout the world. The Adviser currently
manages in excess of $7 billion in
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assets and serves as investment adviser to twenty registered investment
companies (or portfolios thereof). The principal business address of the Adviser
is 520 Madison Avenue, New York, New York 10022.
PORTFOLIO MANAGER. Jack D. Burks will be the portfolio manager for the Fund. Mr.
Burks is a Managing Director of the Adviser and has been associated with the
Adviser in since 1984.
ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
Furman Selz LLC ("Furman Selz") serves as the Company's administrator and
generally assists the Company in all aspects of its administration and
operation. The Chase Manhattan Bank, N.A. serves as custodian of the assets of
the Fund. Furman Selz also provides transfer agency services and dividend
disbursing services for the Fund. The principal business addresses of Furman
Selz and The Chase Manhattan Bank, N.A. are: 230 Park Avenue, New York, New York
10169 and 4 Metrotech Center, Brooklyn, New York 11245, respectively.
ABOUT YOUR INVESTMENT
Shares of the Fund are offered on a continuous basis directly by OFFIT Funds
Distributor, Inc., the Fund's Principal Underwriter, to the Accounts without any
sales or other charge, at the Fund's net asset value on each day on which the
New York Stock Exchange ("NYSE") is open for business. The Company will effect
orders to purchase or redeem shares of the Fund, that are based on premium
payments, surrender and transfer requests and any other transaction requests
from Contract and Policy Owners, annuitants and beneficiaries, at the Fund's net
asset value per share next computed after the Account receives such transaction
request. Any orders to purchase or redeem Fund shares that are not based on
actions by Contract or Policy Owners, annuitants, and beneficiaries will be
effected at the Fund's net asset value per share next computed after the order
is received by the Distributor. The Fund reserves the right to suspend the sale
of the Fund's shares in response to conditions in the securities markets or for
other reasons.
Individuals may not place orders directly with the Fund. Please refer to the
appropriate Account Prospectus of the Participating Company for more information
on the purchase of Portfolio shares.
REDEMPTION OF SHARES
An Account may redeem all or any portion of the shares of the Fund in its
account at any time at the net asset value per share of the Fund calculated in
the manner described above. Shares redeemed are entitled to earn dividends, if
any, up to and including the day redemption is effected. There is no redemption
charge. Payment of the redemption price will normally be made within seven days
after receipt of such tender for redemption.
The right of redemption may be suspended or the date of payment may be postponed
for any period during which the NYSE is closed (other than customary weekend and
holiday closings) or during which the SEC determines that trading thereon is
restricted, or for any period during which an emergency (as determined by the
SEC) exists as a result of which disposal by the Fund of securities is not
reasonably practicable or as a result of which it is not reasonably practicable
for the Company fairly to determine the value of the Fund's net assets, or for
such other periods as the SEC may by order permit for the protection of security
holders of the Company.
EXCHANGE PRIVILEGE
A Contract or Policy Owner investing through an Account may exchange shares of
the Fund for shares of any of the other investment portfolios of the Company on
the basis of their respective net asset values.
HOW THE COMPANY VALUES ITS SHARES
The net asset value per share of the Fund is calculated once daily at 4:15 p.m.,
New York time, Monday through Friday, each day the NYSE is open. The net asset
value per share of the Fund is computed by dividing the value of the net assets
of the Fund by the total number of Fund shares outstanding. Equity securities
held by the Fund are valued at the last sale price on the exchange or in the
principal over-the-counter market in which such securities are traded, as of the
close of business on the day the securities are being valued or, lacking any
sales, at the last available bid price. Debt securities held by the Fund
generally are valued based on quoted bid prices. Short-term debt investments
having maturities of 60 days or less are amortized to maturity based on their
cost, and if applicable, adjusted for foreign exchange translation. Foreign
securities are valued on the basis of quotations from
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the primary market in which they are traded and are translated from the local
currency into U.S. dollars using prevailing exchange rates.
Securities for which market quotations are not readily available are valued at
fair value determined in good faith by or under the direction of the Company's
Board of Directors (as may be delegated from time to time to a pricing committee
designated by the Board of Directors). Securities may be valued by independent
pricing services which use prices provided by market-makers or estimates of
market values obtained from yield data relating to instruments or securities
with similar characteristics.
HOW DISTRIBUTIONS ARE MADE: TAX INFORMATION
DISTRIBUTIONS
The Fund will declare dividends from net investment income daily and paid
monthly and will distribute its net capital gains, if any, at least annually.
Such income and capital gains distributions will be made in shares of the Fund.
TAX MATTERS
THE FUND. The Fund intends to qualify as a regulated investment company by
satisfying the requirements under Subchapter M of the Internal Revenue Code, as
amended (the "Code"), concerning the diversification of assets, distribution of
income, and sources of income. When the Fund qualifies as a regulated investment
company and all of its taxable income is distributed in accordance with the
timing requirements imposed by the Code, the Fund will not be subject to Federal
income tax. If, however, for any taxable year the Fund does not qualify as a
regulated investment company, then all of its taxable income will be subject to
tax at regular corporate rates (without any deduction for distributions to the
Accounts), and the receipt of such distributions will be taxable to the extent
that the Fund has current and accumulated earnings and profits.
FUND DISTRIBUTIONS. Distributions by the Fund are taxable, if at all, to the
Accounts, and not to Contract or Policy Owners. An Account will include
distributions in its taxable income in the year in which they are received
(whether paid in cash or reinvested).
SHARE REDEMPTIONS. Redemptions of the shares held by the Accounts generally will
not result in gain or loss for the Accounts and will not result in gain or loss
for the Contract or Policy Owners.
SUMMARY. The foregoing discussion of Federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus, and is
subject to change by legislative or administrative action. The foregoing
discussion also assumes that the Accounts are the owners of the shares and that
Policies or Contracts qualify as life insurance policies or annuities,
respectively, under the Code. If the foregoing requirements are not met then the
Contract or Policy owners will be treated as recognizing income (from
distributions or otherwise) related to the ownership of Fund shares. The
foregoing discussion is for general information only; a more detailed discussion
of Federal income tax considerations is contained in the Statement of Additional
Information. Contract or Policy Owners must consult the prospectuses of their
respective Contract or Policy for information concerning the Federal income tax
consequences of owning such Contracts or Policies.
SHAREHOLDER COMMUNICATIONS
It is expected that Contract or Policy Owners will receive from the
Participating Companies for which shares of the Fund are the investment vehicle,
reports that will include, among other things, the Company's unaudited
semi-annual financial statements and year-end financial statements audited by
the Company's independent accountants. Each report will show the investments
owned by the Fund and will provide other information about the Fund and its
operations. It is expected that the Company will pay a portion of the cost of
preparing certain of these reports. Contract and Policy Owners may obtain
information about their investment on any business day by calling toll-free
1-800-618-9510 between 8:15 a.m. and 6:00 p.m., New York time. Specially trained
representatives will answer questions and provide information about Contract and
Policy Owners' accounts.
Each Account owning shares of the Fund will vote its shares in accordance with
instructions received from Contract or Policy Owners, annuitants and
beneficiaries. Fund shares held by an Account as to which no instructions have
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<PAGE>
been received will be voted for or against any proposition, or in abstention, in
the same proportion as the shares of that Account as to which instructions have
been received. Fund shares held by an Account that are not attributable to
Contracts or Policies will also be voted for or against any proposition in the
same proportion as the shares for which voting instructions are received by the
Account. If the Participating Insurance Company determines, however, that it is
permitted to vote any such shares of the Fund in its own right, it may elect to
do so, subject to the then current interpretation of the 1940 Act and the rules
thereunder.
PERFORMANCE INFORMATION
From time to time the Fund may advertise certain information about its
performance. The Fund may present standardized and nonstandardized total return
in advertisements or other written material. Standardized total return is
calculated in accordance with the Commission's formula. Nonstandardized total
return differs from the standardized total return only in that it may be related
to a nonstandard period or is presented in the aggregate rather than as an
annual average. In addition, the Fund may make available information as to its
respective "yield" and "effective yield" over a thirty-day period, as calculated
in accordance with the Commission's prescribed formula. The "effective yield"
assumes that the income earned by an investment in the Fund is reinvested, and
will therefore be slightly higher than the yield because of the compounding
effect of this assumed reinvestment.
The performance of the Fund may be quoted and compared to those of other mutual
funds with similar investment objectives and to other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. The performance
information may also include evaluations of the Fund published by nationally
recognized ranking services and by various national or local financial
publications, such as Business Week, Forbes, Fortune, Institutional Investor,
Money, The Wall Street Journal, Barron's, Changing Times, Morningstar, Mutual
Fund Values, U.S.A. Today or The New York Times or other industry or financial
publications.
The Fund's performance information is historical, will fluctuate and should not
be considered as representative of future results. The Commission's formulas for
calculating performance are described under "Performance Information" in the
Statement of Additional Information. Quotations of the Fund's performance will
not reflect charges levied at the Account level.
COUNSEL; INDEPENDENT ACCOUNTANTS
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York, serves
as counsel to the Company. Price Waterhouse LLP serves as the independent
accountants to the Company. Price Waterhouse LLP is located at 1177 Avenue of
the Americas, New York, New York 10036.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTORS IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
<PAGE>
PROSPECTUS
THE OFFITBANK VARIABLE INSURANCE FUND, INC. , 1996
- --------------------------------------------------------------------------------
OFFITBANK VIF-U.S. SMALL CAP FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OFFITBANK VIF-U.S. Small Cap Fund (the "Fund") is an investment portfolio of the
OFFITBANK Variable Insurance Fund, Inc. (the "Company"), an open-end, management
investment company. The Fund's investment objective is to achieve capital
appreciation rather than dividends or interest income. The Fund will seek to
achieve its objective by investing principally in a diversified portfolio of
securities of smaller companies located primarily in the United States. Up to
10% of the Fund's portfolio may be in companies located anywhere in the world.
At least 65% of the Fund's portfolio will consist of securities of smaller
portfolio companies with a capitalization of $1 billion or less, although the
Fund may also invest in any company, entity or vehicle that conforms to its
investment objective, including investments such as warrants and convertible
debt securities. The Fund intends to invest primarily in publicly-held
companies.
THE FUND WILL INVEST IN SMALL CAPITALIZATION ISSUERS WHICH ARE MORE VOLATILE
THAN INVESTMENTS IN ISSUERS WITH MARKET CAPITALIZATION GREATER THAN $1 BILLION
DUE TO THE LACK OF DIVERSIFICATION IN THE BUSINESS ACTIVITIES, AND CORRESPONDING
GREATER SUSCEPTIBILITY TO CHANGES IN THE BUSINESS CYCLE OF SMALL CAPITALIZATION
ISSUERS. IT MAY ALSO INVEST IN HIGH RISK CORPORATE DEBT SECURITIES THAT ARE
CONSIDERED SPECULATIVE AND SUBJECT TO CERTAIN RISKS. SEE "INVESTMENT OBJECTIVE
AND POLICIES" AND "SPECIAL RISK CONSIDERATIONS". There can be no assurance that
the Fund's investment objective will be achieved.
OFFITBANK, a trust company specializing in global fixed income management,
serves as the Fund's investment adviser (the "Adviser"). The Adviser currently
manages in excess of $7 billion in assets principally invested in global fixed
income securities. The address of the Company is 237 Park Avenue, Suite 910, New
York, New York 10017. _________________________ (the "SubAdviser") has been
engaged to provide investment advisory services, including portfolio management,
to the Fund, subject to the supervision of the Adviser. Yield and other
information regarding the Fund may be obtained by calling 1-800-618-9510.
SHARES OF THE FUND ARE SOLD ONLY TO CERTAIN LIFE INSURANCE COMPANIES
(COLLECTIVELY, "PARTICIPATING COMPANIES") AND THEIR SEPARATE ACCOUNTS
(COLLECTIVELY, THE "ACCOUNTS") TO FUND BENEFITS UNDER VARIABLE ANNUITY CONTRACTS
("CONTRACTS") AND VARIABLE LIFE INSURANCE POLICIES ("POLICIES") TO BE OFFERED BY
THE PARTICIPATING COMPANIES. THE ACCOUNTS INVEST IN SHARES OF THE FUND IN
ACCORDANCE WITH ALLOCATION INSTRUCTIONS RECEIVED FROM CONTRACT AND POLICY OWNERS
("CONTRACT OWNERS" OR "POLICY OWNERS," AS APPROPRIATE). SUCH ALLOCATION RIGHTS
ARE FURTHER DESCRIBED IN THE ACCOMPANYING ACCOUNT PROSPECTUS. SHARES ARE
REDEEMED TO THE EXTENT NECESSARY TO PROVIDE BENEFITS UNDER THE CONTRACTS AND
POLICIES.
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus in conjunction with the prospectus for the Contract or Policy which
accompanies this Prospectus and retain this Prospectus for future reference.
Additional information about the Fund, contained in a Statement of Additional
Information dated ___________, 1996, as amended or supplemented from time to
time, has been filed with the Securities and Exchange Commission (the
"Commission") and is available to investors without charge by calling
1-800-618-9510. The Statement of Additional Information is incorporated in its
entirety by reference into this Prospectus.
INVESTORS ARE ADVISED THAT SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR ENDORSED OR GUARANTEED BY, OFFITBANK OR ANY AFFILIATE OF OFFITBANK, NOR
ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. THE COMPANY IS NOT AUTHORIZED TO
ENGAGE IN THE BUSINESS OF BANKING.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
WHAT YOU NEED TO KNOW
The Company......................... How the Company Values Its Shares..........
Investment Objective and Policies... How Distributions are Made: Tax Information
Investment Policies and Techniques.. Shareholder Communications ................
Special Risk Considerations......... Performance Information....................
Limiting Investment Risks........... Counsel; Independent Accountants...........
Management..........................
About Your Investment...............
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THE COMPANY
The Company is designed to serve as a funding vehicle for Contracts and Policies
offered by the Accounts of Participating Companies. Shares of the Fund are
offered only to the Accounts through OFFIT Funds Distributor, Inc. (the
"Distributor"), the principal underwriter for the Company. The Fund is a
no-load, separate investment portfolio of the Company, an open-end management
investment company. The Company is not authorized to engage in the business of
banking.
Shares of the Company are offered to Accounts of Participating Companies that
may not be affiliated with each other. The Participating Companies and their
Accounts may be subject to insurance regulation that varies between states and
to state insurance and federal tax or other regulation that varies between
Contracts and Policies. The Company does not currently foresee any disadvantages
to Contract or Policy Owners arising from these circumstances. However, it is
theoretically possible that the interests of Contract or Policy Owners
participating in the Company through the Accounts might at some time be in
conflict. In some cases, one or more Accounts might withdraw their investment in
the Fund, which could possibly force the Company to sell portfolio securities at
disadvantageous prices. The Company's Directors intend to monitor events in
order to identify any material irreconcilable conflicts that may possibly arise
and to determine what action, if any, should be taken in response thereto.
INVESTMENT OBJECTIVE AND POLICIES
The Fund has an investment objective which it pursues through investment
policies as described below. The objective and policies of the Fund can be
expected to affect the return of the Fund and the degree of market and financial
risk to which the Fund is subject. For more information about the investment
strategies employed by the Fund, see "Investment Policies and Techniques." The
investment objective and policies of the Fund may, unless otherwise specifically
stated, be changed by the Directors of the Company without a vote of the
shareholders. As a matter of policy, the Directors would not materially change
the investment objective of the Fund without shareholder approval. There is no
assurance that the Fund will achieve its objective.
Additional portfolios may be created from time to time with different investment
objectives and policies for use as funding vehicles for the Accounts or for
other insurance products. In addition, the Directors may, subject to any
necessary regulatory approvals, create more than one class of shares in the
Fund, with the classes being subject to different charges and expenses and
having such other different rights as the Directors may prescribe.
The investment objective of the Fund is to achieve capital appreciation rather
than dividends or interest income. The Fund will seek to achieve its objective
by investing principally in a diversified portfolio of securities of smaller
publicly-held companies located primarily in the United States. Up to 10% of the
Fund's portfolio, however, may consist of securities of companies located
anywhere in the world. At least 65% of the Fund's portfolio will consists of
securities of smaller companies with a capitalization of $1 billion or less,
although the Fund may also invest in any company, entity or vehicle that
conforms to its investment objective, including investments such as convertible
debt securities and warrants. The Fund intends to invest primarily in
publicly-held companies.
The Fund will invest primarily in companies which are expected to meet most of
the following criteria: the company should have a market position in a fast
growing segment of the economy, good management, preferably a leading position
in its business, superior financial returns (i.e., primarily return on assets
and invested capital) with ability to self-finance, and a reasonable market
valuation. While the Fund will not generally invest in start-ups, it may invest
in stock of companies' initial public securities offerings and companies having
only a few years' operating history.
In addition to investments expected to meet the preceding criteria, the Fund may
also invest in companies which have undervalued assets and in special
situations. Special situations might include private placements, fixed-income
securities, cyclically depressed companies, foreign securities or take-over
candidates. In analyzing convertible debt securities, the Sub-Adviser will
consider both the yield on the convertible security and the potential capital
appreciation that is offered by the underlying common stock.
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The Fund will have a diversified portfolio. It will not ordinarily acquire more
than 5% of the equity securities of any single issuer, although the holding of
higher equity percentages will be considered under some circumstances. It is
expected that no single investment will exceed 5% of the portfolio. In
furthering its objective, the Fund may also engage in indirect investments as
discussed below, including investments in mutual funds, funds directed by other
investment advisers or other pooled vehicles which are consistent with its
objectives. Such investments are not expected to exceed 10% of the portfolio. [
In the case of mutual funds, funds directed by other investment advisers or
other pooled vehicles, a performance fee may be payable by the Fund.] The Fund's
management may alter the proportion of the portfolio invested for defensive
purposes in order to respond to market conditions.
Trading policy (as opposed to investment policy) is determined by market
conditions and is not constrained by tax considerations.
There can be no assurance that the investment methodology employed will satisfy
the Fund's objective of long term capital growth. The Fund believes that
investments that meet its objective potentially offer above average return, but
they are higher risk investments and are expected to fluctuate more widely in
price than the general market. An investor should be aware that investment in
small capitalization issuers may be more volatile than investments in issuers
with market capitalizations greater than $1 billion due to the lack of
diversification in the business activities, limited product lines, markets or
financial resources, and correspondingly greater susceptibility to changes in
the business cycle of small capitalization issuers. Smaller capitalization
stocks as a group may not respond to general market rallies or downturns as much
as other types of equity securities. This investment policy involves the risks
that the changes or trends identified by the Adviser and the Sub-Adviser will
not occur or will not be as significant as projected and that, even if the
changes or trends develop, the particular issues held by the Fund will not
benefit as anticipated from such changes or trends.
The convertible securities that may be held by the Fund include any corporate
debt security or preferred stock that may be converted into underlying shares of
common stock and include both traditional convertible securities and synthetic
convertible securities. The common stock underlying convertible securities may
be issued by a different entity than the issuer of the convertible securities.
Convertible securities entitle the holder to receive interest payments paid on
corporate debt securities or the dividend preference on a preferred stock until
such time as the convertible security matures or is redeemed or until the holder
elects to exercise the conversion privilege.
The Fund believes that the characteristics of convertible securities make them
appropriate investments for an investment company seeking a high total return
from capital appreciation. These characteristics include the potential for
capital appreciation as the value of the underlying common stock increases, and
decreased risks of decline in value relative to the underlying common stock due
to their fixed income nature.
Under normal circumstances, the Fund may invest up to 10% of its assets in other
types of securities including equity securities and nonconvertible debt
securities of U.S. and non-U.S. issuers.
The Fund has established no rating criteria for the debt securities in which it
may invest and such securities may not be rated at all for creditworthiness.
Securities rated in the medium to lower rating categories of nationally
recognized statistical rating organizations and unrated securities of comparable
quality are predominantly speculative with respect to the capacity to pay
interest and repay principal in accordance with the terms of the security and
generally involve a greater volatility of price and risk of default than
securities in higher rating categories. See "Special Risk Considerations -- High
Yield Securities." In purchasing such securities, the Fund will rely on the
Sub-Adviser's judgment, analysis and experience in evaluating the
creditworthiness of an issuer of such securities. The Sub-Adviser will take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters. The Fund does not
intend to purchase debt securities that are in default or which the Adviser
believes will be in default. See Appendix A to this Prospectus for a description
of ratings of Standard & Poor's Corporation ("S&P"), Moody's Investors Services,
Inc. ("Moody's") and Duff & Phelps Credit Rating Co. ("D&P").
3
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INVESTMENT POLICIES AND TECHNIQUES
FOREIGN SECURITIES. The Fund may invest in securities of foreign issuers. When
the Fund invests in foreign securities, they may be denominated in foreign
currencies. Thus, the Fund's net asset value will be affected by changes in
exchange rates. See "Special Risk Considerations."
HEDGING AND OTHER STRATEGIC TRANSACTIONS. The Fund may enter into forward
foreign currency contracts and options transactions to hedge in connection with
currency positions. See "Special Risk Considerations--Hedging and Other
Strategic Transactions."
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may purchase or sell
forward foreign currency exchange contracts ("forward contracts") as part of its
portfolio investment strategy. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date which is
individually negotiated and privately traded by currency traders and their
customers. The Fund may enter into a forward contract, for example, when it
enters into a contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of the security
("transaction hedge"). Additionally, for example, when the Fund believes that a
foreign currency may suffer a substantial decline against the U.S. dollar, it
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. Conversely, when the Fund
believes that the U.S. dollar may suffer a substantial decline against a foreign
currency, it may enter into a forward purchase contract to buy that foreign
currency for a fixed dollar amount ("position hedge"). In this situation, the
Fund may, in the alternative, enter into a forward contract to sell a different
foreign currency for a fixed U.S. dollar amount where the Fund believes that the
U.S. dollar value of the currency to be sold pursuant to the forward contract
will fall whenever there is a decline in the U.S. dollar value of the currency
in which portfolio securities of the Fund are denominated ("cross-hedge"). The
Fund's custodian will place cash not available for investment or U.S. government
securities or other high quality debt securities in a segregated account having
a value equal to the aggregate amount of the Fund's commitments under forward
contracts entered into with respect to position hedges, cross-hedges and
transaction hedges, to the extent they do not already own the security subject
to the transaction hedge. If the value of the securities placed in a segregated
account declines, additional cash or securities will be placed in the account on
a daily basis so that the value of the account will equal the amount of the
Fund's commitments with respect to such contracts. As an alternative to
maintaining all or part of the segregated account, the Fund may purchase a call
option permitting the Fund to purchase the amount of foreign currency being
hedged by a forward sale contract at a price no higher than the forward contract
price or the Fund may purchase a put option permitting the Fund to sell the
amount of foreign currency subject to a forward purchase contract at a price as
high or higher than the forward contract price. Unanticipated changes in
currency prices may result in poorer overall performance for the Fund than if it
had not entered into such contracts. If the party with which the Fund enters
into a forward contract becomes insolvent or breaches its obligation under the
contract, then the Fund may lose the ability to purchase or sell a currency as
desired.
REVERSE REPURCHASE AGREEMENTS. The Fund may borrow by entering into reverse
repurchase agreements. Pursuant to such agreements, the Fund would sell
portfolio securities to financial institutions, such as banks and
broker-dealers, and agree to repurchase them at an agreed upon date, price and
interest payment. When effecting reverse repurchase transactions, securities of
a dollar amount equal in value to the securities subject to the agreement will
be maintained in a segregated account with the Fund's custodian. A reverse
repurchase agreement involves the risk that the market value of the portfolio
securities sold by the Fund may decline below the price of the securities the
Fund is obligated to repurchase, which price is fixed at the time the Fund
enters into such agreement.
ILLIQUID SECURITIES. The Fund will not invest more than 15% of the value of its
net assets in illiquid securities, including securities which are not readily
marketable, time deposits and repurchase agreements not terminable within seven
days. Illiquid assets are assets which may not be sold or disposed of in the
ordinary course of business within seven days at approximately the value at
which the Fund has valued the investment. Securities that have readily available
market quotations are not deemed illiquid for purposes of this limitation
(irrespective of any legal or contractual restrictions on resale). The Fund may
purchase securities that are not registered under the Securities Act of 1933, as
amended, but which can be sold to qualified institutional buyers in accordance
with Rule 144A under that Act ("Rule 144A securities"). Rule 144A securities
generally must be sold to other qualified institutional buyers. If a particular
investment in Rule 144A securities is not determined to be liquid, that
investment will be
4
<PAGE>
included within the 15% limitation on investment in illiquid securities. The
ability to sell Rule 144A securities to qualified institutional buyers is a
recent development and it is not possible to predict how this market will
mature. The Fund may also invest in commercial obligations issued in reliance on
the so-called "private placement" exemption from registration afforded by
Section 4(2) of the Securities Act of 1933, as amended ("Section 4(2) paper").
Section 4(2) paper is restricted as to disposition under the federal securities
laws, and generally is sold to institutional investors such as the Fund who
agree that they are purchasing the paper for investment and not with a view to
public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) paper normally is resold to other institutional
investors like the Fund through or with the assistance of the issuer or
investment dealers who make a market in the Section 4(2) paper, thus providing
liquidity. The Adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors.
CONVERTIBLE SECURITIES. The Fund may invest up to 10% of its assets in
convertible securities, which are bonds, debentures, notes, preferred stocks or
other securities that may be converted into or exchanged for a prescribed amount
of common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the holder
to receive interest generally paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Convertible securities have several unique investment
characteristics such as (1) higher yields than common stocks, but lower yields
than comparable nonconvertible securities, (2) a lesser degree of fluctuation in
value than the underlying stock since they have fixed income characteristics,
and (3) the potential for capital appreciation if the market price of the
underlying common stock increases.
The Fund has no current intention of converting any convertible securities it
may own into equity securities or holding them as an equity investment upon
conversion, although it may do so for temporary purposes. A convertible security
might be subject to redemption at the option of the issuer at a price
established in the convertible security's governing instrument. If a convertible
security held by the Fund is called for redemption, the Fund may be required to
permit the issuer to redeem the security, convert it into the underlying common
stock or sell it to a third party.
OTHER INVESTMENT COMPANIES AND POOLED VEHICLES. The Fund reserves the right to
invest up to 10% of its total assets in the securities of other investment
companies, including mutual funds, investment partnerships and other pooled
investment vehicles. The Fund may not invest more than 5% of its total assets in
the securities of any one investment company or acquire more than 3% of the
voting securities of any other investment company. The Fund does not intend to
invest in such investment companies unless, in the judgment of the Sub-Adviser,
the potential benefits of such investment justify the payment of any premium to
net asset value of the investment company or of any sales charge. The Fund will
indirectly bear its proportionate share of any management fees and other
expenses paid by investment companies or pooled investment products in which it
invests in addition to the advisory fee paid by the Fund.
FUTURE DEVELOPMENTS. The Fund may, following notice to its shareholders, take
advantage of other investment practices which are not at present contemplated
for use by the Fund or which currently are not available but which may be
developed, to the extent such investment practices are both consistent with the
Fund's investment objective and legally permissible for the Fund. Such
investment practices, if they arise, may involve risks which exceed those
involved in the activities described above.
TEMPORARY STRATEGIES. The Fund retains the flexibility to respond promptly to
changes in market and economic conditions. Accordingly, consistent with the
Fund's investment objective, the Adviser may employ a temporary defensive
investment strategy if it determines such a strategy is warranted. Under such a
defensive strategy, the Fund temporarily may hold cash and/or invest up to 100%
of its assets in high quality debt securities or money market instruments of
U.S. or foreign issuers, and most or all of the Fund's investments may be made
in the United States and denominated in U.S. dollars.
In addition, pending investment of proceeds from new sales of Fund shares or to
meet ordinary daily cash needs, the Fund temporarily may hold cash (U.S.
dollars, foreign currencies or multinational currency units) and may invest any
portion of its assets in high quality foreign or domestic money market
instruments.
5
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PORTFOLIO TURNOVER. The Fund will not trade in securities with the intention of
generating short-term profits but, when circumstances warrant, securities may be
sold without regard to the length of time held. It is not anticipated that,
under normal conditions, the portfolio turnover rate for the Fund will exceed
100% in any one year. A high rate of portfolio turnover (100% or more) involves
correspondingly greater brokerage commission expenses and/or markups and
markdowns, which will be borne directly by the Fund and indirectly by the Fund's
shareholders. High portfolio turnover may also result in the realization of
substantial net capital gains.
SPECIAL RISK CONSIDERATIONS
GENERAL
The Fund's net asset value will fluctuate, reflecting fluctuations in the market
value of its portfolio positions and its net currency exposure. The value of the
securities held by the Fund generally fluctuates, to varying degrees, based on,
among other things, (1) interest rate movements, (2) changes in the actual and
perceived creditworthiness of the issuers of such securities, (3) changes in any
applicable foreign currency exchange rates, (4) social, economic or political
factors, (5) factors affecting the industry in which the issuer operates, such
as competition or technological advances and (6) factors affecting the issuer
directly, such as management changes or labor relations. There is no assurance
that the Fund will achieve its investment objective.
FOREIGN SECURITIES
The Fund may invest up to 10% of its total assets in the securities of foreign
issuers located in any foreign country. There are certain risks involved in
investing in securities of companies and governments of foreign nations which
are in addition to the usual risks inherent in domestic investments. These risks
include those resulting from fluctuations in currency exchange rates,
revaluation of currencies, future adverse political and economic developments
and the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions, reduced availability of public information
concerning issuers, the lack of uniform accounting, auditing and financial
reporting standards and other regulatory practices and requirements that are
often generally less rigorous than those applied in the United States. Moreover,
securities of many foreign companies may be less liquid and their prices more
volatile than those securities of comparable U.S. companies. Certain foreign
countries are known to experience long delays between the trade and settlement
dates of securities purchased or sold. In addition, with respect to certain
foreign countries, there is the possibility of expropriation, nationalization,
confiscatory taxation and limitations on the use or removal of funds or other
assets of the Fund, including the withholding of dividends. Foreign securities
may be subject to foreign government taxes that would reduce the net yield on
such securities. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital investment, resources self-sufficiency and
balance of payments positions. Investment in foreign securities will also result
in higher operating expenses due to the cost of converting foreign currency into
U.S. dollars, the payment of fixed brokerage commissions on foreign exchanges,
which generally are higher than commissions on U.S. exchanges, higher valuation
and communications costs and the expense of maintaining securities with foreign
custodians.
HEDGING AND OTHER STRATEGIC TRANSACTIONS
The Fund may be authorized to use a variety of investment strategies to hedge
various market risks such as broad or specific market movements (such investment
strategies and transactions are referred to herein as "Hedging and Other
Strategic Transactions"). Currently, the Fund may use cross currency hedges as a
portfolio management strategy. The Fund also may enter into forward foreign
currency contracts and options transactions to hedge in connection with currency
positions. A discussion of the risks associated with Hedging and Other Strategic
Transactions follows below. The Fund will not be obligated, however, to pursue
any of such strategies and the Fund makes any representation as to the
availability of these techniques at this time or at any time in the future.
IN GENERAL. Subject to the constraints described above, the Fund may (if and to
the extent so authorized) enter into currency transactions. The Fund's currency
transactions may take the form of currency forward contracts, currency futures
contracts, currency swaps and options on currencies or currency futures
contracts.
Hedging and Other Strategic Transactions may generally be used to attempt to
protect against possible changes in the market value of securities held or to be
purchased by the Fund resulting from currency exchange rate fluctuations. The
Fund may use any or all types of Hedging and Other Strategic Transactions which
it is authorized to use at any time; no particular strategy will dictate the use
of one type of transaction rather than another, as use
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of any authorized Hedging and Other Strategic Transaction will be a function of
numerous variables, including market conditions. The ability of the Fund to
utilize Hedging and Other Strategic Transactions successfully will depend on, in
addition to the factors described above, the Sub-Adviser's ability to predict
pertinent market movements, which cannot be assured. These skills are different
from those needed to select the Fund's securities.
RISKS OF HEDGING AND OTHER STRATEGIC TRANSACTIONS. Hedging and Other Strategic
Transactions have special risks associated with them, including possible default
by the Counterparty to the transaction, illiquidity and, to the extent the
Sub-Adviser's view as to certain market movements is incorrect, the risk that
the use of the Hedging and Other Strategic Transactions could result in losses
greater than if they had not been used.
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to the Fund if the currency being hedged fluctuates in value to a degree
or in a direction that is not anticipated. Further, the risk exists that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that the Fund is engaging in proxy hedging.
Currency transactions are also subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be adversely affected by
government exchange controls, limitations or restrictions on repatriation of
currency, and manipulations or exchange restrictions imposed by governments.
These forms of governmental actions can result in losses to the Fund if it is
unable to deliver or receive currency or monies in settlement of obligations and
could also cause hedges it has entered into to be rendered useless, resulting in
full currency exposure as well as incurring transaction costs. Buyers and
sellers of currency futures contracts are subject to the same risks that apply
to the use of futures contracts generally. Further, settlement of a currency
futures contract for the purchase of most currencies must occur at a bank based
in the issuing nation. Trading options on currency futures contracts is
relatively new, and the ability to establish and close out positions on these
options is subject to the maintenance of a liquid market that may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Losses resulting from the use of Hedging and Other Strategic Transactions will
reduce the Fund's net asset value, and possibly income, and the losses can be
greater than if Hedging and Other Strategic Transactions had not been used.
RISKS OF HEDGING AND OTHER STRATEGIC TRANSACTIONS OUTSIDE THE UNITED STATES.
When conducted outside the United States, Hedging and Other Strategic
Transactions may not be regulated as rigorously as in the United States, may not
involve a clearing mechanism and related guarantees, and will be subject to the
risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of positions taken as
part of non-U.S. Hedging and Other Strategic Transactions also could be
adversely affected by: (1) other complex foreign political, legal and economic
factors, (2) lesser availability of data on which to make trading decisions than
in the United States, (3) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (4) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States and (5) lower
trading volume and liquidity.
LIMITING INVESTMENT RISKS
To further protect investors, the Fund has adopted the following investment
limitations:
1. The Fund may not invest more than 5% of its total assets in the
securities of any issuer (except U.S. government securities,
except that up to 25% of the Fund's total assets may be invested
without regard to this limitation).
2. The Fund may not invest 25% or more of the value of its total
assets in securities of issuers in any one industry, provided that
there is no limitation with respect to investment in obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
3. The Fund may not borrow money (except that it may enter into
reverse repurchase agreements) except from banks for temporary or
emergency purposes; provided, that (a) the amount of such
borrowing may not exceed 30% of the value of the Fund's total
assets and (b) the Fund will not purchase portfolio securities
while such outstanding borrowing exceeds 5% of the value of its
total assets.
4. The Fund may not invest an amount equal to 15% or more of the
current value of its net assets in investments that are illiquid.
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The foregoing investment limitations and certain of those described in the
Statement of Additional Information under "Investment Limitations" are
fundamental policies of the Fund that may be changed only when permitted by law
and approved by the holders of a "majority" of the Fund's outstanding shares. If
a percentage restriction on investment or use of assets contained in these
investment limitations or elsewhere in this Prospectus or Statement of
Additional Information is adhered to at the time a transaction is effected,
later changes in percentage resulting from any cause other than actions by the
Fund will not be considered a violation; provided, that the restrictions on
borrowing described in (2) above shall apply at all times. As used in this
Prospectus and in the Statement of Additional Information, the term "majority",
when referring to the approvals to be obtained from shareholders in connection
with matters affecting the Fund (e.g., approval of investment advisory
contracts), means the vote of the lesser of (i) 67% of the shares of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of the Fund are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of the Fund. Shareholders are entitled to one vote for
each full share held and to fractional votes for fractional shares held.
MANAGEMENT
The business and affairs of the Fund are managed under the general direction and
supervision of the Company's Board of Directors. The Fund's day-to-day
operations are handled by the Company's officers.
INVESTMENT ADVISER
OFFITBANK provides investment advisory services to the Fund pursuant to an
Investment Advisory Agreement with the Company (the "Advisory Agreement"). The
Advisory Agreement provides that, as compensation for services, the Adviser is
entitled to receive a fee from the Fund, computed daily and paid monthly, at the
annual rate of ___% of the Fund's average daily net assets.
The Adviser is a New York State chartered trust company. Under its charter, the
Adviser may neither accept deposits nor make loans except for deposits or loans
arising directly from its exercise of the fiduciary powers granted it under the
New York Banking Law. The Adviser's principal business is the rendering of
discretionary investment management services to high net worth individuals and
family groups, foundations, endowments and corporations. The Adviser specializes
in fixed income management and offers its clients a complete range of fixed
income investments in capital markets throughout the world. The Adviser
currently manages in excess of $7 billion in assets and serves as investment
adviser to twenty other registered investment companies (or portfolios thereof).
The principal business address of the Advisor is 520 Madison Avenue, New York,
New York 10022.
The Sub-Adviser and Portfolio Manager [to be inserted].
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ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
Furman Selz LLC ("Furman Selz") serves as the Company's administrator and
generally assists the Company in all aspects of its administration and
operation. The Chase Manhattan Bank, N.A. serves as custodian of the assets of
the Fund. Furman Selz also provides transfer agency services and dividend
disbursing services for the Fund. The principal business addresses of Furman
Selz and The Chase Manhattan Bank, N.A. are: 230 Park Avenue, New York, New York
10169 and 4 Metrotech Center, Brooklyn, New York 11245, respectively.
ABOUT YOUR INVESTMENT
Shares of the Fund are offered on a continuous basis directly by OFFIT Funds
Distributor, Inc., the Fund's Principal Underwriter, to the Accounts without any
sales or other charge, at the Fund's net asset value on each day on which the
New York Stock Exchange ("NYSE") is open for business. The Company will effect
orders to purchase or redeem shares of the Fund, that are based on premium
payments, surrender and transfer requests and any other transaction requests
from Contract and Policy Owners, annuitants and beneficiaries, at the Fund's net
asset value per share next computed after the Account receives such transaction
request. Any orders to purchase or redeem Fund shares that are not based on
actions by Contract or Policy Owners, annuitants, and beneficiaries will be
effected at the Fund's net asset value per share next computed after the order
is received by the Distributor. The Fund reserves the right to suspend the sale
of the Fund's shares in response to conditions in the securities markets or for
other reasons.
Individuals may not place orders directly with the Fund. Please refer to the
appropriate Account Prospectus of the Participating Company for more information
on the purchase of Portfolio shares.
REDEMPTION OF SHARES
An Account may redeem all or any portion of the shares of the Fund in its
account at any time at the net asset value per share of the Fund calculated in
the manner described above. Shares redeemed are entitled to earn dividends, if
any, up to and including the day redemption is effected. There is no redemption
charge. Payment of the redemption price will normally be made within seven days
after receipt of such tender for redemption.
The right of redemption may be suspended or the date of payment may be postponed
for any period during which the NYSE is closed (other than customary weekend and
holiday closings) or during which the SEC determines that trading thereon is
restricted, or for any period during which an emergency (as determined by the
SEC) exists as a result of which disposal by the Fund of securities is not
reasonably practicable or as a result of which it is not reasonably practicable
for the Company fairly to determine the value of the Fund's net assets, or for
such other periods as the SEC may by order permit for the protection of security
holders of the Company.
EXCHANGE PRIVILEGE
A Contract or Policy Owner investing through an Account may exchange shares of
the Fund for shares of any of the other investment portfolios of the Company on
the basis of their respective net asset values.
HOW THE COMPANY VALUES ITS SHARES
The net asset value per share of the Fund is calculated once daily at 4:15 p.m.,
New York time, Monday through Friday, each day the NYSE is open. The net asset
value per share of the Fund is computed by dividing the value of the net assets
of the Fund by the total number of Fund shares outstanding. Equity securities
held by the Fund are valued at the last sale price on the exchange or in the
principal over-the-counter market in which such securities are traded, as of the
close of business on the day the securities are being valued or, lacking any
sales, at the last available bid price. Debt securities held by the Fund
generally are valued based on quoted bid prices. Short-term debt investments
having maturities of 60 days or less are amortized to maturity based on their
cost, and if applicable, adjusted for foreign exchange translation. Foreign
securities are valued on the basis of quotations from the primary market in
which they are traded and are translated from the local currency into U.S.
dollars using prevailing exchange rates.
Securities for which market quotations are not readily available are valued at
fair value determined in good faith by or under the direction of the Company's
Board of Directors (as may be delegated from time to time to a pricing committee
designated by the Board of Directors). Securities may be valued by independent
pricing services which
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use prices provided by market-makers or estimates of market values obtained from
yield data relating to instruments or securities with similar characteristics.
HOW DISTRIBUTIONS ARE MADE: TAX INFORMATION
DISTRIBUTIONS
The Fund will declare and distribute dividends from net investment income and
will distribute its net capital gains, if any, at least annually. Such income
and capital gains distributions will be made in shares of the Fund.
TAX MATTERS
THE FUND. The Fund intends to qualify as a regulated investment company by
satisfying the requirements under Subchapter M of the Internal Revenue Code, as
amended (the "Code"), concerning the diversification of assets, distribution of
income, and sources of income. When the Fund qualifies as a regulated investment
company and all of its taxable income is distributed in accordance with the
timing requirements imposed by the Code, the Fund will not be subject to Federal
income tax. If, however, for any taxable year the Fund does not qualify as a
regulated investment company, then all of its taxable income will be subject to
tax at regular corporate rates (without any deduction for distributions to the
Accounts), and the receipt of such distributions will be taxable to the extent
that the Fund has current and accumulated earnings and profits.
FUND DISTRIBUTIONS. Distributions by the Fund are taxable, if at all, to the
Accounts, and not to Contract or Policy Owners. An Account will include
distributions in its taxable income in the year in which they are received
(whether paid in cash or reinvested), or deemed to be received in accordance
with certain provisions of the Code.
SHARE REDEMPTIONS. Redemptions of the shares held by the Accounts generally will
not result in gain or loss for the Accounts and will not result in gain or loss
for the Contract or Policy Owners.
SUMMARY. The foregoing discussion of Federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus, and is
subject to change by legislative or administrative action. The foregoing
discussion also assumes that the Accounts are the owners of the shares and that
Policies or Contracts qualify as life insurance policies or annuity contracts,
respectively, under the Code. If the foregoing requirements are not met, then
the Contract or Policy owners will be treated as recognizing income (from
distributions or otherwise) related to the ownership of Fund shares. The
foregoing discussion is for general information only; a more detailed discussion
of Federal income tax considerations is contained in the Statement of Additional
Information. Contract or Policy Owners must consult the prospectuses of their
respective Contract or Policy for information concerning the Federal income tax
consequences of owning such Contracts or Policies.
SHAREHOLDER COMMUNICATIONS
It is expected that Contract or Policy Owners will receive from the
Participating Companies for which shares of the Fund are the investment vehicle,
reports that will include, among other things, the Company's unaudited
semi-annual financial statements and year-end financial statements audited by
the Company's independent accountants. Each report will show the investments
owned by the Fund and will provide other information about the Fund and its
operations. It is expected that the Company will pay a portion of the cost of
preparing certain of these reports. Contract and Policy Owners may obtain
information about their investment on any business day by calling toll-free
1-800-618-9510 between 8:15 a.m. and 6:00 p.m., New York time. Specially trained
representatives will answer questions and provide information about Contract and
Policy Owners' accounts.
Each Account owning shares of the Fund will vote its shares in accordance with
instructions received from Contract or Policy Owners, annuitants and
beneficiaries. Fund shares held by an Account as to which no instructions have
been received will be voted for or against any proposition, or in abstention, in
the same proportion as the shares of that Account as to which instructions have
been received. Fund shares held by an Account that are not attributable to
Contracts or Policies will also be voted for or against any proposition in the
same proportion as the shares for which voting instructions are received by the
Account. If the Participating Insurance Company determines, however, that it is
permitted to vote any such shares of the Fund in its own right, it may elect to
do so, subject to the then current interpretation of the 1940 Act and the rules
thereunder.
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PERFORMANCE INFORMATION
From time to time the Fund may advertise certain information about its
performance. The Fund may present standardized and nonstandardized total return
in advertisements or other written material. Standardized total return is
calculated in accordance with the Commission's formula. Nonstandardized total
return differs from the standardized total return only in that it may be related
to a nonstandard period or is presented in the aggregate rather than as an
annual average.
The performance of the Fund may be quoted and compared to those of other mutual
funds with similar investment objectives and to other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example,
performance information may be compared with data published by Lipper Analytical
Services, Inc. or to unmanaged indices of performance, including, but not
limited to, Russell 2000 (total return), and S&P SmallCap Index (total return).
The performance information may also include evaluations of the Fund published
by nationally recognized ranking services and by various national or local
financial publications, such as Business Week, Forbes, Fortune, Institutional
Investor, Money, The Wall Street Journal, Barron's, Changing Times, Morningstar,
Mutual Fund Values, U.S.A. Today or The New York Times or other industry or
financial publications.
The Fund's performance information is historical, will fluctuate and should not
be considered as representative of future results. The Commission's formulas for
calculating performance are described under "Performance Information" in the
Statement of Additional Information. Quotations of the Fund's performance will
not reflect charges levied at the Account level.
COUNSEL; INDEPENDENT ACCOUNTANTS
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York, serves
as counsel to the Company. Price Waterhouse LLP serves as the independent
accountants to the Company. Price Waterhouse LLP is located at 1177 Avenue of
the Americas, New York, New York 10036.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTORS IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
<PAGE>
PROSPECTUS
THE OFFITBANK VARIABLE INSURANCE FUND, INC. , 1996
- --------------------------------------------------------------------------------
DJG VALUE EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DJG Value Equity Fund (the "Fund") is an investment portfolio of the OFFITBANK
Variable Insurance Fund, Inc. (the "Company"), an open-end, management
investment company. The Fund's investment objectives are long-term appreciation
and preservation of capital. The Fund will seek to achieve its objectives by
researching and investing in equity securities priced at a discount to their
intrinsic values. Capital appreciation is achieved over time as the price-value
gap narrows, often as a result of a corporate change or the occurrence of a
major non-operating event or combination thereof.
David J. Greene and Company, a registered investment adviser, serves as the
Fund's investment adviser and manages the Fund's portfolio (the "Adviser"). The
Adviser specializes in equity management with a value style orientation and
currently manages in excess of $1.6 billion in assets for pension, profit
sharing, endowment and individual accounts. The address of the Company is 237
Park Avenue, Suite 910, New York, New York 10017. Yield and other information
regarding the Fund may be obtained by calling 1-800-618-9510.
SHARES OF THE FUND ARE SOLD ONLY TO CERTAIN LIFE INSURANCE COMPANIES
(COLLECTIVELY, "PARTICIPATING COMPANIES") AND THEIR SEPARATE ACCOUNTS
(COLLECTIVELY, THE "ACCOUNTS") TO FUND BENEFITS UNDER VARIABLE ANNUITY CONTRACTS
("CONTRACTS") AND VARIABLE LIFE INSURANCE POLICIES ("POLICIES") TO BE OFFERED BY
THE PARTICIPATING COMPANIES. THE ACCOUNTS INVEST IN SHARES OF THE FUND IN
ACCORDANCE WITH ALLOCATION INSTRUCTIONS RECEIVED FROM CONTRACT AND POLICY OWNERS
("CONTRACT OWNERS" OR "POLICY OWNERS," AS APPROPRIATE). SUCH ALLOCATION RIGHTS
ARE FURTHER DESCRIBED IN THE ACCOMPANYING ACCOUNT PROSPECTUS. SHARES ARE
REDEEMED TO THE EXTENT NECESSARY TO PROVIDE BENEFITS UNDER THE CONTRACTS AND
POLICIES.
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus in conjunction with the prospectus for the Contract or Policy which
accompanies this Prospectus and retain this Prospectus for future reference.
Additional information about the Fund, contained in a Statement of Additional
Information dated ____, 1996, as amended or supplemented from time to time, has
been filed with the Securities and Exchange Commission (the "Commission") and is
available to investors without charge by calling 1-800-618-9510. The Statement
of Additional Information is incorporated in its entirety by reference into this
Prospectus.
INVESTORS ARE ADVISED THAT (A) THE COMPANY IS NOT AUTHORIZED TO ENGAGE IN THE
BUSINESS OF BANKING AND (B) SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR ENDORSED OR GUARANTEED BY, OFFITBANK OR ANY AFFILIATE OF OFFITBANK, NOR
ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
WHAT YOU NEED TO KNOW
The Company......................... How the Company Values Its Shares..........
Investment Objectives and Policies.. How Distributions are Made: Tax Information
Investment Policies and Techniques.. Shareholder Communications ................
Special Risk Considerations......... Performance Information....................
Limiting Investment Risks........... Counsel; Independent Accountants...........
Management..........................
About Your Investment...............
<PAGE>
THE COMPANY
The Company is designed to serve as a funding vehicle for Contracts and Policies
offered by the Accounts of Participating Companies. Shares of the Fund are
offered only to the Accounts through OFFIT Funds Distributor, Inc. (the
"Distributor"), the principal underwriter for the Company. The Fund is a
no-load, separate investment portfolio of the Company, an open-end management
investment company. The Company is not authorized to engage in the business of
banking.
Shares of the Company are offered to Accounts of Participating Companies that
may not be affiliated with each other. The Participating Companies and their
Accounts may be subject to insurance regulation that varies between states and
to state insurance and federal tax or other regulation that varies between
Contracts and Policies. The Company does not currently foresee any disadvantages
to Contract or Policy Owners arising from these circumstances. However, it is
theoretically possible that the interests of Contract or Policy Owners
participating in the Company through the Accounts might at some time be in
conflict. In some cases, one or more Accounts might withdraw their investment in
the Fund, which could possibly force the Company to sell portfolio securities at
disadvantageous prices. The Company's Directors intend to monitor events in
order to identify any material irreconcilable conflicts that may possibly arise
and to determine what action, if any, should be taken in response thereto.
INVESTMENT OBJECTIVES AND POLICIES
The Fund has investment objectives which it pursues through investment policies
as described below. The objectives and policies of the Fund can be expected to
affect the return of the Fund and the degree of market and financial risk to
which the Fund is subject. For more information about the investment strategies
employed by the Fund, see "Investment Policies and Techniques." The investment
objective and policies of the Fund may, unless otherwise specifically stated, be
changed by the Directors of the Company without a vote of the shareholders. As a
matter of policy, the Directors would not materially change the investment
objectives of the Fund without shareholder approval. There is no assurance that
the Fund will achieve its objectives.
Additional portfolios may be created from time to time with different investment
objectives and policies for use as funding vehicles for the Accounts or for
other insurance products. In addition, the Directors may, subject to any
necessary regulatory approvals, create more than one class of shares in the
Fund, with the classes being subject to different charges and expenses and
having such other different rights as the Directors may prescribe.
The investment objectives of the Fund are long-term appreciation and
preservation of capital, which the Fund seeks to achieve by investing in
undervalued securities and in special situations. Capital appreciation is
achieved over time as the price-value gap narrows, often as a result of a
corporate change or the occurrence of a major non-operating event - such as a
major management change, substantial share repurchase, spin-off, split-up,
restructuring, liquidation, acquisition or other catalyst. The Adviser attempts
to manage the Fund so as to provide consistent absolute returns as well as
outperform the S&P 500 over a market cycle by using a bottom up value-oriented
approach to equity investment that stresses the purchase of securities with cash
flow, reported earnings and asset value at a measured price.
The Adviser's investment philosophy is centered upon fundamental research with
particular emphasis on event-driven special situations. Valuations are based on
cash flow (defined as earnings plus non-cash charges, less required capital
spending and working capital) rather than reported earnings in order to focus on
underlying economics rather than accounting. Furthermore, the Adviser believes
that management's capabilities and motivations with respect to the enhancement
of shareholder value are particularly important in making investment decisions.
Generally, the sale of a security will be based upon factors such as (i) an
increase in the share price which adequately reflects the original investment
premise, (ii) any other significant increase in the market valuation of a stock
relative to its true economic value (a narrowing of the price value gap); (iii)
availability of alternative investments with greater ratios
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of reward to risk; and (iv) perceived deterioration of the issuer's operations
which may adversely affect the underlying value of the security. Turnover will
be influenced by sound investment practices related to the Fund's objectives,
and the need for funds in the event of redemptions of the Funds shares.
Investments for the Fund will be made by the Adviser on a stock by stock basis
without regard to market timing. Cash reserves for the Fund will fluctuate based
upon individual investment decisions as well as purchases and new redemptions of
the Fund's shares.
The Fund will normally invest its assets in a diversified portfolio of equity
securities, including common stocks, rights, and warrants to subscribe for or
purchase common stocks. The Fund may purchase listed and unlisted common and
preferred stocks, securities of companies in bankruptcy, fixed income securities
which are convertible into equity securities, as well as write covered call
options on such equity securities. In addition, the Fund may invest in "risk
arbitrage positions", which include securities that may become exchangeable for
cash or other securities as a result of the issuer being an announced candidate
for a merger, acquisition, restructuring or similar transaction, or securities
the issuer of which has been the subject of a filing on Schedule 13D under the
Securities Exchange Act of 1934. Dividends and interest are not prime
considerations in the purchase of securities but are considered in relation to
the total expected return of the investment. Because the Fund will invest
primarily in equity securities, it will be subject to general conditions
prevailing in securities markets and the net asset value of the Fund's shares
will fluctuate with changes in the market prices of its portfolio securities.
Cash reserves may be invested in short-term fixed income instruments including
money market funds, certificates of deposit and commercial paper.
INVESTMENT POLICIES AND TECHNIQUES
WARRANTS
The Fund may invest in warrants which entitle the holder to buy equity
securities at a specific price for a specific period of time. The Fund will not,
however, purchase any warrant if, as a result of such purchase, 5% or more of
the Fund's total assets would be invested in warrants. Included within that
amount, but not to exceed 2% of the value of the Fund's total assets, may be
warrants which are not listed on the New York or American Stock Exchange.
Warrants acquired by the Fund in units or attached to securities may be deemed
to be without value.
COVERED CALL OPTIONS
To assist in the management of its portfolio and to enhance the Fund's
performance, the Fund may engage in the writing (selling) of call option
contracts on securities at such times as the Adviser shall determine to be
appropriate. However, options shall be written solely as "covered" call options,
that is, options on securities that the Fund owns. The fund will write covered
call options on securities held in the portfolio at the exercise price which
would approximate the price at which the Adviser would desire to sell the
security. The Fund will not write covered call options on portfolio securities
having an aggregate value in excess of 20 percent of the Fund's net assets. A
call option gives the purchaser of the option the right to buy a security from a
writer at the exercise price at any time prior to the expiration of the
contract, regardless of the market price of the security during the option
period. The premium paid to the writer is the consideration for undertaking the
obligations under the option contract. The writer forgoes the opportunity to
profit from an increase in the market price of the underlying security above the
exercise price except insofar as the premium represents a profit.
The Fund will purchase options only to close out a call option position. In
order to close out a position, the Fund will make a "closing purchase
transaction" - the purchase of a call option on the same security with the same
exercise price and expiration date as a call option which it has previously
written When a security is sold from the Fund's portfolio, the Fund will effect
a closing purchase transaction so as to close out any existing call option on
that security. The Fund will realize a profit or loss from a closing purchase
transaction if the amount paid to
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purchase a call option is less or more than the amount received from the sale
thereof. There can be no assurance that the Fund will be able to effect closing
purchase transactions at a time when it desires to do so. To facilitate closing
purchase transactions, however, the Fund will write options only if a secondary
market for the options exists on a national securities exchange.
Securities for the Fund's portfolio will at all times be bought and sold solely
on the basis of investment considerations and appropriateness to the fulfillment
of the Fund's objective.
CORPORATE REORGANIZATIONS
The Fund may invest in securities for which a tender or exchange offer has been
made or announced and in securities of companies for which a merger,
consolidation, liquidation or similar reorganization proposal has been announced
if, in the judgement of the Adviser, there is a reasonable prospect of capital
appreciation significantly greater than the added portfolio turnover expenses
inherent in the short term nature of such transactions. The principal risk is
that such offers or proposals may not be consummated within the time and under
the terms contemplated at the time of the investment, in which case, unless such
offers or proposals are replaced by equivalent or increased offers or proposals
which are consummated, the Fund may sustain a loss.
PORTFOLIO TRANSACTIONS
All orders for transactions in securities and any other investments on behalf of
the Fund will be placed with broker-dealers selected by the Adviser. The Adviser
may serve as the Fund's broker in effecting portfolio transactions on national
securities exchanges and in the national over-the-counter market as agent and
retain commissions in accordance with certain regulations of the SEC and
procedures adopted by the Fund's Board of Directors. In addition, the Adviser
may select broker-dealers that provide it with research services and may cause
the Fund to pay these broker-dealers commissions that exceed those other
broker-dealers may have charged, if it views the commissions as reasonable in
relation to the value of the brokerage and/or research services received. In
placing orders, it is the policy of the Fund to obtain the net best results
taking into account the broker's general execution and operational facilities as
well as the type of transaction involved. While the Adviser generally seeks a
competitive price in placing its orders, the Fund may not necessarily be paying
the lowest price available. In accordance with procedures adopted by the Board
of Directors, in order for the Adviser, as an affiliated person, to be permitted
to effect portfolio transactions for the Fund, the commissions, fees or other
remuneration received by such affiliated person must be reasonable and fair
compared to the commissions, fees and other remuneration received by other
brokers in connection with comparable transactions. This standard would allow
such an affiliated person to receive no more than the remuneration which would
be expected to be received by an unaffiliated broker in a commensurate
arm's-length agency transaction.
Investment decisions for Fund are made independently from those for other
accounts advised or managed by the Adviser, including accounts designated as
proprietary. However, since the research resources and Investment Committee
process of the Adviser are common to all accounts, including the Fund, all such
other accounts are prepared to invest in, or desire to dispose of, the same
securities at the same time as the Fund, and transactions in such securities
will be made, insofar as feasible, for the respective accounts in a manner
deemed equitable to all. In some cases, this procedure may adversely affect the
size of the position obtained for or disposed of by the Fund or the price paid
or received by the Fund. In addition, because of different investment objectives
including tax considerations for individual accounts, a particular security may
be purchased for the Fund or such other accounts when the Fund or such other
accounts are selling the same security. To the extent permitted by law, the
Adviser may aggregate the securities to be sold or purchased for the Fund with
those to be sold or purchased for such other accounts, including proprietary
accounts, in order to obtain best execution in accordance with the Fund's Code
of Ethics and applicable SEC no-action positions on this subject.
OTHER INVESTMENT COMPANIES
The Fund reserves the right to invest up to 10% of its total assets in the
securities of other investment companies. The Fund may not invest more than 5%
of its total assets in the securities of any one investment company or acquire
4
<PAGE>
more than 3% of the voting securities of any other investment company. The Fund
does not intend to invest in such investment companies unless, in the judgment
of the Adviser, such an investment otherwise meets its criteria, such as a
closed-end investment company selling at a discount to its net asset value. The
Fund will indirectly bear its proportionate share of any management fees and
other expenses paid by investment companies in which it invests in addition to
the advisory fee paid by the Fund.
FUTURE DEVELOPMENTS
The Fund may, following notice to its shareholders, take advantage of other
investment practices which are not at present contemplated for use by the Fund
or which currently are not available but which may be developed, to the extent
such investment practices are both consistent with the Fund's investment
objectives and legally permissible for the Fund. Such investment practices, if
they arise, may involve risks which exceed those involved in the activities
described above.
In addition, pending investment of proceeds from new sales of Fund shares or to
meet ordinary daily cash needs, the Fund temporarily may hold cash (U.S.
dollars, foreign currencies or multinational currency units) and may invest any
portion of its assets in high quality foreign or domestic money market
instruments.
PORTFOLIO TURNOVER
The Adviser's investment style usually requires a holding period of one year or
more, however, when circumstances warrant, securities may be sold without regard
to the length of time held. It is not anticipated that, under normal conditions,
the portfolio turnover rate for the Fund will exceed 50% in any one year.
LIMITING INVESTMENT RISKS
To further protect investors, the Fund has adopted the following investment
limitations:
1. The Fund may not invest more than 5% of its total assets in the
securities of any issuer (except U.S. government securities,
except that up to 25% of the Fund's total assets may be invested
without regard to this limitation).
2. The Fund may not invest 25% or more of the value of its total
assets in securities of issuers in any one industry; provided that
there is no limitation with respect to investment in obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
3. The Fund may not borrow money except from banks for temporary or
emergency purposes; provided, that (a) the amount of such
borrowing may not exceed 20% of the value of the Fund's total
assets, and (b) the Fund will not purchase portfolio securities
while such outstanding borrowing exceeds 5% of the value of the
Fund's total assets.
4. The Fund may not invest an amount equal to 15% or more of the
current value of its net assets in investments that are illiquid.
The foregoing investment limitations and certain of those described in the
Statement of Additional Information under "Investment Limitations" are
fundamental policies of the Fund that may be changed only when permitted by law
and approved by the holders of a "majority" of the Fund's outstanding shares. If
a percentage restriction on investment or use of assets contained in these
investment limitations or elsewhere in this Prospectus or Statement of
Additional Information is adhered to at the time a transaction is effected,
later changes in percentage resulting from any cause other than actions by the
Fund will not be considered a violation; provided, that the restrictions on
borrowing described in (2) above shall apply at all times. As used in this
Prospectus and in the Statement of Additional Information, the term "majority",
when referring to the approvals to be obtained from shareholders in
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<PAGE>
connection with matters affecting the Fund (e.g., approval of investment
advisory contracts), means the vote of the lesser of (i) 67% of the shares of
the Fund represented at a meeting if the holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of the Fund. Shareholders are entitled to one
vote for each full share held and to fractional votes for fractional shares
held.
MANAGEMENT
The business and affairs of the Fund are managed under the general direction and
supervision of the Company's Board of Directors. The Fund's day-to-day
operations are handled by the Company's officers. The Management of the Fund's
portfolio, including the placement of purchase and sale orders, is the
responsibility of the investment adviser.
INVESTMENT ADVISER
The Adviser provides investment advisory services to the Fund pursuant to an
Investment Advisory Agreement with the Company (the "Advisory Agreement"). The
Advisory Agreement provides that, as compensation for services, the Adviser is
entitled to receive a fee from the Fund, computed daily and paid monthly, at the
annual rate of .80% of the Fund's average daily net assets.
David J. Greene & Company ("the Adviser") is an investment adviser and
broker-dealer registered with the SEC and the NASD. The Firm, established as a
partnership in 1952, is located at 599 Lexington Avenue, New York, N.Y. 10022.
As of April 30, 1996, the Adviser had investment management authority with
respect to approximately $1.6 billion of assets for pension, profit sharing,
endowment and individual accounts. The partnership consists of fourteen partners
and a staff of twenty-one professional and support persons, all of whom devote
their full time to the business. The Adviser specializes in equity management
with a value style orientation.
PORTFOLIO MANAGER
Erwin A. Zeuschner, a Senior Partner of David J. Greene and Company for the past
16 years, is primarily responsible for the daily management of the Fund. Mr.
Zeuschner will undertake his responsibilities under guidelines established by
the Adviser's Investment Committee, consisting of Alan I. Greene, Robert J.
Ravitz and Michael C. Greene in addition to himself.
ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
Furman Selz LLC ("Furman Selz") serves as the Company's administrator and
generally assists the Company in all aspects of its administration and
operation. The Chase Manhattan Bank, N.A. serves as custodian of the assets of
the Fund. Furman Selz also provides transfer agency services and dividend
disbursing services for the Fund. The principal business addresses of Furman
Selz and The Chase Manhattan Bank, N.A. are: 230 Park Avenue, New York, New York
10169 and 4 Metrotech Center, Brooklyn, New York 11245, respectively.
ABOUT YOUR INVESTMENT
Shares of the Fund are offered on a continuous basis directly by OFFIT Funds
Distributor, Inc., the Fund's Principal Underwriter, to the Accounts without any
sales or other charge, at the Fund's net asset value on each day on which the
New York Stock Exchange ("NYSE") is open for business. The Company will effect
orders to purchase or redeem shares of the Fund, that are based on premium
payments, surrender and transfer requests and any other transaction requests
from Contract and Policy Owners, annuitants and beneficiaries, at the Fund's net
asset value per share next computed after the Account receives such transaction
request. Any orders to purchase or redeem Fund shares that are not based on
actions by Contract or Policy Owners, annuitants, and beneficiaries will be
effected at the Fund's net asset value per share next computed after the order
is received by the Distributor. The Fund reserves the right to suspend the sale
of the Fund's shares in response to conditions in the securities markets or for
other reasons.
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Individuals may not place orders directly with the Fund. Please refer to the
appropriate Account Prospectus of the Participating Company for more information
on the purchase of Portfolio shares.
REDEMPTION OF SHARES
An Account may redeem all or any portion of the shares of the Fund in its
account at any time at the net asset value per share of the Fund calculated in
the manner described above. Shares redeemed are entitled to earn dividends, if
any, up to and including the day redemption is effected. There is no redemption
charge. Payment of the redemption price will normally be made within seven days
after receipt of such tender for redemption.
The right of redemption may be suspended or the date of payment may be postponed
for any period during which the NYSE is closed (other than customary weekend and
holiday closings) or during which the SEC determines that trading thereon is
restricted, or for any period during which an emergency (as determined by the
SEC) exists as a result of which disposal by the Fund of securities is not
reasonably practicable or as a result of which it is not reasonably practicable
for the Company fairly to determine the value of the Fund's net assets, or for
such other periods as the SEC may by order permit for the protection of security
holders of the Company.
EXCHANGE PRIVILEGE
A Contract or Policy Owner investing through an Account may exchange shares of
the Fund for shares of any of the other investment portfolios offered through
the Account on the basis of their respective net asset values.
HOW THE COMPANY VALUES ITS SHARES
The net asset value per share of the Fund is calculated once daily at 4:15 p.m.,
New York time, Monday through Friday, each day the NYSE is open. The net asset
value per share of the Fund is computed by dividing the value of the net assets
of the Fund by the total number of Fund shares outstanding. Equity securities
held by the Fund are valued at the last sale price on the exchange or in the
principal over-the-counter market in which such securities are traded, as of the
close of business on the day the securities are being valued or, lacking any
sales, at the last available bid price. Debt securities held by the Fund
generally are valued based on quoted bid prices. Short-term debt investments
having maturities of 60 days or less are amortized to maturity based on their
cost, and if applicable, adjusted for foreign exchange translation. Foreign
securities are valued on the basis of quotations from the primary market in
which they are traded and are translated from the local currency into U.S.
dollars using prevailing exchange rates.
Securities for which market quotations are not readily available are valued at
fair value determined in good faith by or under the direction of the Company's
Board of Directors (as may be delegated from time to time to a pricing committee
designated by the Board of Directors). Securities may be valued by independent
pricing services which use prices provided by market-makers or estimates of
market values obtained from yield data relating to instruments or securities
with similar characteristics.
HOW DISTRIBUTIONS ARE MADE: TAX INFORMATION
DISTRIBUTIONS
The Fund will declare and distribute dividends from net investment income and
will distribute its net capital gains, if any, at least annually. Such income
and capital gains distributions will be made in shares of the Fund.
TAX MATTERS
THE FUND. The Fund intends to qualify as a regulated investment company by
satisfying the requirements under Subchapter M of the Internal Revenue Code, as
amended (the "Code"), concerning the diversification of assets, distribution of
income, and sources of income. When the Fund qualifies as a regulated investment
company and all of its taxable income is distributed in accordance with the
timing requirements imposed by the Code, the Fund
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will not be subject to Federal income tax. If, however, for any taxable year the
Fund does not qualify as a regulated investment company, then all of its taxable
income will be subject to tax at regular corporate rates (without any deduction
for distributions to the Accounts), and the receipt of such distributions will
be taxable to the extent that the Fund has current and accumulated earnings and
profits.
FUND DISTRIBUTIONS. Distributions by the Fund are taxable, if at all, to the
Accounts, and not to Contract or Policy Owners. An Account will include
distributions in its taxable income in the year in which they are received
(whether paid in cash or reinvested).
SHARE REDEMPTIONS. Redemptions of the shares held by the Accounts generally will
not result in gain or loss for the Accounts and will not result in gain or loss
for the Contract or Policy Owners.
SUMMARY. The foregoing discussion of Federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus, and is
subject to change by legislative or administrative action. The foregoing
discussion also assumes that the Accounts are the owners of the shares and that
Policies or Contracts qualify as life insurance policies or annuities,
respectively, under the Code. If the foregoing requirements are not met then the
Contract or Policy owners will be treated as recognizing income (from
distributions or otherwise) related to the ownership of Fund shares. The
foregoing discussion is for general information only; a more detailed discussion
of Federal income tax considerations is contained in the Statement of Additional
Information. Contract or Policy Owners must consult the prospectuses of their
respective Contract or Policy for information concerning the Federal income tax
consequences of owning such Contracts or Policies.
SHAREHOLDER COMMUNICATIONS
It is expected that Contract or Policy Owners will receive from the
Participating Companies for which shares of the Fund are the investment vehicle,
reports that will include, among other things, the Company's unaudited
semi-annual financial statements and year-end financial statements audited by
the Company's independent accountants. Each report will show the investments
owned by the Fund and will provide other information about the Fund and its
operations. It is expected that the Company will pay a portion of the cost of
preparing certain of these reports. Contract and Policy Owners may obtain
information about their investment on any business day by calling toll-free
1-800-618-9510 between 8:15 a.m. and 6:00 p.m., New York time. Specially trained
representatives will answer questions and provide information about Contract and
Policy Owners' accounts.
Each Account owning shares of the Fund will vote its shares in accordance with
instructions received from Contract or Policy Owners, annuitants and
beneficiaries. Fund shares held by an Account as to which no instructions have
been received will be voted for or against any proposition, or in abstention, in
the same proportion as the shares of that Account as to which instructions have
been received. Fund shares held by an Account that are not attributable to
Contracts or Policies will also be voted for or against any proposition in the
same proportion as the shares for which voting instructions are received by the
Account. If the Participating Insurance Company determines, however, that it is
permitted to vote any such shares of the Fund in its own right, it may elect to
do so, subject to the then current interpretation of the 1940 Act and the rules
thereunder.
PERFORMANCE INFORMATION
From time to time the Fund may advertise certain information about its
performance. The Fund may present standardized and nonstandardized total return
in advertisements or other written material. Standardized total return is
calculated in accordance with the Commission's formula. Nonstandardized total
return differs from the standardized total return only in that it may be related
to a nonstandard period or is presented in the aggregate rather than as an
annual average. In addition, the Fund may make available information as to its
respective "yield" and "effective yield" over a thirty-day period, as calculated
in accordance with the Commission's prescribed formula.
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The "effective yield" assumes that the income earned by an investment in the
Fund is reinvested, and will therefore be slightly higher than the yield because
of the compounding effect of this assumed reinvestment.
The performance of the Fund may be quoted and compared to those of other mutual
funds with similar investment objectives and to other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example,
performance information may be compared with data published by Lipper Analytical
Services, Inc. or to unmanaged mutual fund or market indices or rankings such as
those prepared by Dow Jones & Co., Inc. and Standard and Poor's Corporation .
The performance information may also include evaluations of the Fund published
by nationally recognized ranking services and by various national or local
financial publications, such as Business Week, Forbes, Fortune, Institutional
Investor, Money, The Wall Street Journal, Barron's, Changing Times, Morningstar,
Mutual Fund Values, U.S.A. Today or The New York Times or other industry or
financial publications.
The Fund's performance information is historical, will fluctuate and should not
be considered as representative of future results. The Commission's formulas for
calculating performance are described under "Performance Information" in the
Statement of Additional Information. Quotations of the Fund's performance will
not reflect charges levied at the Account level.
COUNSEL; INDEPENDENT ACCOUNTANTS
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York, serves
as counsel to the Company. Price Waterhouse LLP serves as the independent
accountants to the Company. Price Waterhouse LLP is located at 1177 Avenue of
the Americas, New York, New York 10036.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTORS IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
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The OFFITBANK Variable Insurance Fund, Inc.
PART B
<PAGE>
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
237 Park Avenue, Suite 910
New York, New York 10017
(800) 618-9510
STATEMENT OF ADDITIONAL INFORMATION
___________, 1996
The OFFITBANK Variable Insurance Fund, Inc. (the "Company") is a no load mutual
fund consisting of 7 portfolios whose shares are available to participating life
insurance companies ("Participating Companies") and their separate accounts
("Accounts") to fund benefits under variable annuity contracts ("Contracts") and
variable life insurance policies ("Policies") issued by the Participating
Companies. The portfolios are OFFITBANK - DJG Value Equity Fund, OFFITBANK U.S.
Government Securities Fund, OFFITBANK VIF-U.S. Small Cap Fund, OFFITBANK
VIF-High Yield Fund, OFFITBANK VIF-Investment Grade Global Debt Fund, OFFITBANK
VIF-Emerging Markets Fund, OFFITBANK VIF-Global Convertible Fund Income Fund and
OFFITBANK VIF-Total Return Fund.
This Statement of Additional Information should be read in conjunction with the
individual Prospectuses offering shares of each of OFFITBANK VIF-U.S. Small Cap
Fund ("Small Cap Fund"), OFFITBANK VIF-U.S. Government Securities Fund ("U.S.
Government Fund") and OFFITBANK-DJG Value Equity Fund (the "Value Equity Fund")
(collectively, the "Funds"). Separate Statements of Additional Information are
available with respect to the other four funds of the Company upon request
without charge by calling 1-800-618-9510. The Small Cap Fund, U.S. Government
Fund and Value Equity Fund are advised by OFFITBANK. OFFITBANK has retained
_______________________ as Sub-Adviser to the Small Cap Fund. The Value Equity
Fund is advised by David J. Greene & Company ("DJ Greene"). As used herein, the
term "Adviser" shall mean, with respect to each Fund, the entity responsible for
portfolio management.
This Statement of Additional Information sets forth information which may be of
interest to investors but which is not necessarily included in the Prospectus
offering each Fund. Any reference to the "Prospectus" in this Statement of
Additional Information is a reference to the Prospectus or Prospectuses offering
a Fund or Funds to which this Statement pertains. In each instance, the specific
Prospectus or Prospectuses referred to are referenced by the surrounding text,
which identifies a specific Fund or Funds.
This Statement of Additional Information is NOT a prospectus and is only
authorized for distribution when preceded or accompanied by an effective
Prospectus. Copies of each
<PAGE>
Prospectus may be obtained by an investor without charge by writing or calling
the Company at the address and telephone number set forth above.
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TABLE OF CONTENTS
PAGE
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
AND TECHNIQUES...............................................................
ADDITIONAL RISK CONSIDERATIONS...............................................
INVESTMENT LIMITATIONS.......................................................
MANAGEMENT OF THE FUND.......................................................
PORTFOLIO TRANSACTIONS.......................................................
PURCHASE OF SHARES...........................................................
REDEMPTION OF SHARES.........................................................
PERFORMANCE CALCULATIONS.....................................................
ADDITIONAL INFORMATION CONCERNING TAXES......................................
DETERMINATION OF NET ASSET VALUE.............................................
GENERAL INFORMATION..........................................................
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS AND
TECHNIQUES
Information concerning each Fund's fundamental investment objective is set forth
in each fund's Prospectus under the heading "Investment Objectives and
Policies." There can be no assurance that any Fund will achieve its objective.
The principal features of each Fund's investment program and the primary risks
associated with that program are discussed in the Prospectus. The following
discussion of investment policies supplements the discussion of investment
objectives and policies set forth in the Prospectus.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements. A repurchase agreement is a
transaction in which the seller of a security commits itself at the time of the
sale to repurchase that security from the buyer at a mutually agreed upon time
and price. The Funds will enter into repurchase agreements only with dealers,
domestic banks or recognized financial institutions which, in the opinion of
OFFITBANK or DJ Greene, as the case may be, (the "Adviser") based on guidelines
established by the Company's Board of Directors, present minimal credit risks.
The Adviser will monitor the value of the securities underlying the repurchase
agreement at the time the
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transaction is entered into and at all times during the term of the repurchase
agreement to ensure that the value of the securities always exceeds the
repurchase price plus accrued interest. In the event of default by the seller
under the repurchase agreement, each Fund may incur costs and experience time
delays in connection with the disposition of the underlying securities.
REVERSE REPURCHASE AGREEMENTS
Each Fund may enter into reverse repurchase agreements. A reverse repurchase
agreement is a borrowing transaction in which a Fund transfers possession of a
security to another party, such as a bank or broker/dealer, in return for cash,
and agrees to repurchase the security in the future at an agreed upon price,
which includes an interest component. Whenever a Fund enters into a reverse
repurchase agreement as described in the Prospectus, it will place in a
segregated custodian account liquid assets having a value equal to the
repurchase price (including accrued interest) and will subsequently monitor the
account to ensure such equivalent value is maintained. Reverse repurchase
agreements are considered to be borrowings by a Fund under the 1940 Act.
DOLLAR ROLL TRANSACTIONS
In order to enhance portfolio returns and manage prepayment risks, each Fund may
engage in dollar roll transactions with respect to mortgage securities issued by
GNMA, FNMA and FHLMC. In a dollar roll transaction, a Fund sells a mortgage
security held in the portfolio to a financial institution such as a bank or
broker-dealer, and simultaneously agrees to repurchase a substantially similar
security (same type, coupon and maturity) from the institution at a later date
at an agreed upon price. The mortgage securities that are repurchased will bear
the same interest rate as those sold, but generally will be collateralized by
different pools of mortgages with different prepayment histories. During the
period between the sale and repurchase, a Fund will not be entitled to receive
interest and principal payments on the securities sold. Proceeds of the sale
will be invested in short-term instruments, and the income from these
investments, together with any additional fee income received on the sale, could
generate income for a Fund exceeding the yield on the sold security. When a Fund
enters into a dollar roll transaction, cash or liquid securities of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
repurchased, are segregated with its custodian at the trade date. These
securities are marked to market daily and are maintained until the transaction
is settled.
ASSET-BACKED SECURITIES
Each Fund may invest in Asset-Backed Securities. Asset-backed securities are
generally issued as pass through certificates, which represent undivided
fractional ownership interests in the underlying pool of assets, or as debt
instruments, and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. Payments of principal and interest
may be guaranteed up to certain amounts and for a certain time period by a
letter of credit or other enhancement issued
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<PAGE>
by a financial institution unaffiliated with the entities issuing the
securities. Assets which, to date, have been used to back asset-backed
securities include motor vehicle installment sales contracts or installment
loans secured by motor vehicles, and receivables from revolving credit (credit
card) agreements.
Asset-backed securities present certain risks which are, generally, related to
limited interests, if any, in related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the services to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. If the letter of
credit is exhausted, holders of asset-backed securities may also experience
delays in payments or losses if the full amounts due on underlying sales
contracts are not realized. Because asset-backed securities are relatively new,
the market experience in these securities is limited and the market's ability to
sustain liquidity through all phases of the market cycle has not been tested.
Credit Support. Asset-backed securities often contain elements of credit support
to lessen the effect of the potential failure by obligors to make timely
payments on underlying assets. Credit support falls into two categories: (i)
liquidity protection and (ii) protection against losses resulting from ultimate
default by an obligor on the underlying asset. Liquidity protection ensures that
the pass through of payments due on the installment sales contracts and
installment loans which comprise the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate default enhances the
likelihood of ultimate payment of the obligations on at least a portion of the
assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained by the issuer or sponsor from
third parties, through various means of structuring the transaction or through a
combination of such approaches. The Funds will not pay any additional fee for
such credit support. The existence of credit support may increase the market
price of the security.
MORTGAGE-BACKED SECURITIES
Collateralized Mortgage Obligations ("CMOs"). Each Fund may invest in CMOs. CMOs
are debt obligations collateralized by certificates issued by the Government
National Mortgage Association, the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation, but also may be collateralized by whole
loans or private pass-through securities (such collateral collectively referred
to as "Mortgage Assets"). Multiclass pass-through securities are equity
interests in a trust composed of Mortgage Assets. Payments of principal and of
interest on the Mortgage Assets, and any reinvestment income thereon, provide
the funds
4
<PAGE>
to pay debt service on the CMOs or make scheduled distributions on the
multiclass pass-through securities. CMOs may be issued by agencies or
instrumentalities of the U.S. government, or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose subsidiaries of
the foregoing.
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche", is issued at a specified fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid on all classes of the CMOs on a monthly, quarterly or
semi-annual basis. The principal of and interest on the Mortgage Assets may be
allocated among the several classes of a series of a CMO in innumerable ways. In
one structure, for example, payments of principal, including any principal
prepayments, on the Mortgage Assets are applied to the classes of a CMO in order
of their respective stated maturities or final distribution dates, so that no
payment of principal will be made on any class of CMOs until all other classes
having an earlier stated maturity or final distribution date have been paid in
full.
Stripped Mortgage-Backed Securities ("SMBS"). Each Fund may invest in SMBs. SMBS
are derivative multiclass mortgage securities. SMBS may be issued by agencies or
instrumentalities of the U.S. government, or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose subsidiaries of
the foregoing.
SMBS are structured with two or more classes of securities that receive
different proportions of the interest and principal distributions on a pool of
Mortgage Assets. A common type of SMBS will have at least one class receiving
only a small portion of the principal from the Mortgage Assets, while the other
classes will receive primarily interest and only a small portion of the
principal. In the most extreme case, one class will receive all of the interest
("IO" or interest-only class) while the other class will receive all of the
principal ("PO" or principal-only class). The yield to maturity on an IO class
is extremely sensitive to the rate of principal payments (including prepayments)
on the related underlying Mortgage Assets, and a rapid rate of principal
payments may have a material adverse effect on such securities' yield to
maturity and result in a loss to the investor.
Under the Internal Revenue Code of 1986, as amended, POs may generate taxable
income from the current accrual of original issue discount, without a
corresponding distribution of cash to a Fund. In addition, the Staff of the
United States Securities and Exchange Commission (the "SEC") considers privately
issued SMBS to be illiquid securities.
Mortgage-backed and asset-backed securities are generically considered to be
derivative securities.
5
<PAGE>
DEPOSITORY RECEIPTS
If and to the extent authorized to do so, each Fund may hold equity securities
of foreign issuers in the form of American Depository Receipts ("ADRs"),
American Depository Shares ("ADSs") and European Depository Receipts ("EDRs"),
or other securities convertible into securities of eligible issuers. These
securities may not necessarily be denominated in the same currency as the
securities for which they may be exchanged. ADRs and ADSs typically are issued
by an American bank or trust company which evidences ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depository Receipts ("CDRs"), are receipts issued in Europe
typically by foreign banks and trust companies that evidence ownership of either
foreign or domestic securities. Generally, ADRs and ADSs in registered form are
designed for use in United States securities markets and EDRs, and CDRs in
bearer form are designed for use in European securities markets. For purposes of
each Fund's investment policies, each Fund's investments in ADRs, ADSs, EDRs,
and CDRs will be deemed to be investments in the equity securities representing
securities of foreign issuers into which they may be converted.
WARRANTS OR RIGHTS
Warrants or rights may be acquired by each Fund in connection with other
securities or separately, and provide each Fund with the right to purchase at a
later date other securities of the issuer. Warrants or rights acquired by a Fund
in units or attached to securities will be deemed to be without value for
purpose of this restriction. These limits are not fundamental policies of each
Fund and may be changed by the Company's Board of Directors without shareholder
approval.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, each Fund may make secured loans
of portfolio securities amounting to not more than 30% of its total assets.
Securities loans are made to broker/dealers or institutional investors pursuant
to agreements requiring that the loans continuously be secured by collateral at
least equal at all times to the value of the securities lent plus any accrued
interest, "marked to market" on a daily basis. The collateral received will
consist of cash, U.S. short-term government securities, bank letters of credit
or such other collateral as may be permitted under each Fund's investment
program and by regulatory agencies and approved by the Company's Board of
Directors. While the securities loan is outstanding, each Fund will continue to
receive the equivalent of the interest or dividends paid by the issuer on the
securities, as well as interest on the investment of the collateral or a fee
from the borrower. Each Fund has the right to call each loan and obtain the
securities on five business days' notice. To the extent applicable, each Fund
will not have the right to vote equity securities while they are being lent, but
it will call in a loan in anticipation of any important vote. The risks in
lending portfolio securities, as with other extensions of secured credit,
consist of possible delay in receiving additional collateral or in the recovery
of the securities or possible loss of rights in the collateral should the
borrower fail financially. Loans only will be made to
6
<PAGE>
firms deemed by the Adviser to be of good standing and will not be made unless,
in the judgment of the Adviser, the consideration to be earned from such loans
would justify the risk.
UNITED STATES GOVERNMENT OBLIGATIONS
Each Fund will invest in securities issued or guaranteed by the U.S. government
or by its agencies or instrumentalities. Such securities in general include a
wide variety of U.S. Treasury obligations consisting of bills, notes and bonds,
which principally differ only in their interest rates, maturities and times of
issuance. Securities issued or guaranteed by U.S. government agencies and
instrumentalities are debt securities issued by agencies or instrumentalities
established or sponsored by the U.S. government.
In addition to the U.S. Treasury obligations described above, each Fund may
invest in separately traded interest components of securities issued or
guaranteed by the U.S. Treasury. The interest components of selected securities
are traded independently under the Separate Trading of Registered Interest and
Principal of Securities ("STRIPS") program. Under the STRIPS program, the
interest components are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then trade
the component parts independently.
Securities issued or guaranteed by U.S. government agencies and
instrumentalities include obligations that are supported by (a) the full faith
and credit of the U.S. Treasury (e.g., direct pass-through certificates of the
Government National Mortgage Association); (b) the limited authority of the
issuer or guarantor to borrow from the U.S. Treasury (e.g., obligations of
Federal Home Loan Banks); or (c) only the credit of the issuer or guarantor
(e.g., obligations of the Federal Home Loan Mortgage Corporation). In the case
of obligations not backed by the full faith and credit of the U.S. Treasury, the
agency issuing or guaranteeing the obligation is principally responsible for
ultimate repayment.
Agencies and instrumentalities that issue or guarantee debt securities and that
have been established or sponsored by the U.S. government include, in addition
to those identified above, the Bank for Cooperatives, the Export-Import Bank,
the Federal Farm Credit System, the Federal Intermediate Credit Banks, the
Federal Land Banks, the Federal National Mortgage Association and the Student
Loan Marketing Association.
BANK OBLIGATIONS
As stated in the Prospectus, bank obligations that may be purchased by each Fund
include certificates of deposit, bankers' acceptances and fixed time deposits. A
certificate of deposit is a short-term negotiable certificate issued by a
commercial bank against funds deposited in the bank and is either
interest-bearing or purchased on a discount basis. A banker's acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. The borrower is liable for payment
as is the bank, which unconditionally guarantees to pay the draft at its face
amount on the maturity date. Fixed time
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<PAGE>
deposits are obligations of branches of U.S. banks or foreign banks which are
payable at a stated maturity date and bear a fixed rate of interest. Although
fixed time deposits do not have a market, there are no contractual restrictions
on the right to transfer a beneficial interest in the deposit to a third party.
The Funds do not consider fixed time deposits illiquid for purposes of the
restriction on investment in illiquid securities.
Banks are subject to extensive governmental regulations that may limit both the
amounts and types of loans and other financial commitments that may be made and
the interest rates and fees that may be charged. The profitability of this
industry is largely dependent upon the availability and cost of capital funds
for the purpose of funding lending operations under prevailing money market
conditions. Also, general economic conditions play an important part in the
operations of this industry and exposure to credit losses arising from possible
financial difficulties of borrowers might affect a bank's ability to meet its
obligations. Bank obligations may be general obligations of the parent bank or
may be limited to the issuing branch by the terms of the specific obligations or
by government regulation.
Investors should also be aware that securities of foreign banks and foreign
branches of U.S. banks may involve investment risks in addition to those
relating to domestic bank obligations. Such investment risks include future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on such securities held by each
Fund, the possible seizure or nationalization of foreign assets and the possible
establishment of exchange controls or other foreign governmental laws or
restrictions which might affect adversely the payment of the principal of and
interest on such securities held by each Fund. In addition, there may be less
publicly-available information about a foreign issuer than about a U.S. issuer,
and foreign issuers may not be subject to the same accounting, auditing and
financial record-keeping standards and requirements as U.S. issuers.
The Funds will not purchase securities which the Adviser believes, at the time
of purchase, will be subject to exchange controls or foreign withholding taxes;
however, there can be no assurance that such laws may not become applicable to
certain of each Funds' investments. In the event unforeseen exchange controls or
foreign withholding taxes are imposed with respect to each Funds' investments,
the effect may be to reduce the income received by each Fund on such
investments.
CONVERTIBLE SECURITIES
General. Under normal market circumstances, the Value Equity Fund may invest in
convertible securities. In addition, the Small Cap Fund may invest up to 10% of
its total assets in convertible securities. Set forth below is additional
information concerning convertible securities.
Convertible securities are issued and traded in a number of securities markets.
For the past several years, the principal markets have been the United States,
the Euromarket and Japan. Issuers during this period have included major
corporations domiciled in the United States,
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Japan, France, Switzerland, Canada and the United Kingdom. Since each Fund will
invest a substantial portion of its assets in the U.S. market and the Euromarket
where convertible bonds have been primarily denominated in U.S. dollars, it is
expected that ordinarily a substantial portion of the convertible securities
held by each Fund will be denominated in U.S. dollars. However, the underlying
equity securities typically will be quoted in the currency of the country where
the issuer is domiciled. With respect to convertible securities denominated in a
currency different from that of the underlying equity securities, the conversion
price may be based on a fixed exchange rate established at the time the security
is issued. As a result, fluctuations in the exchange rate between the currency
in which the debt security is denominated and the currency in which the share
price is quoted will affect the value of the convertible security. Each Fund may
enter into foreign currency hedging transactions in which they may seek to
reduce the impact of such fluctuations.
Apart from currency considerations, the value of convertible securities is
influenced by both the yield of non-convertible securities of comparable issuers
and by the value of the underlying common stock. The value of a convertible
security viewed without regard to its conversion feature (i.e., strictly on the
basis of its yield) is sometimes referred to as its "investment value." To the
extent there are changes in interest rates or yields of similar non-convertible
securities, the investment value of the convertible security typically will
fluctuate. However, at the same time, the value of the convertible security will
be influenced by its "conversion value," which is the market value of the
underlying common stock that would be obtained if the convertible security were
converted. Conversion value fluctuates directly with the price of the underlying
common stock. If, because of a low price of the underlying common stock, the
conversion value is below the investment value of the convertible security, the
price of the convertible security is governed principally by its investment
value.
To the extent the conversion value of a convertible security increases to a
point that approximates or exceeds its investment value, the price of the
convertible security will be influenced principally by its conversion value. A
convertible security will sell at a premium over the conversion value to the
extent investors place value on the right to acquire the underlying common stock
while holding a fixed income security. The yield and conversion premium of
convertible securities issued in Japan and the Euromarket are frequently
determined at levels that cause the conversion value to affect their market
value more than the securities' investment value. If no capital appreciation
occurs on the underlying common stock, a premium may not be fully recovered.
Holders of convertible securities have a claim on the assets of the issuer prior
to the common stockholders but may be subordinated to similar non-convertible
debt securities of the same issuer. A convertible security may be subject to
redemption at the option of the issuer at a price established in the charter
provision, indenture or other governing instrument pursuant to which the
convertible security was issued. If a convertible security held by a Fund is
called for redemption, the Fund will be required to redeem the security, convert
it into the underlying common stock or sell it to a third party. Certain
convertible debt securities may provide a put
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option to the holder which entitles the holder to cause the security to be
redeemed by the issuer at a premium over the stated principal amount of the debt
security.
HEDGING AND OTHER STRATEGIC TRANSACTIONS
As described in the Prospectus under "Special Risk Considerations - Hedging and
Other Strategic Transactions," each Fund may enter into transactions in options,
futures, and forward contracts on a variety of instruments and indexes, in order
to hedge various market risks and/or to manage the effective maturity or
duration of debt instruments held by a Fund. In addition the Small Cap Fund and
Value Equity Fund may enter into transactions to seek to increase a Fund's
income or gain. The U.S. Government Fund currently intends to pursue such
transactions only to hedge its exposure to foreign currencies versus the U.S.
dollar. The discussion below supplements the discussion in each Fund's
Prospectus.
Put options and call options typically have similar structural characteristics
and operational mechanics regardless of the underlying instrument on which they
are purchased or sold. Thus, the following general discussion relates to each of
the particular types of options discussed in greater detail below. In addition,
many Hedging and Other Strategic Transactions involving options require
segregation of Fund assets in special accounts, as described below under "Use of
Segregated and Other Special Accounts".
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, currency or other instrument at the exercise price. A Fund's
purchase of a put option on a security, for example, might be designed to
protect its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value of such instrument
by giving the Fund the right to sell the instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. A Fund's purchase of a call option on a
security, financial futures contract, index, currency or other instrument might
be intended to protect a Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase the instrument. An "American" style put or call option may
be exercised at any time during the option period, whereas a "European" style
put or call option may be exercised only upon expiration or during a fixed
period prior to expiration. Exchange-listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to the options. The discussion
below uses the OCC as an example, but is also applicable to other similar
financial intermediaries.
OCC-issued and exchange-listed options, with certain exceptions, generally
settle by physical delivery of the underlying security or currency, although in
the future, cash settlement may become available. Index options and Eurodollar
instruments (which are described below under "Eurodollar Instruments") are cash
settled for the net amount, if any, by which the option is "in-the-money" (that
is, the amount by which the value of the underlying instrument exceeds, in the
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case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
A Fund's inability to close out its position as a purchaser or seller of an
OCC-issued or exchange-listed put or call option is dependent, in part, upon the
liquidity of the particular option market. Among the possible reasons for the
absence of a liquid option market on an exchange are: (1) insufficient trading
interest in certain options, (2) restrictions on transactions imposed by an
exchange, (3) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities,
including reaching daily price limits, (4) interruption of the normal operations
of the OCC or an exchange, (5) inadequacy of the facilities of an exchange or
the OCC to handle current trading volume or (6) a decision by one or more
exchanges to discontinue the trading of options (or a particular class or series
of options), in which event the relevant market for that option on that exchange
would cease to exist, although any such outstanding options on that exchange
would continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that would not be reflected in the corresponding option
markets.
Over-the-counter ("OTC") options are purchased from or sold to securities
dealers, financial institutions or other parties (collectively referred to as
"Counterparties" and individually referred to as a "Counterparty") through a
direct bilateral agreement with the Counterparty. In contrast to exchange-listed
options, which generally have standardized terms and performance mechanics, all
of the terms of an OTC option, including such terms as method of settlement,
term, exercise price, premium, guarantees and security, are determined by
negotiation of the parties. It is anticipated that any Fund authorized to use
OTC options will generally only enter into OTC options that have cash settlement
provisions, although it will not be required to do so.
Unless the parties provide for it, no central clearing or guarantee function is
involved in an OTC option. As a result, if a Counterparty fails to make or take
delivery of the security, currency or other instrument underlying an OTC option
it has entered into with a Fund or fails to make a cash settlement payment due
in accordance with the terms of that option, the Fund will lose any premium it
paid for the option as well as any anticipated benefit of the transaction. Thus,
the Adviser must assess the creditworthiness of each such Counterparty or any
guarantor or credit enhancement of the Counterparty's credit to determine the
likelihood that the terms of the OTC option will be met. A Fund will enter into
OTC option transactions only with U.S. government securities dealers recognized
by the Federal Reserve Bank of New York as "primary dealers", or broker-dealers,
domestic or foreign banks, or other financial institutions that are
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deemed creditworthy by the Adviser. In the absence of a change in the current
position of the staff of the SEC, OTC options purchased by a Fund and the amount
of the Fund's obligation pursuant to an OTC option sold by the Fund (the cost of
the sell-back plus the in-the-money amount, if any) or the value of the assets
held to cover such options will be deemed illiquid.
If a Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments held by the Fund or will
increase the Fund's income. Similarly, the sale of put options can also provide
Fund gains.
If and to the extent authorized to do so, a Fund may purchase and sell call
options on securities and on Eurodollar instruments that are traded on U.S. and
foreign securities exchanges and in the OTC markets, and on securities indices,
currencies and futures contracts. All calls sold by a Fund must be "covered",
that is, the Fund must own the securities subject to the call, must own an
offsetting option on a futures position, or must otherwise meet the asset
segregation requirements described below for so long as the call is outstanding.
Even though a Fund will receive the option premium to help protect it against
loss, a call sold by a Fund will expose a Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument that it might otherwise have sold.
Each Fund reserves the right to purchase or sell options on instruments and
indices which may be developed in the future to the extent consistent with
applicable law, each Fund's investment objective and the restrictions set forth
herein.
If and to the extent authorized to do so, a Fund may purchase and sell put
options on securities (whether or not it holds the securities in its portfolio)
and on securities indices, currencies and futures contracts. In selling put
options, a Fund faces the risk that it may be required to buy the underlying
security at a disadvantageous price above the market price.
GENERAL CHARACTERISTICS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
If and to the extent authorized to do so, a Fund may trade financial futures
contracts or purchase or sell put and call options on those contracts as a hedge
against anticipated interest rate, currency or market changes, for duration
management and for permissible non-hedging purposes. Futures contracts are
generally bought and sold on the commodities exchanges on which they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by a Fund, as seller, to deliver to
the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to certain
instruments, the net cash amount). Options on futures contracts are similar to
options on securities except that an option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract and obligates the seller to deliver that position.
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A Fund's use of financial futures contracts and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the CFTC and generally will be entered into only
for bona fide hedging, risk management (including duration management) or other
permissible non-hedging purposes. Maintaining a futures contract or selling an
option on a futures contract will typically require a Fund to deposit with a
financial intermediary, as security for its obligations, an amount of cash or
other specified assets ("initial margin") that initially is from 1% to 10% of
the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets ("variation margin") may be required to be deposited
thereafter daily as the mark-to-market value of the futures contract fluctuates.
The purchase of an option on a financial futures contract involves payment of a
premium for the option without any further obligation on the part of a Fund. If
a Fund exercises an option on a futures contract it will be obligated to post
initial margin (and potentially variation margin) for the resulting futures
position just as it would for any futures position. Futures contracts and
options thereon are generally settled by entering into an offsetting
transaction, but no assurance can be given that a position can be offset prior
to settlement or that delivery will occur.
No Fund will enter into a futures contract or option thereon for purposes other
than bona fide hedging if, immediately thereafter, the sum of the amount of its
initial margin and premiums required to maintain permissible non-hedging
positions in futures contracts and options thereon would exceed 5% of the
liquidation value of the Fund's net assets; however, in the case of an option
that is in-the-money at the time of the purchase, the in-the-money amount may be
excluded in calculating the 5% limitation. The segregation requirements with
respect to futures contracts and options thereon are described below under "Use
of Segregated and Other Special Accounts".
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES
If and to the extent authorized to do so, each Fund may purchase and sell call
and put options on securities indices and other financial indices. In so doing,
each Fund can achieve many of the same objectives it would achieve through the
sale or purchase of options on individual securities or other instruments.
Options on securities indices and other financial indices are similar to options
on a security or other instrument except that, rather than settling by physical
delivery of the underlying instrument, options on indices settle by cash
settlement; that is, an option on an index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the index upon which the option is based exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option (except if, in
the case of an OTC option, physical delivery is specified). This amount of cash
is equal to the excess of the closing price of the index over the exercise price
of the option, which also may be multiplied by a formula value. The seller of
the option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments comprising the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
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CURRENCY TRANSACTIONS
If and to the extent authorized to do so, each Fund may engage in currency
transactions with Counterparties to hedge the value of portfolio securities
denominated in particular currencies against fluctuations in relative value.
Currency transactions include currency forward contracts, exchange-listed
currency futures contracts and options thereon, exchange-listed and OTC options
on currencies, and currency swaps. A forward currency contract involves a
privately negotiated obligation to purchase or sell (with delivery generally
required) a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. A currency swap is an agreement to exchange cash flows
based on the notional difference among two or more currencies and operates
similarly to an interest rate swap, which is described below under "Swaps, Caps,
Floors and Collars". Each Fund may enter into currency transactions only with
Counterparties that are deemed creditworthy by the Adviser.
Except as provided in its Prospectus, each Fund's dealings in forward currency
contracts and other currency transactions such as futures contracts, options,
options on futures contracts and swaps will be limited to hedging and other
non-speculative purposes, including transaction hedging and position hedging.
Transaction hedging is entering into a currency transaction with respect to
specific assets or liabilities of a Fund, which will generally arise in
connection with the purchase or sale of the Fund's portfolio securities or the
receipt of income from them. Position hedging is entering into a currency
transaction with respect to portfolio securities positions denominated or
generally quoted in that currency. A Fund will not enter into a transaction to
hedge currency exposure to an extent greater, after netting all transactions
intended wholly or partially to offset other transactions, than the aggregate
market value (at the time of entering into the transaction) of the securities
held by the Fund that are denominated or generally quoted in or currently
convertible into the currency, other than with respect to proxy hedging as
described below.
If and to the extent authorized to do so, a Fund may cross-hedge currencies by
entering into transactions to purchase or sell one or more currencies that are
expected to increase or decline in value relative to other currencies to which
the Fund has or in which the Fund expects to have exposure. To reduce the effect
of currency fluctuations on the value of existing or anticipated holdings of its
securities, a Fund may also engage in proxy hedging. Proxy hedging is often used
when the currency to which a Fund's holdings is exposed is difficult to hedge
generally or difficult to hedge against the dollar. Proxy hedging entails
entering into a forward contract to sell a currency, the changes in the value of
which are generally considered to be linked to a currency or currencies in which
some or all of a Fund's securities are or are expected to be denominated, and to
buy dollars. The amount of the contract would not exceed the market value of the
Fund's securities denominated in linked currencies.
Currency transactions are subject to risks different from other portfolio
transactions. If a Fund enters into a currency hedging transaction, the Fund
will comply with the asset segregation
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requirements described in the Prospectus under "Use of Segregated and Other
Special Accounts".
COMBINED TRANSACTIONS
If and to the extent authorized to do so, each Fund may enter into multiple
transactions, including multiple options transactions, multiple futures
transactions, multiple currency transactions (including forward currency
contracts), multiple interest rate transactions and any combination of futures,
options, currency and interest rate transactions, instead of a single Hedging
and Other Strategic Transaction, as part of a single or combined strategy when,
in the judgment of the Adviser, it is in the best interests of the Fund to do
so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
will normally be entered into by a Fund based on the Adviser's judgment that the
combined strategies will reduce risk or otherwise more effectively achieve the
desired portfolio management goal, it is possible that the combination will
instead increase the risks or hinder achievement of the portfolio management
objective.
SWAPS, CAPS, FLOORS AND COLLARS
Each Fund may be authorized to enter into interest rate, currency and index
swaps, the purchase or sale of related caps, floors and collars. Each Fund will
enter into these transactions primarily to seek to preserve a return or spread
on a particular investment or portion of its portfolio, to protect against
currency fluctuations, as a duration management technique or to protect against
any increase in the price of securities a Fund anticipates purchasing at a later
date. Each Fund will use these transactions for non-speculative purposes and
will not sell interest rate caps or floors if it does not own securities or
other instruments providing the income a Fund may be obligated to pay. Interest
rate swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest (for example, an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal). A currency swap is an agreement to exchange cash flows on a notional
amount based on changes in the values of the reference indices. The purchase of
a cap entitles the purchaser to receive payments on a notional principal amount
from the party selling the cap to the extent that a specified index exceeds a
predetermined interest rate. The purchase of an interest rate floor entitles the
purchaser to receive payments of interest on a notional principal amount from
the party selling the interest rate floor to the extent that a specified index
falls below a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling the floor to the extent that a specific index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return with a predetermined range of interest
rates or values.
Provided the contract so permits, a Fund will usually enter into interest rate
swaps on a net basis, that is, the two payments streams are netted out in a cash
settlement on the payment date or dates specified in the instrument, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments. Inasmuch as these swaps, caps, floors, collars and other
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similar derivatives are entered into for good faith hedging or other
non-speculative purposes, they do not constitute senior securities under the
1940 Act and, thus, will not be treated as being subject to the Fund's borrowing
restrictions. A Fund will not enter into any swap, cap, floor, collar or other
derivative transaction unless the Counterparty is deemed creditworthy by the
Adviser. If a Counterparty defaults, a Fund may have contractual remedies
pursuant to the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Caps, floors and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, for that reason, they are
less liquid than swaps.
The liquidity of swap agreements will be determined by the Adviser based on
various factors, including (1) the frequency of trades and quotations, (2) the
number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or tender features) and (5) the nature of the marketplace for trades
(including the ability to assign or offset a Fund's rights and obligations
relating to the investment). Such determination will govern whether a swap will
be deemed within the 15% restriction on investments in securities that are not
readily marketable.
A Fund will maintain cash and appropriate liquid assets (i.e., high grade debt
securities) in a segregated custodial account to cover its current obligations
under swap agreements. If a Fund enters into a swap agreement on a net basis, it
will segregate assets with a daily value at least equal to the excess, if any,
of the Fund's accrued obligations under the swap agreement over the accrued
amount the Fund is entitled to receive under the agreement. If a Fund enters
into a swap agreement on other than a net basis, it will segregate assets with a
value equal to the full amount of the Fund's accrued obligations under the
agreement. See "Use of Segregated and Other Special Accounts".
EURODOLLAR INSTRUMENTS
If and to the extent authorized to do so, each Fund may make investments in
Eurodollar instruments, which are typically dollar-denominated futures contracts
or options on those contracts that are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. A Fund might use Eurodollar futures contracts and options thereon to
hedge against changes in LIBOR, to which many interest rate swaps and fixed
income instruments are linked.
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ADDITIONAL RISK CONSIDERATIONS
POLITICAL AND ECONOMIC RISKS
Investing in securities of non-U.S. companies may entail additional risks due to
the potential political and economic instability of certain countries and the
risks of expropriation, nationalization, confiscation or the imposition of
restrictions on foreign investment and on repatriation of capital invested. In
the event of such expropriation, nationalization or other confiscation by any
country, a Fund could lose its entire investment in any such country.
FOREIGN INVESTMENT RESTRICTIONS
Certain countries prohibit or impose substantial restrictions on investments in
their capital markets, particularly their equity markets, by foreign entities
such as each of the Funds. For example, certain countries require governmental
approval prior to investments by foreign persons, or limit the amount of
investment by foreign persons in a particular company, or limit the investment
by foreign persons to only a specific class of securities of a company that may
have less advantageous terms than securities of the company available for
purchase by nationals. Moreover, the national policies of certain countries may
restrict investment opportunities in issuers or industries deemed sensitive to
national interests. In addition. some countries require governmental approval
for the repatriation of investment income, capital or the proceeds of securities
sales by foreign investors. A Fund could be adversely affected by delays in, or
a refusal to grant, any required governmental approval for repatriation, as well
as by the application to it of other restrictions on investments.
NON-UNIFORM CORPORATE DISCLOSURE STANDARDS AND GOVERNMENTAL REGULATION
Foreign companies are subject to accounting, auditing and financial standards
and requirements that differ in some cases significantly from those applicable
to U.S. companies. In particular, the assets, liabilities and profits appearing
on the financial statements of such a company may not reflect its financial
position or results of operations in the way they would be reflected had such
financial statements been prepared in accordance with U.S. generally accepted
accounting principles. Most of the securities held by a Fund will not be
registered with the SEC or regulators of any foreign country, nor will the
issuers thereof be subject to the SEC's reporting requirements. Thus, there will
be less available information concerning foreign issuers of securities held by a
Fund than is available concerning U.S. issuers. In instances where the financial
statements of an issuer are not deemed to reflect accurately the financial
situation of the issuer, the Adviser will take appropriate steps to evaluate the
proposed investment, which may include interviews with its management and
consultations with accountants, bankers and other specialists. There is
substantially less publicly available information about foreign companies than
there are reports and ratings published about U.S. companies and the U.S.
government. In addition, where public information is available, it may be less
reliable than such information regarding U.S. issuers.
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ADVERSE MARKET CHARACTERISTICS
Securities of many foreign issuers may be less liquid and their prices more
volatile than securities of comparable U.S. issuers. In addition, foreign
securities exchanges and brokers generally are subject to less governmental
supervision and regulation than in the United States, and foreign securities
exchange transactions usually are subject to fixed commissions, which generally
are higher than negotiated commissions on U.S. transactions. In addition,
foreign securities exchange transactions may be subject to difficulties
associated with the settlement of such transactions. Delays in settlement could
result in temporary periods when assets of a Fund are uninvested and no return
is earned thereon. The inability of a Fund to make intended security purchases
due to settlement problems could cause the Fund to miss attractive
opportunities. Inability to dispose of a portfolio security due to settlement
problems either could result in losses to a Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser. The
Adviser will consider such difficulties when determining the allocation of such
Fund's assets, though the Adviser does not believe that such difficulties will
have a material adverse effect on the Fund's portfolio trading activities.
NON-U.S. WITHHOLDING TAXES
Each Fund's net investment income from foreign issuers may be subject to
non-U.S. withholding taxes thereby reducing each Fund's net investment income.
See "Additional Information Concerning Taxes".
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in illiquid securities. See
"Limiting Investment Risks" in the Prospectus. The sale of restricted or
illiquid securities require more time and result in higher brokerage charges or
dealer discounts and other selling expenses than the sale of securities eligible
for trading on securities exchanges or in the over-the-counter markets.
Restricted securities often sell at a price lower than similar securities that
are not subject to restrictions on resale.
With respect to liquidity determinations generally, the Company's Board of
Directors has the ultimate responsibility for determining whether specific
securities, including restricted securities pursuant to Rule 144A under the
Securities Act of 1933, are liquid or illiquid. The Board has delegated the
function of making day to day determinations of liquidity to the Adviser,
pursuant to guidelines reviewed by the Board. The Adviser takes into account a
number of factors in reaching liquidity decisions, including, but not limited
to: (i) the frequency of trading in the security; (ii) the number of dealers who
make quotes for the security; (iii) the number of dealers who have undertaken to
make a market in the security; (iv) the number of other potential purchasers;
and (v) the nature of the security and how trading is effected (e.g., the time
needed to sell the security, how offers are solicited and the mechanics of
transfer). The Adviser will
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monitor the liquidity of securities in each Fund's portfolio and report
periodically on such decisions to the Board of Directors.
INVESTMENT LIMITATIONS
In addition to the restrictions described under "Limiting Investment Risks" in
the Prospectus, each Fund may not:
(1) purchase or sell commodities or commodity contracts, except that a
Fund may purchase and sell financial and currency futures contracts
and options thereon, and may purchase and sell currency forward
contracts, options on foreign currencies and may otherwise engage in
transactions in foreign currencies;
(2) make loans, except that a Fund may (a) (i) purchase and hold debt
instruments (including bonds, debentures or other obligations and
certificates of deposit and bankers' acceptances) and (ii) invest in
loans and participations in accordance with its investment
objectives and policies, (b) make loans of portfolio securities and
(c) enter into repurchase agreements with respect to portfolio
securities;
(3) underwrite the securities of other issuers, except to the extent
that the purchase of investments directly from the issuer thereof
and later disposition of such securities in accordance with a Fund's
investment program may be deemed to be an underwriting;
(4) purchase real estate or real estate limited partnership interests
(other than securities secured by real estate or interests therein
or securities issued by companies that invest in real estate or
interests therein);
(5) purchase more than 3% of the stock of another investment company, or
purchase stock of other investment companies equal to more than 5%
of a Fund's net assets in the case of any one other investment
company and 10% of such net assets in the case of all other
investment companies in the aggregate. This restriction shall not
apply to investment company securities received or acquired by a
Fund pursuant to a merger or plan of reorganization;
(6) purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary
for the clearance of transactions, and except for initial and
variation margin payments in connection with the use of options,
futures contracts, options thereon or forward currency contracts; a
Fund may also make deposits of margin in connection with futures and
forward contracts and options thereon);
(7) sell securities short (except for short positions in a futures
contract or forward contract);
19
<PAGE>
(8) invest for the purpose of exercising control over management of any
company;
(9) invest directly in interests in oil, gas or other mineral
exploration development programs or mineral leases;
(10) pledge, hypothecate, mortgage or otherwise encumber its assets,
except to secure permitted borrowings;
(11) invest in stock or bond futures and/or options on futures unless (i)
not more than 5% of a Fund's total assets are required as deposit to
secure obligations under such futures and/or options on futures
contracts, provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be
excluded in computing such 5%; and
(12) invest in puts, calls straddles or spreads, except as described in
(11) above.
If a percentage restriction on investment or use of assets set forth above is
adhered to at the time a transaction is effected, later changes in percentages
resulting from changing values will not be considered a violation.
Investment restrictions (1) through (5) described above and those set forth in
the Prospectus under "Limiting Investment Risks" are fundamental policies of
each Fund which may be changed only when permitted by law and approved by the
holders of a majority of each Fund's outstanding voting securities, as described
under "General Information--Capital Stock". Restrictions (7) through (12) are
nonfundamental policies of each Fund, and may be changed by a vote of the
Company's Board of Directors.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The principal occupations of the directors and executive officers of the Company
for the past five years are listed below.
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL
HELD WITH OCCUPATION(S)
NAME, ADDRESS AND AGE THE COMPANY PAST 5 YEARS
- --------------------- ----------- ------------
<S> <C> <C>
Morris W. Offit, 59* Chairman of the President and Director,
OFFITBANK Board, President OFFITBANK (1983 - present).
520 Madison Avenue and Director Chairman of the Board, President
New York, NY 10022 and Director of OFFITBANK
Investment Fund, Inc.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL
HELD WITH OCCUPATION(S)
NAME, ADDRESS AND AGE THE COMPANY PAST 5 YEARS
- --------------------- ----------- ------------
<S> <C> <C>
Edward J. Landau, 66 Director Member, Lowenthal, Landau
Lowenthal, Landau, Fischer & Bring, P.C. (1960 -
Fischer & Bring, P.C. present); Director, Revlon Group
250 Park Avenue Inc. (cosmetics), Revlon Consumer
New York, NY 10177 Products Inc. (cosmetics),
Pittsburgh Annealing Box (metal
fabricating) and Clad Metals Inc.
(cookware).
The Very Reverend Director Dean of Cathedral of St. John the
James Parks Morton, 66 Divine (1972 - present)
Cathedral of St. John the
Divine
1047 Madison Avenue
New York, NY 10025
Wallace Mathai-Davis, 51 Secretary and Managing Director, OFFITBANK
OFFITBANK Treasurer (1986 - present). Secretary and
520 Madison Avenue Treasurer of OFFITBANK
New York, NY 10017 Investment Fund, Inc.
John J. Pileggi, 37 Assistant Director, Furman Selz LLC (1987 -
Furman Selz LLC Treasurer present). Assistant Treasurer of
230 Park Avenue OFFITBANK Investment Fund,
New York, NY 10169 Inc.
Joan V. Fiore, 40 Assistant Managing Director and Counsel,
Furman Selz LLC Secretary Furman Selz LLC (1991 - present);
230 Park Avenue Attorney, Securities and Exchange
New York, NY 10169 Commission (1986 - 1991).
Assistant Secretary of
OFFITBANK Investment Fund, Inc.
Gordon M. Forrester, 35 Assistant Director - Fund Services, Furman
Furman Selz LLC Treasurer Selz LLC (1987 - present).
230 Park Avenue Assistant Treasurer of
New York, NY 10169 OFFITBANK Investment Fund,
Inc.
</TABLE>
- ------------
* "Interested person" as defined in the 1940 Act.
The Board of Directors has designated an audit committee to advise the full
Board with respect to accounting, auditing and financial matters affecting the
Company. The Audit Committee is comprised of Mr. Landau and The Very Reverend
Morton and meets periodically.
The Company pays each Director who is not also an officer or affiliated person
an annual fee of $3,000 and a fee of $500 for each Board of Directors and Board
committee meeting attended
21
<PAGE>
and are reimbursed for all out-of-pocket expenses relating to attendance at
meetings. Directors who are affiliated with the Adviser do not receive
compensation from the Company but are reimbursed for all out-of-pocket expenses
relating to attendance at meetings.
<TABLE>
<CAPTION>
ESTIMATED DIRECTOR COMPENSATION
(FOR CALENDAR YEAR 1995)
TOTAL
PENSION OR COMPENSATION
RETIREMENT ESTIMATED FROM REGISTRANT
AGGREGATE BENEFITS ANNUAL AND FUND
COMPENSATION ACCRUED BENEFITS COMPLEX* PAID
NAME OF PERSON, POSITION FROM REGISTRANT AS PART OF FUND UPON TO DIRECTORS
EXPENSES RETIREMENT
- ------------------------ --------------- --------------- ---------- ---------------
<S> <C> <C> <C> <C>
Morris W. Offit $ 0 0 N/A $00,000
Edward J. Landau $4,000 0 N/A $12,500
The Very Reverend $4,000 0 N/A $12,500
James Parks Morton
</TABLE>
* For this purpose, the "Fund Complex" consists of all other regulated
investment companies advised by OFFITBANK.
INVESTMENT ADVISER
The Company has retained OFFITBANK, a New York State chartered trust company, to
act as its investment adviser (the "Adviser") for the Small Cap Fund and U.S.
Government Fund. The advisory agreement (the "Advisory Agreement") between the
Adviser and the Company provides that the Adviser shall manage the operations of
the Company, subject to policy established by the Board of Directors of the
Company. Pursuant to the Advisory Agreement, the Adviser manages the Company's
investment portfolios, directs purchases and sales of the portfolio securities
and reports thereon to the Company's officers and directors regularly. In
addition, the Adviser pays the compensation of the Company's officers, employees
and directors affiliated with the Adviser. The Company bears all other costs of
its operations, including the compensation of its directors not affiliated with
the Adviser.
For its services under the Advisory Agreement, the Adviser receives from each
Fund an advisory fee. The fee is payable monthly at an annual rate of 1.5% of
Small Cap Fund's average daily net assets and .__% of U.S. Government Fund's
average daily net assets. The Adviser may waive all or part of its fee from time
to time in order to increase a Fund's net investment income available for
distribution to shareholders. The Funds will not be required to reimburse the
Adviser for any advisory fees waived.
22
<PAGE>
Unless sooner terminated, the Advisory Agreement provides that it will continue
in effect as to a particular Fund until ___________, 1998 and for consecutive
one year terms thereafter, provided such continuance is approved at least
annually by the Company's Board of Directors or by a vote of a majority (as
defined under "General Information--Capital Stock") of the outstanding shares of
each Fund, and, in either case, by a majority of the directors who are not
parties to the contract or "interested persons" (as defined in the 1940 Act) of
any party by votes cast in person at a meeting called for such purpose. The
Advisory Agreement may be terminated by the Company or the Adviser on 60 days'
written notice, and will terminate immediately in the event of its assignment.
David J. Greene & Company ("DJ Greene") is responsible for managing the
investment portfolio of the Value Equity Fund. DJ Greene is a registered
investment adviser under the 1940 Act and a member of the New York Stock
Exchange. The advisory agreement (the "Advisory Agreement") between DJ Greene
and the Company provides that DJ Greene shall manage the investment operations
of the Company, subject to policies established by the Board of Directors of the
Company. Pursuant to the Advisory Agreement, DJ Greene manages the Company's
Value Equity Fund, directs purchases and sales of the portfolio securities for
the Value Equity Fund and reports regularly thereon to the Company's officers
and directors. The Company bears all other costs of its operations.
For its services under the Advisory Agreement, DJ Greene receives an advisory
fee. The fee is payable monthly at an annual rate of .80% of the Value Equity
Fund's average daily net worth. DJ Greene may waive all or part of its fee from
time to time in order to increase a Value Equity Fund's net investment income
available for distribution to shareholders. The Value Equity Fund will not be
required to reimburse DJ Greene for any advisory fees waived.
The Advisory Agreement was approved by the Company's Board of Directors on
________ 1996 and by the Value Equity Fund's sole shareholder, OFFIT Funds
Distributor, on _________ 1996. Unless sooner terminated, the Advisory Agreement
will continue in effect with respect to the Company until __________ 1998, and
from year to year thereafter if such continuance is approved at least annually
by the Company's Board of Directors or by a vote of a majority (as defined under
"General Information" - Capital Stock") of the outstanding shares of the Value
Equity Fund, and, in either case, by a majority of the directors who are not
parties to the contract or "interested persons" (as defined in the 1940 Act) of
any party by votes case in person at a meeting called for such purpose. The
Advisory Agreement may be terminated by the Company or DJ Greene on 60 days'
written notice and will terminate immediately in the event of its assignment.
23
<PAGE>
Sub-Adviser - Small Cap Fund [to be selected].
REGULATORY MATTERS
OFFITBANK is a trust company chartered under the New York Banking Law and is
supervised and examined thereunder by the New York Banking Department. OFFITBANK
is prohibited by its charter from accepting deposits other than deposits arising
directly from its exercise of the fiduciary powers granted under the New York
Banking Law and, accordingly, is not an insured depository institution for
purposes of the Federal Deposit Insurance Act or any other banking law or
regulation.
Banking laws and regulations, as currently interpreted by the New York Banking
Department, prohibit New York State chartered trust companies from controlling,
or distributing the shares of, a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit such trust
companies generally from issuing, underwriting, selling or distributing
securities, but do not prohibit such trust companies from acting as investment
adviser, administrator, transfer agent or custodian to such an investment
company or from purchasing shares of such a company as agent for and upon the
order of a customer. OFFITBANK believes that it may perform the services
described in this Prospectus with respect to the Company without violation of
such laws or regulations. OFFITBANK is not a member of the Federal Reserve
System and is not subject to the Glass-Steagall Act, the Bank Holding
24
<PAGE>
Company Act of 1956 or any other federal banking law or regulation that might
affect its ability to perform such services.
If the Adviser or DJ Greene were prohibited from performing the services
described in this Prospectus with respect to the Funds, it is expected that the
Company's Board of Directors would recommend to each Fund's shareholders that
they approve new agreements with another entity or entities qualified to perform
such services and selected by the Board of Directors. The Company does not
anticipate that investors would suffer any adverse financial consequences as a
result of these occurrences.
DISTRIBUTOR
OFFIT Funds Distributor, Inc., (the "Distributor"), a wholly-owned subsidiary of
Furman Selz, with its principal office at 230 Park Avenue, New York, New York
10169, distributes the shares of the Company. Under a distribution agreement
with the Company (the "Distribution Agreement"), the Distributor is not
obligated to sell any specific amount of shares of the Company. The Distributor,
as agent of the Company, agrees to use its best efforts as sole distributor of
the Company's shares.
The Distribution Agreement will continue in effect with respect to a particular
Fund from year to year if such continuance is approved at least annually by the
Company's Board of Directors and by a majority of the Directors who have no
direct or indirect financial interest in the Agreement ("Qualified Directors")
and who are not "interested persons" (as defined in the 1940 Act) of any party
by votes cast in person at a meeting called for such purpose. In approving the
continuance of the Distribution Agreement, the Directors must determine that the
Agreement is in the best interest of the shareholders of each Fund.
ADMINISTRATION, CUSTODY AND TRANSFER AGENCY SERVICES
Furman Selz LLC ("Furman Selz") provides the Company with administrative and
fund accounting services pursuant to an Administration Agreement (the
"Administration Agreement"). The Administration Agreement continues in effect
until February 28, 1997 and from year to year thereafter if such continuance is
approved at least annually by the Company's Board of Directors and by a majority
of the Directors who are not parties to such Agreement or "interested persons"
(as defined in the 1940 Act).
Pursuant to the Administration Agreement, Furman Selz performs certain
administrative and clerical services, including certain accounting services,
facilitation of redemption requests, exchange privileges, and account
adjustments and maintenance of certain books and records; and certain services
to the Company's shareholders, including assuring that investments and
redemptions are completed efficiently, responding to shareholder inquiries and
maintaining a flow of information to shareholders. Furman Selz also furnishes
office space and certain facilities reasonably necessary for the performance of
its services under the Administration Agreement, and provides the office space,
facilities, equipment and personnel necessary to perform the
25
<PAGE>
following services for the Company: SEC compliance, including record keeping,
reporting requirements and registration statements and proxies; supervision of
Company operations, including custodian, accountants and counsel and other
parties performing services or operational functions for the Company. As
compensation for its administrative services, Furman Selz receives a monthly
fee, based on an annual rate of .15% of aggregate average daily net assets of
the Funds plus an annual fee of $30,000 for each Fund.
Furman Selz serves as the Company's Transfer Agent and Dividend Disbursing Agent
pursuant to a transfer agency agreement (the "Transfer Agency Agreement") with
the Company. Under the Transfer Agency Agreement, Furman Selz has agreed, among
other things, to: (i) issue and redeem shares of each Fund; (ii) transmit all
communications by each Fund to its shareholders of record, including reports to
shareholders, dividend and distribution notices and proxy materials for meetings
of shareholders; (iii) respond to correspondence by shareholders and others
relating to its duties; (iv) maintain shareholder accounts; and (v) make
periodic reports to the Board of Directors concerning each Funds' operations.
Each Fund pays Furman Selz such compensation as may be agreed upon from time to
time. The Transfer Agency Agreement continues in effect until February 28, 1997
and from year to year thereafter if such continuance is approved at least
annually by the Company's Board of Directors and by a majority of the Directors
who are not "interested persons" (as defined in the 1940 Act) of any party, and
such Agreement may be terminated by either party on 60 days' written notice.
The Chase Manhattan Bank, N.A. (the "Custodian") serves as the Company's
custodian pursuant to a custodian agreement (the "Custodian Agreement") with the
Company. The Custodian is located at 4 MetroTech Center, 18th Floor, Brooklyn,
New York 11245. Under the Custodian Agreement, the Custodian has agreed to (i)
maintain a segregated account or accounts in the name of each Fund; (ii) hold
and disburse portfolio securities on account of each Fund; (iii) collect and
receive all income and other payments and distributions on account of each
Fund's portfolio securities; (iv) respond to correspondence relating to its
duties; and (v) make periodic reports to the Company's Board of Directors
concerning the Funds' operations. The Custodian is authorized under the
Custodian Agreement to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Funds, provided that the Custodian remains
responsible for the performance of all of its duties under the Custodian
Agreement. The Custodian is entitled to receive monthly fees under the Custodian
Agreement based upon the types of assets held by each Fund, at the annual rate
of .0865% on the first $10 million and .05% on amounts in excess thereof for
assets held in the United States and .20% on the first $10 million and .15% on
amounts in excess thereof for assets held outside the United States, except that
with respect to assets held in certain emerging market countries, the annual fee
shall be .30% of such Fund's assets held in the particular type of security. The
Custodian Agreement continues in effect until January 31, 1996 and from year to
year thereafter if such continuance is approved at least annually by the
Company's Board of Directors and by a majority of the Directors who are not
parties to such Agreement or "interested persons" (as defined in the 1940 Act)
of any party, and such Agreement may be terminated by either party on 60 days'
written notice.
26
<PAGE>
OTHER INFORMATION CONCERNING FEES AND EXPENSES
All or part of the fees payable by any or all of each of the Funds to the
organizations retained to provide services for each of the Funds may be waived
from time to time in order to increase such Funds' net investment income
available for distribution to shareholders.
Except as otherwise noted, OFFITBANK and Furman Selz bear all expenses in
connection with the performance of their advisory and administrative services
respectively. The Company bears the expenses incurred in its operations,
including: taxes; interest; fees (including fees paid to its directors who are
not affiliated with the Company); fees payable to the SEC; costs of preparing
prospectuses for regulatory purposes and for distribution; advisory and
administration fees; charges of its custodian and transfer agent; certain
insurance costs; auditing and legal expenses; fees of independent pricing
services; costs of shareholders' reports and shareholder meetings, including
proxy statements and related materials; and any extraordinary expenses. The
Company also pays for brokerage fees and commissions, if any, in connection with
the purchase of portfolio securities.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of dealers in the
execution of transactions in portfolio securities. Subject to policy established
by the Company's Board of Directors, the Adviser is primarily responsible for
the Company's portfolio decisions and the placing of the Company's portfolio
transactions. DJ Greene is primarily responsible for the portfolio decisions and
the placing of the portfolio transaction for the Value Equity Fund. [Small Cap
Fund Sub-Adviser], however, under the supervision of the Adviser, is primarily
responsible for the portfolio decisions and the placing of the portfolio
transactions for the Small Cap Fund.
With respect to the U.S. Government Fund, portfolio securities normally will be
purchased or sold from or to dealers at a net price, which may include dealer
spreads and underwriting commissions. With respect to the Small Cap Fund and
Value Equity Fund, purchases and sales of securities on a stock exchange are
effected through brokers who charge a commission. In the over-the-counter
market, securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In placing orders, it
is the policy of the Company to obtain the best results taking into account the
dealer's general execution and operational facilities, the type of transaction
involved and other factors such as the dealer's risk in positioning the
securities involved. While the Adviser and DJ Greene each generally seeks a
competitive price in placing their orders, the Company may not necessarily be
paying the lowest price available.
Under the 1940 Act, persons affiliated with the Company are prohibited from
dealing with the Company as a principal in the purchase and sale of securities
unless the transaction is conducted in accordance with procedures established by
the Company's Board of Directors and complies
27
<PAGE>
in all other respects with certain criteria or an exemptive order allowing such
transactions is obtained from the SEC. Affiliated persons of the Company, or
affiliated persons of such persons, may from time to time be selected to execute
portfolio transactions for the Company as agent. Subject to the considerations
discussed above and in accordance with procedures adopted by the Board of
Directors, in order for such an affiliated person to be permitted to effect any
portfolio transactions for the Company, the commissions, fees or other
remuneration received by such affiliated person must be reasonable and fair
compared to the commissions, fees and other remuneration received by other
brokers in connection with comparable transactions. This standard would allow
such an affiliated person to receive no more than the remuneration which would
be expected to be received by an unaffiliated broker in a commensurate
arm's-length agency transaction.
Investment decisions for the Company are made independently from those for other
funds and accounts advised or managed by the Adviser. Such other funds and
accounts may also invest in the same securities as the Company. If those funds
or accounts are prepared to invest in, or desire to dispose of, the same
security at the same time as the Company, however, transactions in such
securities will be made, insofar as feasible, for the respective funds and
accounts in a manner deemed equitable to all. In some cases, this procedure may
adversely affect the size of the position obtained for or disposed of by the
Company or the price paid or received by the Company. In addition, because of
different investment objectives, a particular security may be purchased for one
or more funds or accounts when one or more funds or accounts are selling the
same security. To the extent permitted by law, the Adviser, DJ Greene and [Small
Cap Fund Sub-Adviser] may aggregate the securities to be sold or purchased for
the Company with those to be sold or purchased for other funds or accounts in
order to obtain best execution.
PURCHASE OF SHARES
The Company reserves the right, in its sole discretion, to (i) suspend the
offering of shares of each of its Funds, and (ii) reject purchase orders when,
in the judgment of management, such suspension or rejection is in the best
interest of the Company.
REDEMPTION OF SHARES
The Company may suspend redemption privileges or postpone the date of payment
(i) during any period that the New York Stock Exchange (the "NYSE") or the bond
market is closed, or trading on the NYSE is restricted as determined by the SEC,
(ii) during any period when an emergency exists as defined by the rules of the
SEC as a result of which it is not reasonably practicable for a Fund to dispose
of securities owned by it, or fairly to determine the value of its assets, and
(iii) for such other periods as the SEC may permit.
Furthermore, if the Board of Directors determines that it is in the best
interests of the remaining shareholders of a Fund, such Fund may pay the
redemption price, in whole or in part, by a distribution in kind.
28
<PAGE>
PERFORMANCE CALCULATIONS
The Company may from time to time quote various performance figures to
illustrate the past performance of each of its Funds. Performance quotations by
investment companies are subject to rules adopted by the SEC, which require the
use of standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by a Fund be accompanied by
certain standardized performance information computed as required by the SEC. An
explanation of the SEC methods for computing performance follows.
TOTAL RETURN
A Fund's average annual total return is determined by funding the average annual
compounded rates of return over 1, 5 and 10 year periods (or, if sooner, the
period since inception of the Fund) that would equate an initial hypothetical
$1,000 investment to its ending redeemable value. The calculation assures that
all dividends and distributions are reinvested when paid. The quotation assumes
the amount was completely redeemed at the end of each 1, 5 and 10 year period
(or, if shorter, the period since inception of the Fund) and the deduction of
all applicable Fund expenses on an annual basis. Average annual total return is
calculated according to the following formula:
P (1+T)^n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the stated period
A Fund may also calculate total return on an aggregate basis which reflects the
cumulative percentage change in value over the measuring period. The formula for
calculating aggregate total return can be expressed as follows:
Aggregate Total Return = [( ERV ) - 1]
---
P
In addition to total return, each Fund may quote performance in terms of a
30-day yield. The yield figures provided will be calculated according to a
formula prescribed by the SEC and can be expressed as follows:
Yield = 2 [ (a-b+1)^6 - 1]
---
cd
Where: a = dividends and interest earned during the period.
29
<PAGE>
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the minimum offering price per share on the last day of the period.
For the purpose of determining the interest earned (variable "a" in the formula)
on debt obligations that were purchased by a Fund at a discount or premium, the
formula generally calls for amortization of the discount or premium; the
amortization schedule will be adjusted monthly to reflect changes in the market
value of the debt obligations.
The performance of a Fund may be compared to data prepared by Lipper Analytical
Services, Inc. or other independent services which monitor the performance data
of investment companies, and may be quoted in advertising in terms of their
rankings in each applicable universe. In addition, the Company may use
performance reported in financial and industry publications, including Barron's,
Business Week, Forbes, Fortune, Institutional Investor, Money, Morningstar,
Mutual Fund Values, The Wall Street Journal, The New York Times and U.S.A.
Today.
Performance information presented for each of the Funds should not be compared
directly with performance information of other insurance products without taking
into account insurance-related charges and expenses payable under the variable
annuity contract and variable life insurance policy. These charges and expenses
are not reflected in the Funds' performance and would reduce an investor's
return under the annuity contract or life policy.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is only a summary of certain additional tax considerations that
are not described in the Prospectus and generally affect each Fund and its
shareholders. No attempt is made to present a detailed explanation of the tax
treatment of each Fund or its shareholders, and the discussions here and in the
Prospectus are not intended as substitutes for careful tax planning.
Each Fund intends to qualify to be treated as a "regulated investment company"
("RIC") under the Internal Revenue Code of 1986 (the "Code"). If so qualified,
each Fund will not be subject to federal income tax on its investment company
taxable income and net capital gains to the extent that such investment company
taxable income and net capital gains are distributed in each taxable year to the
separate accounts of insurance companies that hold its shares. In addition, if
each Fund distributes annually to the separate accounts its ordinary income and
capital gain net income, in the manner prescribed in the Code, it will also not
be subject to the 4% federal excise tax otherwise applicable to the RIC's on any
of its income or gains. Distributions of net investment income and net
short-term capital gains will be treated as ordinary income and distributions of
net long-term capital gains will be treated as long-term capital gain in the
hands of the insurance companies. Under current tax law, capital gains or
dividends from any Funds
30
<PAGE>
are not currently taxable when left to accumulate within a variable annuity or
variable life insurance contract.
Section 817(h) of the Code requires that investments of a segregated asset
account of an insurance company be "adequately diversified", in accordance with
Treasury Regulations promulgated thereunder, in order for the holders of the
variable annuity contracts or variable life insurance policies investing in the
account to receive the tax-deferred or tax-free treatment generally afforded
holders of annuities or life insurance policies under the Code. The Department
of the Treasury has issued Regulations under section 817(h) which, among other
things, provide the manner in which a segregated asset account will treat
investments in a RIC for purposes of the applicable diversification
requirements. Under the Regulations, if a RIC satisfies certain conditions, that
RIC will not be treated as a single investment for these purposes, but rather
the segregated asset account will be treated as owning its proportionate share
of each of the assets of the RIC. Each Fund plans to satisfy these conditions at
all times so that each segregated asset account of a life insurance company
investing in the Funds will be treated as adequately diversified under the Code
and Regulations.
For information concerning the federal income tax consequences to the holders of
variable annuity contracts and variable rate insurance policies, such holders
should consult the prospectuses used in connection with the issuance of their
particular contracts or policies.
DETERMINATION OF NET ASSET VALUE
The Company values the shares of each Fund daily on each day the New York Stock
Exchange (the "NYSE") is open. Currently, the NYSE is closed Saturdays, Sundays
and the following holidays: New Year's Day, President's Day, Good Friday,
Memorial Day, the Fourth of July, Labor Day, Thanksgiving and Christmas. The
Company determines net asset value as of the close of the NYSE. However, equity
options held by a Fund are priced as of the close of trading at 4:10 p.m, and
futures on U.S. government securities and index options held by a Fund are
priced as of their close of trading at 4:15 p.m.
Each Fund determines net asset value as follows: Securities for which market
quotations are readily available are valued at prices which, in the opinion of
the Directors, most nearly represent the market values of such securities.
Currently, such prices are determined using the last reported sales price on or,
if no sales are reported (as in the case of some securities traded
over-the-counter) the last reported bid price, except that certain U.S.
government securities are stated at the mean between the reported bid and asked
prices. Short-term investments having remaining maturities of 60 days or less
are stated at amortized cost, which approximates market. All other securities
and assets are valued at their fair value following procedures approved by the
Directors. Liabilities are deducted from the total, and the resulting amount is
divided by the number of shares outstanding.
31
<PAGE>
Reliable market quotations are not considered to be readily available for
long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities, or certain foreign securities. Securities for which reliable
quotations are not readily available and all other assets will be valued at
their respective fair market value as determined in good faith by, or under
procedures established by, the Company's Board of Directors.
If any securities held by a Fund are restricted as to resale, their fair value
will be determined in good faith by, or under procedures established by, the
Company's Board of Directors. The Directors periodically review such valuations
and procedures. The fair value of such securities is generally determined as the
amount which Fund could reasonably expect to realize from an orderly disposition
of such securities over a reasonable period of time. The valuation procedures
applied in any specific instance are likely to vary from case to case. However,
consideration is generally given to the financial position of the issuer and
other fundamental analytical data relating to the investment and to the nature
of the restrictions on disposition of the securities (including any registration
expenses that might be borne by the Fund in connection with such disposition).
In addition, specific factors are also generally considered, such as the cost of
the investment, the market value of any unrestricted securities of the same
class (both at the time of purchase and at the time of valuation), the size of
the holding, the prices of any recent transactions or offers with respect to
such securities and any available analysts' reports regarding the issuer.
The Funds will invest in foreign securities, and as a result, the calculation of
the Funds' net asset value may not take place contemporaneously with the
determination of the prices of certain of the portfolio securities used in the
calculation. Also, because of the amount of time required to collect and process
trading information as to large numbers of securities issues, the values of
certain securities (such as convertible bonds, U.S. government securities, and
tax-exempt securities) are determined based on market quotations collected
earlier in the day at the latest practicable time prior to the close of the
NYSE. Occasionally, events which affect the values of such securities (and, with
respect to foreign securities, the value of the currency in which the security
is denominated) may occur between the times at which they are determined and the
close of the NYSE and will therefore not be reflected in the computation of a
Fund's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value as determined in good faith by, or under procedures established
by, the Company's Board of Directors.
GENERAL INFORMATION
CAPITAL STOCK
All shares of the Company have equal voting rights and will be voted in the
aggregate, and not by class, except where voting by class is required by law. As
used in this Statement of Additional Information, the term "majority", when
referring to the approvals to be obtained from shareholders in connection with
general matters affecting the Company and all Funds, means the
32
<PAGE>
vote of the lesser of (i) 67% of the Company's shares represented at a meeting
if the holders of more than 50% of the outstanding shares are present in person
or by proxy or (ii) more than 50% of the Company's outstanding shares. The term
"majority", when referring to the approvals to be obtained from shareholders in
connection with matters affecting any single Fund (e.g., approval of Advisory
Agreements), means the vote of the lesser of (i) 67% of the shares of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of the Fund are present in person or by proxy or (ii) more than 50% of
the outstanding shares of the Fund. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held.
Each share of a Fund of the Company is entitled to such dividends and
distributions out of the income earned on the assets belonging to that Fund as
are declared in the discretion of the Company's Board of Directors. In the event
of the liquidation or dissolution of the Company, shares of a Fund are entitled
to receive the assets allocable to that Fund which are available for
distribution, and a proportionate distribution, based upon the relative net
assets of the Funds, of any general assets not belonging to a Fund which are
available for distribution.
Shareholders are not entitled to any preemptive rights. All shares, when issued,
will be fully paid, non-accessible, fully transferable and redeemable at the
option of the holder.
As of the date of this Statement of Additional Information, OFFIT Funds
Distributor, Inc. was the record and beneficial owner of all of the outstanding
shares of the Company's common stock and thus may be deemed to "control" the
Company as that term is defined in the 1940 Act. The shares held by OFFIT Funds
Distributor, Inc. are intended to enable the Company to meet an initial
capitalization requirement imposed under the 1940 Act. OFFIT Funds Distributor,
Inc. has undertaken that the shares were purchased for investment purposes only
and that they will be sold only pursuant to a registration statement under the
Securities Act of 1933, as amended, or an applicable exemption from the
registration requirements thereof.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP serves as the independent accountants for the Company.
Price Waterhouse LLP is located at 1177 Avenue of the Americas, New York, New
York 10036.
COUNSEL
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York 10022,
serves as counsel to each of the Funds.
OTHER INFORMATION
The Prospectus and this Statement of Additional Information do not contain all
the information included in the Registration Statement filed with the SEC under
the Securities Act of 1933 with respect to the securities offered by the
Prospectus. Certain portions of the Registration Statement
33
<PAGE>
have been omitted from the Prospectus and this Statement of Additional
Information pursuant to the rules and regulations of the SEC. The Registration
Statement including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this Statement of Additional
Information as to the contents of any contract or other document referred to are
not necessarily complete, and, in each instance, reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Statement of Additional Information
form a part, each such statement being qualified in all respects by such
reference.
34
<PAGE>
The OFFITBANK Variable Insurance Fund, Inc.
PART C
<PAGE>
The OFFITBANK Variable Insurance Fund, Inc.
PART C. OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits.
(a) Statements of Assets and Liabilities and Report of Independent
Accountants
(b) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
EX-99.B1(a) -- Registrant's Articles of Incorporation. (1)
EX-99.B1(b) -- Registrant's Articles of Amendment.(3)
EX-99.B2 -- Registrant's Amended and Restated By-Laws.(2)
EX-99.B3 -- None.
EX-99.B4 -- Form of Specimen Share Certificates.(2)
EX-99.B5(a) -- Form of Advisory Agreement between Registrant and
OFFITBANK.(2)
EX-99.B5(b) -- Form of Investment Advisory Agreement between
Registrant and David J. Greene and Company.(3)
EX-99.B5(c) -- Form of Investment Sub-Advisory Agreement between
Registrant and ______________________.(4)
EX-99.B6 -- Form of Distribution Agreement between Registrant
and OFFIT Funds Distributor, Inc.(2)
EX-99.B7 -- None.
EX-99.B8 -- Form of Custodian Agreement between Registrant and
The Chase Manhattan Bank, N.A.(2)
EX-99.B9(a) -- Form of Administration Agreement between
Registrant and Furman Selz Incorporated.(2)
EX-99.B9(b) -- Form of Transfer Agency Agreement between
Registrant and Furman Selz Incorporated.(2)
EX-99.B9(c) -- Form of Participation Agreement.(2)
EX-99.B10 -- Opinion and Consent of Kramer, Levin, Naftalis,
Nessen, Kamin & Frankel.(2)
- --------
(1) Filed as an Exhibit to Registrant's initial Registration Statement on July
20, 1994 and incorporated herein by reference.
(2) Filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 on March
6, 1995 and incorporated herein by reference.
(3) Filed herewith.
(4) To be filed by amendment.
C-1
<PAGE>
The OFFITBANK Variable Insurance Fund, Inc.
EX-99.B11(a) -- Consent of Kramer, Levin, Naftalis & Frankel. (3)
EX-99.B11(b) -- None
EX-99.B12 -- None.
EX-99.B13 -- Copy of Purchase Agreement between Registrant and
OFFIT Funds Distributor, Inc.(2)
EX-99.B14 -- None.
EX-99.B15 -- None.
EX-99.B16 -- None.
EX-27 -- None.
EX-P of A -- Powers of Attorney.(2)
ITEM 25. Persons Controlled by or under
Common Control with Registrant.
Not applicable.
ITEM 26. Number of Holders of Securities.
(As of 5/22/96)
OFFITBANK VIF-High Yield Fund ............................2
OFFITBANK VIF-Investment Grade Global Debt Fund ..........2
OFFITBANK VIF-Emerging Markets Fund ......................2
OFFITBANK VIF-Total Return Fund...........................0
OFFITBANK VIF-Global Convertible Fund.....................0
ITEM 27. Indemnification.
Reference is made to Article VII of Registrant's Articles of
Incorporation (incorporated herein by reference) and Article VIII of
Registrant's Amended and Restated By-laws (Exhibit 2 to Registrants PreEffective
Amendment No. 1 filed March 6, 1995).
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, Registrant understands that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by
- --------
(2) Filed as an Exhibit to Registrant's Pre-Effective Amendment
No. 1 on March 6, 1995 and incorporated herein by reference.
(3) Filed herewith.
C-2
<PAGE>
The OFFITBANK Variable Insurance Fund, Inc.
Registrant of expenses incurred or paid by a director, officer or controlling
person of Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
ITEM 28. Business and Other Connections of Investment Adviser.
The Adviser provides a wide range of asset management services to
individuals, institutions and retirement benefit plans.
To the knowledge of Registrant, none of the Directors or executive
officers of the Adviser except those described below, are or have been, at any
time during the past two years, engaged in any other business, profession,
vocation or employment of a substantial nature.
C-3
<PAGE>
The OFFITBANK Variable Insurance Fund, Inc.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
OTHER EMPLOYMENT OF A
POSITION WITH SUBSTANTIAL NATURE DURING
NAME OFFITBANK THE PAST TWO YEARS
- ---- --------- ------------------
<S> <C> <C>
H. Furlong Baldwin Director Chairman of the Board,
Mercantile Safe Deposit & Mercantile Bankshares
Trust Co.
Two Hopkins Plaza
Baltimore, MD 21201
Marchese Alessandro di Montezemolo Director Private Investor
200 Murray Place
Southhampton, NY 11969
David I. Margolis Director Chairman of the Executive
Coltec Industries Inc Committee, Coltec Industries
430 Park Avenue Inc.
New York, NY 10022
Harvey M. Meyerhoff Director Chairman of the Board, Magna Holdings,
Magna Holdings, Inc. Inc.
25 South Charles Street
Suite 2100 Baltimore, MD 21201
Morris W. Offit, C.F.A. Director Chairman of the Board,
Offitbank 520 Madison Ave. OFFITBANK
New York, New York 10022
George Randolph Packard Director Dean, The Paul H. Nitze
4425 Garfield Street, N.W. School of Advanced
Washington, D.C. 20007 International Studies,
Johns Hopkins University
Edward V. Regan Director President, The Jerome Levy
31 West 52nd Street, 17th Floor Economics Institute of Bard
New York, New York College
B. Lance Sauerteig Director Private Investor
130 Edgehill Road
New Haven, CT 06511
Herbert P. Sillman Director Private Investor
425 Harmon
Birmingham, MI 48009
Ricardo Steinbruch Director [Position]
Grupo Vichuna Grupo Vichuna
Rua Ltacolomi 412, Higienopolis
Sao Paolo, S.P. Brazil, 01239-020
</TABLE>
C-4
<PAGE>
The OFFITBANK Variable Insurance Fund, Inc.
ITEM 29. Principal Underwriter.
(a) In addition to Registrant, OFFIT Funds Distributor, Inc.
currently acts as distributor for OFFITBANK Investment Fund Inc.
(b) The information required by this Item 29(b) with respect to
each director, officer or partner of OFFIT Funds Distributor, Inc. is
incorporated by reference to Schedule A of Form BD filed by OFFIT Funds
Distributor, Inc. pursuant to the Securities Exchange Act of 1934.
(c) Not applicable.
ITEM 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended (the "1940
Act"), and the rules thereunder will be maintained at the offices of:
(1) The OFFITBANK Variable Insurance Fund, Inc.
237 Park Avenue, Suite 910
New York, New York 10017
(records relating to the Company)
(2) OFFITBANK
520 Madison Avenue
New York, New York 10022
(advisory records)
(3) OFFIT Funds Distributor, Inc.
230 Park Avenue
New York, New York 10169
(records of principal underwriter)
ITEM 31. Management Services.
Not applicable.
ITEM 32. Undertakings.
(a) Not applicable.
(b) Registrant, on behalf of OFFITBANK VIF-U.S. Government Securities
Fund, OFFITBANK VIF-Small Cap Fund and DJG Value Equity Fund, undertakes to file
a post-effective amendment containing reasonably current financial statements,
which need not be certified, within four to six months from the later of the
effective date of this Registration statement or the commencement of the public
offering under the Securities Act of 1933.
C-5
<PAGE>
The OFFITBANK Variable Insurance Fund, Inc.
(c) Not Applicable.
C-6
<PAGE>
The OFFITBANK Variable Insurance Fund, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, in the City of New York and State of New York on the
5th day of June, 1996.
THE OFFITBANK VARIABLE
INSURANCE FUND, INC.
By: /s/ Morris W. Offit
Morris W. Offit, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated on 5th day of June, 1996.
SIGNATURE TITLE
/s/ Morris W. Offit Director, Chairman of the Board
Morris W. Offit and President (Principal
Executive Officer)
/s/ Edward J. Landau Director
Edward J. Landau
/s/ The Very Reverend James Parks Morton Director
The Very Reverend James Parks Morton
/s/ Wallace Mathai-Davis Secretary and Treasurer
Wallace Mathai-Davis (Principal Financial and
Accounting Officer)
<PAGE>
The OFFITBANK Variable Insurance Fund, Inc.
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
INDEX TO EXHIBITS
Exhibit Number
EX-99.B1(b) Registrant's Articles of Amendment
EX-99.B5(b) Form of Investment Advisory Agreement between Registrant
and David J. Greene and Company
EX-99.B11 Consent of Kramer, Levin, Naftalis & Frankel
ARTICLES OF AMENDMENT
OF
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
The OFFITBANK Variable Insurance Fund, Inc., a Maryland Corporation,
with its principal corporate office in the state of Maryland in Baltimore City,
Maryland (hereinafter the "Corporation") certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended as follows:
1. Article FIFTH, paragraph (1) of the Articles of Incorporation shall
be deleted and in lieu thereof the following shall be inserted:
"FIFTH: (1) The total number of shares of stock which the corporation
initially has authority to issue is six billion (6,000,000,000) shares
of common stock which are hereby initially designated by series as
follows: one billion (1,000,000,000) shares are designated "OFFITBANK
VIF-High Yield Fund" series, one billion (1,000,000,000) shares are
designated "OFFITBANK VIFInvestment Grade Global Debt Fund" series,
one billion (1,000,000,000) shares are designated "OFFITBANK
VIFEmerging Markets Fund series, one billion (1,000,000,000) shares
are designated "OFFITBANK VIFLatin America Equity Fund" series, one
billion (1,000,000,000) shares are designated "OFFITBANK VIFCVO
Greater China Fund" series and of which one billion (1,000,000,000)
shares are unclassified. All of the shares of Common Stock of each
series are initially designated as one class of shares. The par value
of the shares of each class is one tenth of one cent ($.001) per
share."
2. The aggregate par value of all the authorized shares of common
stock is six million dollars ($6,000,000.00).
SECOND: 1. The total number of shares of all classes of stock of the
Corporation heretofore authorized was two billion (2,000,000,000) shares of
Common Stock. The par value of the shares of each class was one tenth of one
cent ($.001) per share. The number of shares of each class was as follows: five
hundred million (500,000,000) shares of Offitbank VIF-High Yield Fund series;
five hundred million (500,000,000) shares of Offitbank VIF-Investment Grade
Global Debt Fund series; five hundred million (500,000,000) shares of Offitbank
VIF-Emerging Markets
<PAGE>
Fund series; and five hundred million (500,000,000) shares were unclassified.
2. The total number of shares of all classes of stock of the
Corporation as increased is six billion (6,000,000,000) shares of Common Stock.
The par value of the shares of each class is one tenth of one cent ($.001) per
share. The number of shares of each class as increased is as follows: one
billion (1,000,000,000) shares of Offitbank VIF-High Yield Fund series; one
billion (1,000,000,000) shares of Offitbank VIF-Investment Grade Global Debt
Fund series; one billion (1,000,000,000) shares of Offitbank VIF-Emerging
Markets Fund series; one billion (1,000,000,000) shares of Offitbank VIF-Latin
America Equity Fund series; one billion (1,000,000,000) shares of Offitbank
VIF-CVO Greater China Fund series; and one billion (1,000,000,000) shares are
unclassified.
3. The aggregate par value of all shares of all classes of stock of
the Corporation heretofore authorized was two million dollars ($2,000,000.00).
The aggregate par value of all shares of all classes of stock as increased by
this amendment is six million dollars ($6,000,000.00). This amendment has the
effect of increasing the aggregate par value of all shares of all classes of
stock of the Corporation by four million dollars ($4,000,000.00).
4. The information required by Section 2-607(b) of the Maryland
General Corporation Law is as follows: There has been no change in the
preferences, conversion and other rights, voting powers, restrictions,
limitations to dividends, qualifications, and terms and conditions of redemption
of the Offitbank VIF-High Yield Fund Series shares, the Offitbank VIFInvestment
Grade Global Debt Fund series shares, or the Offitbank VIF-Emerging Markets Fund
series shares. The Offitbank VIF-Latin America Equity Fund series shares and the
Offitbank VIF-CVO Greater China Fund series shares shall have, respectively, the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption that are provided with respect to separate series of shares of the
Corporation in Article FIFTH (5) of the Articles of Incorporation of the
Corporation and shall be subject to all of the other provisions of the Articles
of Incorporation that are generally applicable to shares of the Corporation.
THIRD: The Board of Directors of the Corporation approved the
foregoing amendments to the charter as set forth in Article FIRST hereto, and
declared that said amendments were advisable. The Amendment was approved by the
sole shareholder.
The undersigned President acknowledges these Articles of Amendment to
be the corporate act of the Corporation and states that to the best of his
knowledge, information and belief, the matters and facts set forth in these
Articles of Amendment
<PAGE>
with respect to the authorization and approval of the amendments of the
Corporation's charter are true in all material respects and that this statement
is made under the penalties of perjury.
IN WITNESS WHEREOF, The OFFITBANK Variable Insurance Fund, Inc. has
caused this instrument to be signed in its name and on its behalf by its
President and witnessed by its Secretary on the 1st day of March, 1995.
Dated: March 1, 1995.
The OFFITBANK Variable Insurance
Fund, Inc.
By:/s/Morris W. Offit
---------------------
Morris W. Offit, President
ATTEST:
/s/Wallace Mathai-Davis
- -------------------------------
Wallace Mathai-Davis, Secretary
INVESTMENT ADVISORY AGREEMENT
BETWEEN
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
AND
DAVID J. GREENE & COMPANY
AGREEMENT made as of the ___ day of ____, 1996 by and between The
OFFITBANK Variable Insurance Fund, Inc., a Maryland corporation which may issue
one or more series of shares (hereinafter the "Company"), and David J. Greene &
Company, a New York corporation (hereinafter the "Adviser").
1. STRUCTURE OF AGREEMENT. The Company is entering into this Agreement
on behalf of the Company's DJG Value Equity Fund series (the "Fund") severally
and not jointly with respect to the other series portfolios of the Company. The
responsibilities and benefits set forth in this Agreement shall relate solely to
the Fund and no other series portfolio of the Company shall have any
responsibility for any obligation arising out of this Agreement. Without
otherwise limiting the generality of the foregoing,
(a) any breach of any term of this Agreement regarding the Company
with respect to the Fund shall not create a right or
obligation with respect to any other series portfolio of the
Company;
(b) under no circumstances shall the Adviser have the right to set
off claims relating to the Fund by applying property of any
other series portfolio of the Company; and
(c) the business and contractual relationships created by this
Agreement, consideration for entering into this Agreement, and
the consequences of such relationship and consideration relate
solely to the Company and the Fund.
2. DELIVERY OF DOCUMENTS. The Company has delivered to the
Adviser copies of each of the following documents and will deliver to it all
future amendments and supplements thereto, if any:
(a) The Company's Articles of Incorporation (the "Articles");
(b) The By-Laws of the Company;
-1-
<PAGE>
(c) Resolutions of the Board of Directors of the Company
authorizing the execution and delivery of this Agreement;
(d) The Company's Registration Statement under the Securities Act
of 1933, as amended (the "1933 Act"), and the Investment
Company Act of 1940, as amended (the "1940 Act"), on Form N-1A
as filed with the Securities and Exchange Commission (the
"Commission") on July 20, 1994 and all subsequent amendments
thereto relating to the Fund (the "Registration Statement");
(e) Notification of Registration of the Company under the 1940 Act
on Form N-8A as filed with the Commission; and
(f) The Prospectus and Statement of Additional Information of the
Fund (collectively, the "Prospectus").
3. INVESTMENT ADVISORY SERVICES. The Company hereby appoints the
Adviser, and the Adviser hereby undertakes, to act as investment adviser of the
Fund and, subject to the supervision of the Company's Board of Directors, to (a)
make investment strategy decisions for the Fund, (b) manage the investing and
reinvesting of the Fund's assets, (c) place purchase and sale orders on behalf
of the Fund and (d) provide continuous supervision of the Fund's investment
portfolio. The Adviser shall, subject to review by the Board of Directors,
furnish such other services as the Adviser shall from time to time determine to
be necessary or useful to perform its obligations under this Agreement.
As manager of the Fund's assets, the Adviser shall make investments for
the Fund's account in accordance with the investment objectives and limitations
set forth in the Articles, the Prospectuses, the 1940 Act, the provisions of the
Internal Revenue Code of 1986, as amended, including Subchapters L and M,
relating to variable contracts and regulated investment companies, respectively,
applicable banking laws and regulations, and policy decisions adopted by the
Company's Board of Directors from time to time. The Adviser shall advise the
Company's officers and Board of Directors, at such times as the Company's Board
of Directors may specify, of investments made for the Fund's account and shall,
when requested by the Company's officers or Board of Directors, supply the
reasons for making such investments.
The Adviser is authorized on behalf of the Company, from time to time
when deemed to be in the best interests of the Company and to the extent
permitted by applicable law, to purchase and/or sell securities in which the
Adviser or any of its affiliates underwrites, deals in and/or makes a market
and/or may perform or seek to perform investment banking services for issuers of
such securities. The Adviser is further authorized, to the extent permitted by
applicable law, to select brokers for the execution of trades for the Company,
which broker may be an affiliate of the Adviser, provided that the best
competitive execution price is obtained at the time of the trade execution.
-2-
<PAGE>
4. EXPENSES. (a) The Adviser shall, at its expense, provide the
Fund with office space, furnishings and equipment and personnel required by it
to perform the services to be provided by the Adviser pursuant to this
Agreement.
(b) Except as provided in subparagraph (a), the Company shall be
responsible for all of the Fund's expenses and liabilities, including, but not
limited to, taxes; interest; fees (including fees paid to its directors who are
not affiliated with the Adviser or any of its affiliates); fees payable to the
Securities and Exchange Commission; state securities qualification fees; costs
of preparing and printing Prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory and administration fees; charges
of the custodian and transfer agent; insurance premiums; auditing and legal
expenses; costs of shareholders' reports and shareholders' meetings; any
extraordinary expenses; and brokerage fees and commissions, if any, in
connection with the purchase or sale of portfolio securities.
5. COMPENSATION. In consideration of the services to be rendered by the
Adviser under this Agreement, the Company shall pay the Adviser monthly fees on
the first Business Day (as defined in the Prospectuses) of each month based upon
the average daily net assets of the Fund during the preceding month (as
determined on the days and at the time set forth in the Prospectus for
determining net asset value per share) at the annual rate of 0.80%. If the fees
payable to the Adviser pursuant to this paragraph begin to accrue before the end
of any month or if this Agreement terminates before the end of any month, the
fees for the period from such date to the end of such month or from the
beginning of such month to the date of termination, as the case may be, shall be
prorated according to the proportion which such period bears to the full month
in which such effectiveness or termination occurs. For purposes of calculating
each such monthly fee, the value of the Fund's net assets shall be computed in
the manner specified in the Prospectus and the Articles for the computation of
the value of the Fund's net assets in connection with the determination of the
net asset value of shares of the Fund's capital stock.
If the aggregate expenses incurred by, or allocated to, the Fund in any
fiscal year shall exceed the lowest expense limitation, if applicable to the
Fund, imposed by state securities laws or regulations thereunder, as such
limitations may be raised or lowered from time to time, the Adviser shall
reimburse the Fund for such excess. The Adviser's reimbursement obligation will
be limited to the amount of fees it received under this Agreement during the
period in which such expense limitations were exceeded, unless otherwise
required by applicable laws or regulations. With respect to portions of a fiscal
year in which this Agreement shall be in effect, the foregoing limitations shall
be prorated according to the proportion which that portion of the fiscal year
bears to the full fiscal year. Any payments required to be made by this
paragraph shall be made once a year promptly after the end of the Company's
fiscal year.
In consideration of the Adviser's undertaking to render the services
described in this Agreement, the Company agrees that the Adviser shall not be
liable under this Agreement for any error of judgment or mistake of law or for
any loss suffered by the Company in connection
-3-
<PAGE>
with the performance of this Agreement, provided that nothing in this Agreement
shall be deemed to protect or purport to protect the Investment Adviser against
any liability to the Company or its stockholders to which the Adviser would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Adviser's duties under this Agreement or by
reason of the Adviser's reckless disregard of its obligations and duties
hereunder.
6. NON-EXCLUSIVE SERVICES. Except to the extent necessary to perform
the Investment Adviser's obligations under this Agreement, nothing herein shall
be deemed to limit or restrict the right of the Adviser, or any affiliate of the
Adviser, including any employee of the Adviser, to engage in any other business
or to devote time and attention to the management or other aspects of any other
business, whether of a similar or dissimilar nature, or to render services of
any kind to any other corporation, firm, individual or association.
7. EFFECTIVE DATE; MODIFICATIONS; TERMINATION. This Agreement shall
become effective on the date hereof, provided that it shall have been approved
by a majority of the outstanding voting securities of the Fund, in accordance
with the requirements of the 1940 Act, or such later date as may be agreed by
the parties following such shareholder approval (the "Effective Date").
(a) Subject to prior termination as provided in sub-paragraph (d) of
this paragraph, this Agreement shall continue in force for two years from the
Effective Date and indefinitely thereafter, but only so long as the continuance
after such date shall be specifically approved at least annually by vote of the
Directors of the Company or by vote of a majority of the outstanding voting
securities of the Fund.
(b) This Agreement may be modified by mutual consent, such consent on
the part of the Company to be authorized by vote of a majority of the
outstanding voting securities of the Fund.
(c) In addition to the requirements of sub-paragraphs (a) and (b) of
this paragraph, the terms of any continuance or modification of this Agreement
must have been approved by the vote of a majority of those Directors of the
Company who are not parties to this Agreement or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval.
(d) Either party hereto may, at any time on sixty (60) days prior
written notice to the other, terminate this Agreement, without payment of any
penalty, by action of its Trustees or Board of Directors, as the case may be, or
by action of its authorized officers or, with respect to a Fund, by vote of a
majority of the outstanding voting securities of the Fund. This Agreement shall
terminate automatically in the event of its assignment.
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<PAGE>
8. USE OF NAME. Upon expiration or earlier termination of this
Agreement, the Company shall, if reference to "David J. Greene & Company" is
made in the name of the Fund and if the Adviser requests in writing, as promptly
as practicable change its the name of the Fund so as to eliminate all reference
to "David J. Greene & Company", and thereafter the Fund shall cease transacting
business in any corporate name using the words "David J. Greene & Company" or
any other reference to the Adviser or "David J. Greene & Company". The foregoing
rights of the Adviser and obligations of the Company shall not deprive the
Adviser, or any affiliate thereof which has "David J. Greene & Company" in its
name, of, but shall be in addition to, any other rights or remedies to which the
Adviser and any such affiliate may be entitled in law or equity by reason of any
breach of this Agreement by the Company, and the failure or omission of the
Adviser to request a change of the Fund's name or a cessation of the use of the
name of "David J. Greene & Company" as described in this paragraph shall not
under any circumstances be deemed a waiver of the right to require such change
or cessation at any time thereafter for the same or any subsequent breach.
9. CERTAIN DEFINITIONS. The terms "vote of a majority of the
outstanding voting securities," "assignment," "control," and "interested
persons," when used herein, shall have the respective meanings specified in the
1940 Act. References in this Agreement to the 1940 Act and the Advisers Act
shall be construed as references to such laws as now in effect or as hereafter
amended, and shall be understood as inclusive of any applicable rules,
interpretations and/or orders adopted or issued thereunder by the Commission.
10. INDEPENDENT CONTRACTOR. The Adviser shall for all purposes herein
be deemed to be an independent contractor and shall, unless otherwise expressly
provided herein or authorized by the Board of Trustees of the Company, from time
to time, have no authority to act for or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
11. GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Maryland, provided that nothing herein shall be construed in a
manner inconsistent with the 1940 Act or the Advisers Act.
12. SEVERABILITY. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby and, to this extent, the
provisions of this Agreement shall be deemed to be severable.
13. NOTICES. Notices of any kind to be given to the Adviser hereunder
by the Company shall be in writing and shall be duly given if mailed or
delivered to the Adviser at 599 Lexington Avenue, 12th Floor, New York, New York
10022 or at such other address or to such individual as shall be so specified by
the Adviser to the Company. Notices of any kind to be given to the Company
hereunder by the Adviser shall be in writing and shall be duly given if mailed
or delivered to the Company at 237 Park Avenue, Suite 910, New York, New York
10017
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<PAGE>
or at such other address or to such individual as shall be so specified by the
Company to the Adviser. Notices shall be effective upon delivery.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, and their
respective seals to be hereunto affixed, all as of the date written above.
THE OFFITBANK VARIABLE INSURANCE DAVID J. GREENE & COMPANY
FUND, INC.
By: _________________________ By:_______________________
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Kramer, Levin, Naftalis & Frankel
9 1 9 T H I R D A V E N U E
NEW YORK, N.Y. 10022 - 3852
(212) 715 - 9100
ARTHUR H. AUFSES III Richard Marlin Sherwin Kamin
THOMAS D. BALLIETT Thomas E. Molner Arthur B. Kramer
JAY G. BARIS Thomas H. Moreland Maurice N. Nessen
SAUL E. BURIAN Ellen R. Nadler Founding Partners
BARRY MICHAEL CASS Gary P. Naftali Counsel
THOMAS E. CONSTANCE Michael J. Nassa --------
MICHAEL J. DELL Michael S. Nelson Martin Balsam
KENNETH H. ECKSTEIN Jay A. Neveloff Joshua M. Berman
CHARLOTTE M. FISCHMAN Michael S.Oberman Jules Buchwald
DAVID S. FRANKEL Paul S. Pearlman Rudolph De Winter
MARVIN E. FRANKEL Susan J. Penry-Williams Meyer Eisenberg
ALAN R. FRIEDMAN Bruce Rabb Arthur D. Emil
CARL FRISCHLING Allan E. Reznick Maxwell M. Rabb
MARK J. HEADLEY Scott S. Rosenblum James Schreiber
ROBERT M. HELLER Michele D. Ross Counsel
PHILIP S. KAUFMAN Max J. Schwartz -------
PETER S. KOLEVZON Mark B. Segall M. Frances Buchinsky
KENNETH P. KOPELMAN Judith Singer Debora K. Grobman
MICHAEL PAUL KOROTKIN Howard A. Sobel Christian S. Herzeca
KEVIN B. LEBLANG Steven C. Todrys Pinchas Mendelson
DAVID P. LEVIN Jeffrey S. Trachtman Lynn R. Saidenberg
EZRA G. LEVIN D. Grant Vingoe Jonathan M. Wagner
LARRY M. LOEB Harold P. Weinberger Special Counsel
MONICA C. LORD E. Lisk Wyckoff, Jr. -------
FAX
(212) 715-8000
---
WRITER'S DIRECT NUMBER
(212)715-9100
-------------
June 4, 1996
The OFFITBANK Variable Insurance Fund, Inc.
237 Park Avenue
Suite 910
New York, New York 10017
Re: The OFFITBANK Variable Insurance Fund, Inc.
Registration Statement on Form N-1A
File No. 33-8178
-------------------------------------------
Gentlemen:
We hereby consent to the reference of our firm as counsel in
this Registration Statement on Form N-1A.
Very truly yours,
/s/ Kramer, Levin, Naftalis,
& Frankel