East Coast Consultants, Inc.
1325 Morris Drive, Suite 203
Wayne, PA 19087
(610) 640-2150
1933 Act Rule 485(b)
1933 Act File No. 33-95102
1040 Act File No. 811-9078
May 30, 1996
FILED via EDGAR
Filing Desk
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: S.I.S. Mercator Fund Inc.
File Nos. 33-95102 and 811-9078
Gentlemen:
Pursuant to Rule 485(b) under the Securities Act of 1933, submitted
electronically via the EDGAR system, please find Post-Effective Amendment No.
2 ("Amendment") to the Registration Statement of S.I.S. Mercator Fund, Inc.
(the "Fund") under the Securities Act of 1933.
This Amendment is being filed to comply with an undertaking set forth in
item 32 of the Registration Statement to file a post-effective amendment
using uncertified financial statements within four to six months from the
effective date of the registration statement. The Amendment includes other
non-material disclosures resulting from changes in organization.
Please direct questions or comments relating to this filing to me at the
above referenced telephone number.
Sincerely,
Richard T. Coghlan
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. [2] File No. 33-95102 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. [3] File No. 811-9078 X
S.I.S. MERCATOR FUND, INC.
(Formerly, NAVIGATOR FUND, INC.)
(Exact Name of Registrant as Specified in Charter)
1325 Morris Drive, Suite 203, Wayne, PA 19087
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (610) 993-0670
Richard T. Coghlan, President
S.I.S. Mercator Fund, Inc.
1325 Morris Drive, Suite 203, Wayne, PA 19087
(Name and Address of Agent for Service)
Copies of communications to Stephen W. Kline, Esquire, Stradley, Ronon,
Stevens & Young, Great Valley Corporate Center, 30 Valley Stream Parkway,
Malvern, PA 19355, (610) 640-5801.
It is proposed that this filing will become effective
(check appropriate box):
[/ /] Immediately upon filing pursuant to paragraph (b)
[/X/] On May 31, 1996 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / On (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / On February 8, 1996 pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
The Registrant has registered an indefinite number of shares of common
stock under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. Registrant will file a rule 24f-2 Notice
and an opinion of counsel regarding the legality of the issuance of its
shares within 60 days after the end of its fiscal year.
<PAGE>
FORM N-1A
CROSS REFERENCE SHEET
(as required by Rule 481)
FORM N-1A PART A ITEM NO. PROSPECTUS LOCATION
Item 1. Cover Page......................... Cover Page
Item 2. Synopsis........................... Prospectus Summary
Item 3. Condensed Financial Information.... Financial
Highlights <R/>
Item 4. General Description of Registrant.. Investment
Objectives and
Policies; Policy
Overview; The Global
Equity Portfolio;
The Global Income
Portfolio; Fixed
Income Securities;
Investment Risks;
General Information
Item 5. Management of the Fund............. Management of the
Fund; Fund
Administration
Item 6. Capital Stock and Other Securities. Dividends,
Distributions and
Taxes; General
Information
Item 7. Purchase of Securities Being
Offered............................ Price of Portfolio
Shares; Distribution
of Fund Shares
Item 8. Redemption or Repurchase........... Redemption of
Shares; Exchange of
Shares
Item 9. Pending Legal Proceedings.......... Not Applicable
FORM N-1A PART B ITEM NO. LOCATION IN
STATEMENT OF
ADDITIONAL
INFORMATION
Item 10. Cover Page......................... Cover Page
Item 11. Table of Contents.................. Table of Contents
Item 12. General Information and History.... General Information
Item 13. Investment Objectives and Policies. Investment
Objectives and
Policies;
Fundamental
Policies; Operating
Policies; Options
Futures and Loans
Item 14. Management of the Fund.............. Management of the
Fund
Item 15. Control Persons and Principal
Holders of Securities.............. Not Applicable
Item 16. Investment Advisory and Other
Services........................... Investment
Management Services
Item 17. Brokerage Allocation and Other
Practices.......................... Investment Manager
Services
Item 18. Capital Stock and Other Securities. General Information
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered........ Sale of Fund Shares;
Purchase and
Redemption of
Shares; Distribution
Item 20. Tax Status......................... Tax Status
Item 21. Underwriters....................... Distribution
Item 22. Calculation of Performance Data.... Calculation of
Performance Data
Item 23. Financial Statements............... Financial Statements
FORM N-1A PART C ITEM NO. LOCATION IN PART C
Item 24. Financial Statements and Exhibits.. Exhibits
Item 25. Persons Controlled by or Under
Common Control with Registrant..... Persons Controlled
by or Under Common
Control with
Registrant
Item 26. Number of Holders of Securities.... Number of Holders of
Securities
Item 27. Indemnification.................... Indemnification
Item 28. Business and Other Connections of
Investment Advisor................. Business and
Connections of
Investment Advisor
and Subadvisors
Item 29. Principal Underwriters............. Principal
Underwriters
Item 30. Location of Accounts and Records... Location of Accounts
and Records
Item 31. Management Services................ Management Services
Item 32. Undertakings....................... Undertakings
S.I.S. Mercator Fund, Inc.
1325 Morris Drive, Suite 203
Wayne, Pennsylvania 19087
Telephone: 610-993-0670
PROSPECTUS
June 3, 1996 S.I.S. Mercator Fund, Inc. (the Fund ) is an open-end,
diversified investment company that consists of two
Portfolios:
i) the Global Equity Portfolio, whose investment
objective is to achieve a high rate of total return,
with emphasis on capital appreciation, by investing
principally in equity securities of companies located
anywhere in the world, but predominately in the
developed countries, and
ii) the Global Income Portfolio, whose investment
objective is to seek a rate of total return which
fluctuates less than that of the Global Equity
Portfolio by putting emphasis on income. The Portfolio
invests principally in fixed income securities and, to
a lesser extent, in equity securities of high quality
companies located predominately in the developed
countries with, at most, very limited exposure to less
developed countries.
The minimum initial investment in each Portfolio is
$100,000. Subsequent investments are not subject to a
minimum purchase requirement. The Fund, in its
discretion, may waive the initial minimum purchase
requirement.
This prospectus contains a concise statement of
information about the Fund a prospective investor
should know before investing and should be retained for
future reference. A Statement of Additional
Information, dated June 3, 1996 , containing
additional information about the Fund, has been filed
with the Securities and Exchange Commission and is
incorporated by reference into this prospectus. A copy
may be obtained without charge by writing to the Fund
at the address given above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Prospectus Summary............................. 1
Financial Highlights....................... 5
Investment Objectives & Policies............... 5 S.I.S.
Policy Overview................................ 7 Mercator
The Global Equity Portfolio.................... 9 Fund,
The Global Income Portfolio.................... 9 Inc.
Fixed Income Securities........................ 11
Foreign Currency Transactions.................. 12
Borrowing and Lending.......................... 13
Futures Contracts and Options.................. 14
Investment Risks............................... 14
Management of the Fund......................... 18
Fund Administration............................ 20
Shareholder Services........................... 20
Distribution of Fund Shares.................... 21
Price of Portfolio Shares...................... 22
Purchase of Shares............................. 23
Exchange of Shares............................. 25
Dividends, Distribution & Taxes................ 26
Redemption of Shares........................... 29
Performance Calculations....................... 32
General Information............................ 33
<PAGE>
No dealer, salesman or other person has been Prospectus
authorized to give any information or to make June 3, 1996
any representation other than those contained
in this prospectus, and if given or made, such
information or representation may not be relied
upon as being authorized by the Fund, the
Advisor, the Administrator, the Distributor or
any affiliate thereof. This prospectus does not
constitute an offer to sell or a solicitation Strategic
of any offer to buy in any state to any person Investment
to whom it is unlawful to make such offer in Services , Inc.
such state. Investment Advisor
<PAGE>
Prospectus Summary
Investment Objectives S.I.S. Mercator Fund, Inc. is an open-
end investment company consisting of two
separate, diversified portfolios: the
Global Equity Portfolio, which seeks a
high rate of total return, with emphasis
on capital appreciation, by investing
principally in equity securities of
companies around the world, including
the United States, and the Global Income
Portfolio, which seeks a rate of total
return which fluctuates less than that
of the Global Equity Portfolio, by
putting emphasis on income. The
Portfolio invests principally in high-
quality, liquid, fixed income securities
having less investment risk. (See page
5.)
Investment Policies Both Portfolios are widely diversified
to reduce risk. At least 65% of the
total assets of each Portfolio will be
invested in securities of companies
and/or governments in at least three
different countries. Portfolio
allocations are adjusted according to
international business cycle develop-
ments in order to take advantage of, and
also to minimize, the special risks
associated with changing economic
conditions. The Portfolios provide a
flexible investment approach that tries
to anticipate, and protect against,
business cycle risks. (See page 7.)
Investment Advisor Strategic Investment Services , Inc.
and Distributor (the "Advisor") has not previously
managed a mutual fund but it has
extensive experience managing global
accounts in a manner consistent with the
investment objectives and policies of
the Portfolios. East Coast Consultants,
Inc. serves as distributor of the Fund's
shares. (See pages 18 and 20.)
Risks Each Portfolio is subject to risks
associated with business cycles in the
countries in which it invests, political
uncertainties and exchange rate
fluctuations. The global nature of the
Portfolios has the potential to reduce
risks substantially, but also is subject
to risks that do not exist in a single
country fund. (See page 14.)
Share Transactions Shares are sold and redeemed by the Fund
at the current net asset value of the
shares. The purchase and redemption of
shares must be requested in writing,
signed by a person who is authorized to
give instructions for the investor's
account. (See pages 23 and 28.)
Share Exchanges Investors may exchange shares of one
Portfolio for those of the other
Portfolio, without payment of a fee.
(See page 25.)
Dividends The Fund intends to pay annual dividends
from net investment income and make
annual distributions of any net capital
gains. Capital gains distributions and
dividend payments will be automatically
reinvested in additional shares, at net
asset value, unless payment in cash is
requested in writing by the shareholder.
Fund Expenses
There is no sales charge or shareholder transaction
expenses.
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management Fee...................... 0.90%
12b-1 Fee........................... 0.25%
Other Expenses...................... 0.75%
Total Fund Operating Expenses....... 1.90%
Example:
The following example illustrates maximum expenses that are
expected to be incurred on a $1,000 investment in each Portfolio,
assuming a 5% annual return. The example assumes that all
dividends and distributions are reinvested in Portfolio shares.
1 year 3 years
19 60
The amounts shown in this example should not be considered
representative of past or future expenses. Actual expenses may
be greater or less than those shown. Further, while the example
assumes a 5% annual return, the Portfolio's actual performance
will vary and may be greater or less than 5% per year.
The foregoing table and example are provided is to assist
the investor in understanding the various direct and indirect
costs and expenses that an investor in the Fund would bear. The
table and example show each Portfolio's estimated expenses as a
percentage of its estimated average annual assets. The "Other
Expenses" shown are based on estimates for fiscal year ending
October 31, 1996, the initial fiscal year of Fund investment
operations. Actual expenses may vary. For more detailed
information, see "The Advisor," the "Administrator," "Shareholder
Services" and "Distribution of Fund Shares."
Financial Highlights
The data set forth under the caption "Financial Highlights"
in the unaudited financial statements of the Fund for the
period ended April 30, 1996 contained in the Semi Annual Report
to Stockholders are incorporated herein by reference. A copy of
the report will be provided by the fund to prospective investors
upon request and without charge.
Investment Objectives & Policies
The Fund is an open-end, investment company consisting of
two separate, diversified Portfolios.
i) The Global Equity Portfolio, invests principally in
equity securities of companies located anywhere in the world, but
predominately in industrialized countries. Its investment
objective is to achieve a high rate of total return, with
emphasis on capital appreciation. Most investments will be made
in equity securities which the Advisor believes have the
potential for capital appreciation. The receipt of dividend
income of the Portfolio will also be a factor in selecting equity
investments. Also, the Portfolio may hold fixed-income
securities when, in the Advisor's judgment, these securities
offer an attractive rate of total return in relation to
anticipated returns on equity securities.
ii) The Global Income Portfolio invests principally in
medium and long-term, liquid, high quality fixed income
securities issued by governments, supranational organizations and
companies located in industrialized countries, with, at most,
very limited exposure to less-developed countries. Its
investment objective is to seek a rate of total return which
fluctuates less than that of the Global Equity Portfolio by
putting emphasis on income. To a lesser extent, it may also
invest in equity securities which have an attractive rate of
return and whose market prices the Advisor expects will remain
relatively stable in relation to the price of fixed income
securities.
iii) Each Portfolio ordinarily will invest at least 65% of
its total assets in securities of companies and/or governments of
at least three different countries. Neither Portfolio will
invest more than 25% of its total assets in securities of
companies in a single industry. Country allocations, sector and
asset selections, as well as duration and maturity decisions,
will be based on the Advisor's continuing research of economic,
financial and political developments in the major industrialized
countries. Portfolio holdings will be widely diversified. The
Portfolios may invest in securities of companies and governments
in the Far East, Western Europe, South Africa, Australia, Canada,
as well as the U.S. and other areas. The Global Equity Portfolio
does not intend to invest more than 10% of the value of its total
assets in securities of governments or companies in developing
countries, whereas the Global Income Portfolio will limit
investments in such securities to not more than 5% of its total
assets. The investment objectives of the Portfolios may not be
changed without shareholder approval.
Policy Overview
The Global Equity and Global Income Portfolios are managed
in accordance with the concept that broad diversification across
individual assets, sectors, asset types, countries and time,
applied consistently, according to quantitative forecasts of
changing business cycle conditions in the United States and other
countries, can reduce risk and increase returns. Asset selection
is based, in part, on the Advisor's view of the business cycle,
not only in a single country but within all the major economies.
Considerations that the Advisor believes are crucial to rational
asset allocation include: the expected direction of interest
rates, including movements in the yield curve, the anticipated
direction of exchange rates, the perceived direction of economic
activity and corporate profitability, inflation and inflationary
expectations, central bank policies, taxes, other fiscal policies
as well as money and credit growth. Portfolio allocation
decisions are based on the Advisor's long-term view, but are also
constantly monitored for changes in economic conditions, the
political situation and investment markets to determine whether
events are consistent with the Advisor's expectations and whether
any developments are occurring that might cause those
expectations to change. The composition of each Portfolio is
adjusted to reflect the Advisor's view of changing conditions.
The Fund is designed for individual and institutional
investors seeking globally diversified investment portfolios,
based on active research and management, which take into account
changes in different countries' business cycles. The Portfolios
are intended for long-term investors who can accept the risks
entailed in investment in foreign securities. The Fund provides
a flexible investment approach that tries to anticipate, and
protect against, the cycle risks involved. The Portfolios should
not be relied upon as a complete investment program, or used to
play short-term swings in the investment markets.
The Global Equity Portfolio
The Global Equity Portfolio invests principally in common
stocks of large, liquid, high-capitalization companies in the
major industrialized countries which, the Advisor believes, have
the potential for growth of capital or income or both. The
Portfolio may invest in American Depository Receipts and Global
Depository Receipts for which there is, in the Advisor's
judgment, a liquid market. In order to increase total return,
the Portfolio may invest up to 25% of its assets in other types
of securities, including warrants, that have higher current
yields, including convertible securities, preferred stocks,
bonds, notes and other debt securities as described under "Fixed
Income Securities."
The Global Income Portfolio
The Global Income Portfolio invests in a globally
diversified portfolio consisting principally of medium and long-
term U.S. and foreign fixed income obligations. The emphasis is
on large, liquid issues carrying a high credit rating, as
described under "Fixed Income Securities." Ordinarily, most
investments will be in government debt or the debt of
supranational institutions rated at least AA by Standard & Poor's
Corporation ("S&P") or a comparable rating by Moody's Investors
Services, Inc. ("Moody's"). Market and maturity selections are
based on relative and absolute business-cycle developments in
order to maximize income and capital gains potential while
minimizing risk. Allocation decisions will depend on the level
of interest rates available in different countries, relative
interest rates within the country, i.e., the yield curve, the
expected change in interest rates and the outlook for the
currency exchange rates. These conditions will depend on, among
other things, the stability and ability of the government's
fiscal policy, monetary policy, balance of payments, inflation
and the growth rate of the economy.
Ordinarily, the Portfolio will hold at least 65% of its
investments in at least three different countries, but may invest
in fixed income obligations of only one country for temporary,
defensive purposes. Normally, the Portfolio's assets will be
invested principally in fixed income securities issued or
guaranteed by the U.S. or foreign governments, their agencies and
instrumentalities and supranational organizations. To a lesser
extent, investments may be made in domestic and foreign corporate
obligations rated at least investment grade (BBB). There may
also be circumstances when the Portfolio will hold equities,
including preferred and convertible stocks, and relatively high
yielding, high quality common stocks, but not in excess of 40% of
the total value of the Portfolio. Such investments will be made,
if conditions seem appropriate, in order to protect the capital
value of the Portfolio while continuing to emphasize income.
This will depend on the circumstances at the time, and available
investment opportunities, and will become increasingly likely if
interest rates are expected to increase.
By investing in both international and domestic fixed-income
securities, the Portfolio can expand its investment horizons
while providing an effective means of reducing volatility
associated with concentration in a single country or region.
Since the economies, interest rates, and currency exchange rates
of various countries often follow different cycles, the resulting
variation of performance by the world's fixed-income markets, in
the Advisor's opinion, provides an effective means of
diversification.
Fixed Income Securities
Both Portfolios may invest in fixed-income securities of the
types described below, having intermediate and long maturities.
Ratings are determined at the time of purchase and the Portfolios
are not obligated to sell securities in the event of a subsequent
rating reduction.
The Portfolios may invest in debt securities issued by the
U.S. Treasury, including bills, notes and bonds, U.S. Government
Agency Obligations issued or guaranteed by U.S. government-
sponsored instrumentalities and federal agencies, debt securities
issued by foreign governments and supranational organizations,
such as the European Coal and Steel Community, the European
Economic Community and the World Bank rated at least AA by S&P or
a comparable rating by Moody's. In addition, the Portfolios may
invest in U.S. and foreign corporate debt securities, including
banks (e.g., bonds and debentures) which are rated at least Baa3
by Moody's or BBB by S&P or if unrated, when the Advisor
determines that they are of comparable quality to similar issues
of the same issuer rated at least BBB or Baa3. Debt securities
rated Baa3 or BBB may have some speculative characteristics.
Each Portfolio, for temporary or defensive purposes, may
invest as much as 80% of the value of its total assets in
domestic and/or foreign money market instruments including, but
not limited to, government obligations, certificates of deposit,
bankers acceptances, high quality commercial paper, short-term
corporate debt issues, and repurchase agreements.
Foreign Currency Transactions
Foreign investments of the Portfolios ordinarily will be
denominated, and purchased by, the Portfolios in foreign
currencies. Foreign currency exchange transactions normally will
be transacted either on a spot (i.e., cash) basis at the spot
(current) rate prevailing in the foreign currency exchange
markets, or by entering into forward contracts to purchase or
sell foreign currencies. A forward foreign currency exchange
contract is an obligation to purchase or sell 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. Such contracts may also be used to
protect the Portfolios against an increase in the level of
foreign exchange rates and they may be bought or sold to hedge
the value of a Portfolio's assets, in terms of U.S. dollars,
against adverse changes in exchange rates between foreign
currencies and the U.S. dollar. The Advisor, as part of its
fundamental research, also provides forecasts of currency
movements against the dollar. As a result, there may be times
when, in the Advisor's opinion, it will be appropriate to hedge
the foreign currency exposure of a Portfolio back into dollars in
order to reduce risk or improve the expected return.
Borrowing and Lending
Each Portfolio may borrow money from banks as a temporary
measure for extraordinary purposes or to facilitate redemptions.
A Portfolio will not borrow money in excess of 33 1/3% of the
value of its total assets and will maintain asset coverage in
respect of borrowings of at least 300%. If asset coverage falls
below 300%, within three business days thereafter, the Portfolio
will reduce its borrowings to a level where asset coverage is at
least 300%. The Fund has no intention of increasing Portfolio
income through borrowing; therefore, investment securities will
not be purchased by a Portfolio if it has outstanding borrowings
in excess of 5% of its net assets. The Portfolios are also
authorized to lend their securities holdings to securities firms
and institutional investors for the purpose of increasing their
income or reducing expenses. While the Portfolios are authorized
to loan a maximum of 33 1/3% of their assets, they have no
intention to commit more than 5% of their assets to securities
loans for the foreseeable future.
Futures Contracts and Options
The Portfolios are authorized to buy and sell financial
futures contracts, options to buy and sell such contracts, as
well as put and call options on securities. Financial futures
contracts would include contracts on securities indices, interest
rates, currencies. However, the Advisor has no present intention
to commit more than 5% of each Portfolio's assets to these types
of investments for the foreseeable future.
Investment Risks
Naturally, there can be no assurance that the Portfolios
will achieve their investment objectives. The Portfolios should
not be relied upon as a complete investment program, or used to
take advantage of short-term swings in the investment markets.
Investors should also understand, and consider carefully, the
special risks involved in foreign investing. These risks are
often heightened for investments in emerging or developing
countries.
Foreign Currency
Investments in foreign securities normally will be
denominated in foreign currencies. As a result, the value of the
assets of the Portfolios, as measured in U.S. dollars, may be
affected significantly by changes in foreign currency exchange
rates, currency restrictions, and exchange control regulations.
Further, the Portfolios may incur costs in converting currencies.
Costs
The expenses of individual investors of investing directly
in foreign securities are high relative to similar costs of
investing in U.S. securities. While the Fund offers an efficient
way for investors to participate in foreign securities markets,
Portfolio expenses, including advisory and custodian fees, are
higher than typical domestic equity and fixed income mutual
funds.
Economic Factors
The economies of the countries in which the Fund may invest
(Portfolio Countries) may differ, favorably or unfavorably, from
the U.S. economy and may be less developed or diverse. Certain
countries are heavily dependent upon international trade and,
accordingly, have been and may continue to be affected by
protectionist measures, as well as dependent on a limited number
of commodities, and thus sensitive to changes in world prices for
these commodities. Further, there is no assurance that the
pattern of growth exhibited by certain Portfolio Countries in the
past will continue.
Political Factors
The internal politics of many Portfolio Countries are not as
stable as in the United States. Further, certain governments
continue to participate to a substantial degree, though ownership
interest or regulation, in their respective economies and secu-
rities markets. Action by these governments could include
restriction on foreign investment, expropriation of assets,
and/or imposition of taxes. Any of these actions could have a
significant effect on market prices of securities, the ability of
the Fund to repatriate capital and income, and the value of the
Portfolios' investments.
Market Characteristics
Many of the securities markets of Portfolio Countries have
substantially less volume than the New York Stock Exchange
("NYSE") or U.S. bond markets, and the securities of some
companies in these countries may be less liquid and subject to
greater price volatility than securities of comparable U.S.
companies. Further, securities settlement practices of some
Portfolio Countries may be subject to delays and otherwise differ
from those customary in the U.S. markets.
Legal and Regulatory
Certain Portfolio Countries use different accounting,
auditing, and financial reporting standards, may have less
governmental supervision of securities markets, brokers, and
issuers of securities, and less financial information available
to investors than is usual in the United States. Also, there may
be difficulty in enforcing the Fund's legal rights outside the
United States.
Repurchase Agreements
The Portfolios may enter into repurchase agreements with
banks or broker-dealers. Under the Investment Company Act of
1940, repurchase agreements are considered collaterized loans by
the Portfolio to the seller, secured by the securities
transferred to the Portfolio. Repurchase agreements will be
fully collateralized by securities in which the Portfolios are
authorized to invest. Such collateral will be marked-to-market
daily. If the seller of the underlying security under the
repurchase agreement should default on its obligation to
repurchase the underlying security, the Portfolio might
experience delay or difficulty in recovering its cash. If, in
the meantime, the value of the collateral had decreased, the
Portfolio could experience a loss. The Fund considers repurchase
agreements having a maturity of more than 7 days to be illiquid
securities and they are subject to the Fund's policy that a
Portfolio may not invest more than 15% of its net assets in
illiquid securities.
Management of the Fund
The Board of Directors is responsible for establishing Fund
policies and overseeing the management of the Fund. They have
retained Strategic Investment Services , Inc.
("Advisor") to provide investment management services to each of
the Portfolios. The Advisor provides the Portfolios with
continuous investment programs, and a trading department, and
selects brokers and dealers to effect securities transactions.
Portfolio securities transactions are placed with a view to
obtaining best price and execution and, subject to this goal, may
be placed with brokers which have assisted in the sale of a
Portfolio's shares. Dr. Richard T. Coghlan, President of the
Advisor, is primarily responsible for day-to-day management of
the Fund's investments. While neither the Advisor nor Dr.
Coghlan has previously managed a mutual fund, they have served as
investment advisor to two investment partnerships with
substantially identical investment policies to the Fund's
Portfolios. For investment management services, the Advisor
receives a monthly fee from each Portfolio which, on an annual
basis, equals .90% of the average net asset value of the
Portfolio. The fee rate is higher than most mutual funds, but is
believed comparable to fee rates paid by mutual funds which
invest in foreign securities.
In addition to the fees of the Advisor, the Fund is
responsible to pay all expenses incurred in its operation,
including, among other things, expenses for legal and independent
accountant services, shareholder reports, state and federal
registration of its shares, fees and expenses of disinterested
directors, printing costs, insurance, interest, taxes, fees and
costs of organizations and persons providing services to the
Fund, including the Advisor, Distributor, Administrator and
Custodian.
Fund Administration
The Advisor also serves as administrator of the Fund and
provides certain administrative services necessary for the Fund's
operations. These services include administration of the Fund's
business affairs, supervision of services provided by other
organizations providing services to the Fund, including the
custodian, dividend disbursing agent, legal counsel and
independent accountants, preparation of certain Fund records and
documents, record keeping and accounting services. For these
services, each Portfolio pays the Advisor a monthly fee which, on
an annual basis, equals .25% of the average net assets of each
Portfolio.
Shareholder Services
The Fund has adopted a Shareholder Services Plan for each
Portfolio which is designed to promote the retention of
shareholder accounts. Under this Plan, the Portfolios are each
authorized to pay East Coast Consultants, Inc. (see "Distribution
of Fund Shares") a monthly fee which, on an annual basis, may not
exceed .25% of the average net assets of the Portfolio. Payments
under the Plan would be used, among other things, to compensate
persons and/or organizations that provide services to
shareholders that are designed to encourage them to maintain
their investments in the Portfolios.
Distribution of Fund Shares
East Coast Consultants, Inc. (the "Distributor") serves as
distributor of the Fund's shares pursuant to an agreement which
provides that the Distributor will use its best efforts to
promote the sale and retention of Fund shares.
The Portfolios have adopted a Distribution Plan pursuant to
which each Portfolio pays the Distributor a monthly fee which, on
an annual basis, may not exceed .25% of each Portfolio's average
net assets, for providing certain distribution services. These
services can include: promotion of the sale of Portfolio shares,
preparation of advertising and promotional materials, payment of
compensation to persons who have been instrumental in the sale of
Portfolio shares, and for other services and materials, including
the cost of printing Fund prospectuses, reports and advertising
material provided to investors, and to defray overhead expenses
of the Distributor incurred in connection with the promotion and
sale of Fund shares.
The principal office of the Advisor and the Distributor is
located at 1325 Morris Drive, Suite 203, Wayne, Pennsylvania
19087. The Advisor is a Pennsylvania corporation organized
in 1989. It is the succesor to the business of Strategic
Investment Services, a Pennsylvania partnership, which previously
served as the Fund's investment advisor. Richard T.
Coghlan, President and a director of the Fund, the Distributor
and the Advisor, owns a controlling interest in these
corporations and also controlled the predecessor Advisor.
Dr. Coghlan serves as portfolio manager of the Fund and has been the
chief investment officer of the Advisor since it was organized.
Since 1989, the Advisor has managed a number of investment ac-
counts, including two limited partnerships, whose investment
objectives and policies closely paralleled those of the Global
Equity and Global Income Portfolios.
Price of Portfolio Shares
Each Portfolio's shares are sold at the current net asset
value per share, which is determined as of the close of the NYSE,
on each day that the exchange is open for trading, by dividing
the total market value of the Portfolio's investments and other
assets, less any liabilities, by the number of outstanding shares
of the Portfolio. Price information on listed securities is
taken from the exchange where the security is primarily traded.
Securities are valued at the last quoted sales price on the day
when the valuation is made. Securities listed on a foreign
exchange are valued at the latest quoted market price available
before the time when assets are valued. Other assets and
securities for which no quotations are readily available are
valued at fair value as determined in good faith by, or under the
direction of, the Board of Directors. Debt securities may be
valued on the basis of prices provided by a pricing service using
methods approved by the Board of Directors. All assets and
liabilities initially expressed in foreign currencies will be
converted into U.S. dollars at the bid price of such currencies
against the U.S. dollar last quoted by a major bank or broker on
the day of valuation. If such quotations are not available as of
the close of the NYSE, the rate of exchange will be determined in
accordance with policies established in good faith by the Board
of Directors. Portfolio securities will be traded in foreign
markets which are open at times when the NYSE is closed. As a
result, the net asset value of the Fund's shares might be
significantly affected at times when shareholders have no access
to the Fund.
Purchase of Shares
In order to open a new account, it is necessary to complete
and return to the Administrator, at 1325 Morris Drive, Suite 203,
Wayne, PA, a properly completed Account Registration Form and
remit a check or wire order in payment of Fund shares to the
Fund's custodian, Union Bank of California, N.A.
("Custodian"), at the address set forth below. An initial
purchase must be in the amount of at least $100,000, which can be
invested in either Portfolio. The Fund, in its discretion, is
authorized to waive the minimum initial purchase requirement.
There is no minimum purchase requirement for subsequent
investments.
Shares are purchased at the next-determined net asset value
after the investor's properly completed Account Registration Form
has been received by the Transfer Agent, Strategic Investment
Services, and the investor's payment has been received by the
Custodian. Share certificates will not be issued by the Fund
except upon the shareholders's written request, which must be
made to the Transfer Agent. If a check is received by the
Custodian by the close of the NYSE (4:00 P.M. Eastern Time),
shares will be priced at the net asset value calculated as of the
close of the NYSE on that day. If the check is received after
the close of the NYSE, shares will be priced as of the close of
the NYSE on the next business day following receipt of the
investor's check. In order to prevent lengthy processing delays
caused by the clearing of foreign checks, the Fund will only
accept a foreign check which has been drawn in U.S. dollars and
has been issued by a foreign bank with a U.S. correspondent bank.
Checks should be made payable to the Portfolio selected, either
S.I.S. Mercator Equity Portfolio or S.I.S. Mercator Income
Portfolio. Investors desiring to purchase shares of both
Portfolios should write a separate check for each Portfolio
To order shares for purchase by federal funds wire, the
Transfer Agent must be notified first by calling 610-993-2150 to
obtain an account number and to provide your federal tax
identification number. Following notification, the investor must
have the bank wire transmitted to:
Union Bank of California
ABA #1210-0001-5 for credit to
Union Bank of California Global Custody,
Account #001-054831
for further credit to S.I.S. Mercator Equity Portfolio
A/C #01643 or S.I.S. Mercator Income Portfolio
A/C #01644, depending on the Portfolio selected.
A completed Account Registration Form, properly executed,
must be filed with the Transfer Agent immediately subsequent to
the initial wire or check. Investors should note that some banks
may impose a wire service fee. The Fund reserves the right to
suspend the offering of shares at any time and to reject any
specific purchase request.
Exchange of Shares
Shares of each Portfolio may be exchanged for shares of the
other Portfolio, at the relative net asset values of the shares,
without payment of a fee. Exchanges may be made only for shares
of a Portfolio which, at the time of exchange, are registered for
sale, or exempt from registration, in the shareholder's state of
residence. For federal income tax purposes, an exchange of
shares is treated as if the shareholder had redeemed shares of
one Portfolio and reinvested the proceeds in shares of the other
Portfolio. Thus, a gain or loss on the shares exchanged
(redeemed) may be realized by the shareholder at the time of the
exchange. The Fund reserves the right to restrict the frequency
of, or otherwise modify, condition, terminate or impose charges
on the exchange privilege upon 30 days prior written notice to
shareholders. Shareholders interested in an exchange of shares
should contact the Transfer Agent.
Dividends, Distributions and Taxes
The Portfolios will distribute their net investment income
annually, in December, at which time they will also distribute
substantially any net long-term capital gains and any net short-
term capital gains realized during the fiscal year. Any net
realized short-term capital gains will be distributed as ordinary
income dividends, not capital gains.
Dividends and distributions are automatically reinvested in
additional shares of the Portfolio unless the shareholder has
notified the Administrator, in writing, of an election to receive
dividends and/or distributions in cash. Dividends are reinvested
on the ex-dividend date, at the net asset value of the shares,
determined as of the close of the NYSE on that date. Dividends
(including short-term capital gains) are treated as ordinary
income and distributions are treated as long-term capital gains
for U.S. federal tax purposes, whether received in cash or
reinvested in additional shares, and regardless of the length of
time the Portfolio's shares have been held. Shares purchased
shortly before the record date for a dividend or distribution
will have the effect of a return of capital, even though such
dividends and distributions are subject to taxes. Dividends and
distributions may also be subject to state and local taxes. The
Fund will notify shareholders each year of the amount of
dividends and any distributed long-term capital gains.
The Advisor intends to monitor the anticipated after-tax
returns of the Portfolios, as well as the anticipated pre-tax
returns and, where appropriate, will act to minimize realized
capital gains. This is likely to be a more important
consideration for the Global Equity Portfolio, in which capital
gains are expected to play a larger role than in the Global
Income Portfolio. However, the same principle will apply to both
Portfolios. Realization of gains will be deferred only when not
in conflict with the investment objectives of the Portfolios but,
in general, this approach, which may be implemented by refraining
from selling appreciated securities and/or selling depreciated
securities at a loss to offset realized gains, will be followed
where appropriate in the judgment of the Advisor.
Dividends and interest received by the Portfolios in certain
countries will be subject to foreign withholding taxes. If more
than 50% of a Portfolio's total assets at the close of its
taxable year consists of securities of foreign corporations and
governments, the Portfolio may elect to "pass-through" to
shareholders, for foreign tax credit purposes under the Internal
Revenue Code of 1986, as amended ("Code"), the amount of foreign
income taxes paid by the Fund with respect to its holdings of
foreign securities. A Portfolio will make such an election only
if management deems it to be in the best interests of
shareholders. If this election is made, shareholders of the
Portfolio will be required to include in their gross income their
pro-rata share of foreign taxes paid by the Portfolio. However,
shareholders will be entitled to treat their pro-rata share of
foreign taxes paid as either a deduction (an itemized deduction
in the case of individuals) or a foreign tax credit (but not
both) against U.S. income taxes on their federal tax return.
Each Portfolio intends to qualify for taxation as a
"regulated investment company" under the Code, so that they will
not be subject to federal income tax with respect to amounts
distributed to shareholders. Further, in the opinion of legal
counsel for the Fund, the shares of the Portfolios are exempt
from Pennsylvania county personal property taxes. A portion of
the dividends paid by the Portfolios may be eligible for the
dividends received deduction available to certain corporations
under the Code. The tax discussion set forth above is included
for general information only. Prospective investors should
consult their own tax advisors concerning the tax consequences of
an investment in the Portfolios.
Redemption of Shares
Shareholders may redeem shares of a Portfolio, without
charge, on any day when the NYSE is open. Redemption proceeds
will ordinarily be sent on the next business day but, in any
event, they will be sent within seven calendar days of the
receipt of a redemption request in proper form. Payment may also
be made by wire directly to any bank previously designated by the
shareholder in his or her Account Registration Form. The Fund
makes no charge for redemptions by wire, however, the
shareholder's bank may impose a fee for wire services. The Fund
will honor redemption requests of shareholders who recently
purchased shares by check, but will not send the proceeds until
it is reasonably satisfied that the purchase check has cleared,
which may take up to 15 days from the purchase date.
Redemption requests received in "proper form" by the
Administrator prior to the close of business of the NYSE on any
day when the exchange is open are priced at the net asset value
of the shares calculated as of the close of the exchange on that
day. Redemption requests received in proper form by the
Administrator after the close of the NYSE are priced at the net
asset value per share determined on the next day when the NYSE is
open for trading.
"Proper form" means the written redemption request includes
the following:
1. The shareholder's account number and Portfolio name;
2. The amount of the transaction (specified in dollars or
shares);
3. The signatures of all owners exactly as they are
registered;
4. Other supporting legal documentation that might be
required, in the case of estates, corporations, trusts, and
certain other account;
5. Telephone confirmation, if requested.
In addition, the Fund will pay redemption proceeds to a pre-
authorized bank account of the investor pursuant to a request
made by the investor by telephone.
In order to arrange for redemption by wire or telephone
after an account has been opened, or to change the bank or
account designated to receive redemption proceeds, a written
request must be sent to the Transfer Agent.
The Fund reserves the right to refuse a wire or telephone
redemption if management has reason to doubt the authenticity of
the request. The Fund will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine.
The Fund may request the caller to provide certain personal or
account information for the purpose of establishing the caller's
identity. The Fund will not be liable for following instructions
that it reasonably believes are genuine. Procedures for
redeeming Fund shares by wire or telephone may be modified or
terminated at any time by the Fund.
The Fund may suspend the right of redemption or postpone
payment at times when the NYSE is closed or when emergency
exists, as determined by the U.S. Securities and Exchange
Commission. Further, if the Board of Directors determines it
would be detrimental to the best interest of a Portfolio's
remaining shareholders to make a redemption payment in cash, the
redemption proceeds may consist, in whole or in part, of readily
marketable securities. Portfolio securities distributed in
redemption of Fund shares would be valued as described under
"Price of Portfolio Shares" and the shareholder will incur
expenses, such as the payment of brokerage commissions, on the
sale of such securities.
Performance Calculations
From time to time, performance information, such as yield or
total return for each Portfolio may be quoted in advertisements
or in communications to shareholders. Performance quotations of
the Portfolios represent their past performance and should not be
considered as representative of future results. Current yield
will be calculated by dividing the net investment income earned
per share by the Portfolio, during the period stated in the
advertisement or communication (based on the average daily number
of shares entitled to receive dividends outstanding during the
period), by the maximum net asset value per share on the last day
of the period, and annualizing the result on a semi-annual
compounded basis.
A Portfolio's total return may be calculated on an
annualized and aggregate basis for various periods (which periods
will be stated in the advertisement or communication). Average
annual return reflects the average percentage change per year in
value of an investment in a Portfolio. Aggregate total return
reflects the total percentage change over the stated period.
To assist investors to better evaluate how an investment in
a Portfolio might satisfy their investment objective, the
Portfolios may disseminate performance data such as yield and/or
total return information. Communications may compare the
investment performance of the Portfolios to benchmarks, indices
or averages, including indices published by the Lipper
Organization; Morgan Stanley; Shearson Lehman Hutton; Salomon
Brothers; Dow Jones; Standard & Poor's and others.
General Information
The Fund was incorporated in Maryland on July 6, 1995. The
Portfolios expect to be capitalized by investments of
approximately $26,660,000 in the Global Equity Portfolio and
$12,979,000 in the Global Income Portfolio of securities and cash
distributed as the result of liquidation of certain investment
partnerships. These transactions will constitute tax-free
reorganizations under the Code.
Shareholders will participate pro rata in the dividends,
distributions and net assets of the Portfolio(s) whose shares
they own. The Fund is not required, and does not intend, to hold
regular annual shareholder meetings, but may hold special
meetings for consideration of proposals requiring shareholder
approval, such as changing fundamental policies or, upon the
written request of the holders of 10% of the Fund's shares, to
replace its Directors. The Fund sends semi-annual and annual
reports of financial condition to shareholders of record. The
annual report includes a list of portfolio securities and audited
financial statements.
Each share entitles the owner one vote in all matters
affecting the Portfolio whose shares the holder owns, which are
submitted to a vote of shareholders, and on such other matters,
submitted to a vote, such as the election of directors, which
affect the Fund, in general.
Custodian and Dividend Disbursing Agent
Union Bank of California, N.A., 475 Sansome Street,
15th Floor, San Francisco, California 94111, is the Custodian of
the cash and securities held by each of the Portfolios and
Dividend Disbursing Agent.
Counsel and Independent Accountants
Stradley, Ronon, Stevens & Young serves as legal counsel for
the Fund. The firm of Tait, Weller & Baker has been selected
independent accountants for the Fund.
Information for Shareholders
Investor and shareholder inquiries should be directed to
East Coast Consultants, Inc. at 1325 Morris Drive, Suite 203,
Wayne, Pennsylvania 19087, Telephone No. 1-610-993-2150.<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
S.I.S. MERCATOR FUND, INC.
This Statement of Additional Information is not a
prospectus, and should be read in conjunction with the
prospectus, which can be obtained, without charge, from East
Coast Consultants, Inc., the Distributor of the Fund, at 1325
Morris Drive, Suite 203, Wayne, PA 19087, telephone No. 610-993-
0670.
The date of this Statement of Additional Information,
and the prospectus to which it relates, is
June 3, 1996.
TABLE OF CONTENTS
Page
Investment Objectives and Policies. . . . . . . . . . . 1
Fundamental Policies. . . . . . . . . . . . . . . . . . 1
Operating Policies. . . . . . . . . . . . . . . . . . . 2
Writing Listed Covered Call Options . . . . . . . . . . 3
Purchasing Listed Call Options. . . . . . . . . . . . . 5
Purchasing Listed Put Options . . . . . . . . . . . . . 5
Dealer Options. . . . . . . . . . . . . . . . . . . . . 6
Futures Contracts . . . . . . . . . . . . . . . . . . . 7
Lending Portfolio Securities. . . . . . . . . . . . . . 9
Foreign Currency Transactions . . . . . . . . . . . . . 9
Investment Performance. . . . . . . . . . . . . . . . . 11
Management of the Fund. . . . . . . . . . . . . . . . . 11
Principal Holders of Securities . . . . . . . . . . . . 13
Investment Management Services. . . . . . . . . . . . . 13
Sale of Fund Shares . . . . . . . . . . . . . . . . . . 15
Distribution. . . . . . . . . . . . . . . . . . . . . . 16
Tax Status. . . . . . . . . . . . . . . . . . . . . . . 16
Principal Shareholders. . . . . . . . . . . . . . 20
Financial Statements. . . . . . . . . . . . . . . . . 20
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion under
"Investment Objectives and Policies" in the prospectus. The
"Fundamental Policies" of the Portfolios are described below and
may not be changed without the approval of the lesser of: a vote
of the holders of a majority of the outstanding shares of the
Portfolio or, 67% of the shares represented at a meeting of
shareholders of the Portfolio at which the holders of at least
50% or of the shares are represented.
FUNDAMENTAL POLICIES
As a matter of fundamental policy, each Portfolio will not:
(1) borrow money, except from banks as a temporary measure
for extraordinary or emergency purposes, including redemption of
its shares, and then only in amounts not exceeding 33 1/3% of its
total assets, valued at market. The Portfolios also may acquire
futures contracts and options thereon as set forth in (2) below;
(2) purchase or sell commodities or commodity contracts;
except that the Portfolios may (i) enter into financial
(including currency) futures contracts and options thereon on an
initial and variation margin basis;
(3) purchase the securities of any issuer if, as a result,
more than 25% of the value of the Portfolio's total assets would
be invested in the securities of issuers having their principal
business activities in the same industry;
(4) make loans, although a Portfolio may enter into
repurchase agreements and lend its portfolio securities;
(5) as to 75% of its total assets, purchase the securities
of an issuer if as a result: (a) more than 5% of the value of
the Portfolio's assets would be invested in the securities of
that issuer or (b) it would own more than 10% of the voting
securities of that issuer;
(6) purchase or sell real estate although it may purchase
securities secured by real estate or representing interests
therein;
(7) issue senior securities;
(8) underwrite securities issued by other persons, except
to the extent that a Portfolio or the Fund may be deemed to be an
underwriter within the meaning of the Securities Act of 1993 in
connection with the purchase and sale of securities in the
ordinary course of pursuing its investment program.
OPERATING POLICIES
The following operating policies have been established by
the Board of Directors. A Portfolio will not:
(1) invest in companies for the purpose of exercising
management or control;
(2) purchase a security if, as a result of such purchase,
more than 15% of the value of the Portfolio's net assets would be
invested in illiquid securities, including repurchase agreements
which do not provide for payment within seven days;
(3) purchase securities of any investment company, except
in compliance with the Investment Company Act of 1940 and
applicable state law; or
(4) sell securities short.
Operating policies are established, and may be changed, by
the Board of Directors without approval of shareholders.
In determining the appropriate distribution of investments
among various countries and geographic regions, the Advisor
ordinarily considers the following factors: prospects for
relative economic growth between foreign countries; expected
levels of inflation; government policies influencing business
conditions; the outlook for currency relationships; and the range
of individual investment opportunities available to international
investors.
In analyzing companies for investment in the Global Equity
Portfolio, the Advisor ordinarily looks for one or more of the
following characteristics: an above-average earnings growth per
share; high return on invested capital, healthy balance sheet;
sound financial and accounting policies and overall financial
strength; strong competitive advantages; effective research and
product development and marketing; efficient service; pricing
flexibility; strength of management; and general operating
characteristics which will enable the companies to compete
successfully in their market place. While current dividend
income is not a prerequisite in the selection of companies, the
companies in which the Portfolio invests normally will have a
record of paying dividends, which the Advisor expects to increase
in future years as earnings increase.
In analyzing investments in the Global Income Portfolio, the
Advisor will ordinarily look for a high and sustainable real and
nominal income flow. The bonds included in the Portfolio will
generally be issued by national governments, supranational
institutions or securities of high-quality companies with liquid
markets. The Global Income Portfolio may also invest in
relatively high yielding equities of good quality companies at
times when the Advisor believes the market price of the equity
securities is likely to be more stable than that of debt
securities.
WRITING LISTED COVERED CALL OPTIONS
The Portfolios may write (sell) listed (exchange traded)
covered call options and purchase listed options to close out
options previously written. In writing covered call options, a
Portfolio would expect to generate premium income, which should
serve to enhance the Portfolio's total return and reduce the
effect of any price decline of the optioned security or currency.
Covered call options will generally be written on securities or
currencies which, in the Advisor's opinion, are not expected to
experience any major price increases in the near future but
which, over the long term, are deemed to be attractive
investments.
A call option gives the buyer the right to purchase a
security or currency at a specified price (the exercise price),
at expiration of the option (European options) or at any time
until the expiration date of the option (American options). As
long as the obligation of the writer of a call option continues,
the buyer may require the seller to deliver the underlying
security or currency against payment of the exercise price. This
obligation terminates upon the expiration of the option, or such
earlier time when the writer effects a closing transaction by
purchasing an identical option. To secure the obligation to
deliver the underlying security or currency, the option seller
must deposit in escrow the underlying security or currency or
other assets in accordance with the rules of the clearing
corporation. The Portfolio will sell covered call options, only.
This means that the Portfolio will own the security or currency
subject to the option, or an option to purchase the same
underlying security or currency, having an exercise price equal
to or less than the exercise price of the option it has sold, or
will establish and maintain with its custodian for the term of
the option, a segregated account consisting of cash, U.S.
government securities or other liquid, high-grade debt
obligations having a value equal to the market value of the
optioned securities or currencies, and marked to market daily. A
Portfolio will not write a covered call option if, as a result,
the aggregate market value of all optioned portfolio securities
or currencies and put option obligations exceeds 25% of the
market value of the Portfolio's net assets.
Portfolio securities or currencies on which call options may
be written will be purchased solely on the basis of investment
considerations consistent with the Portfolios' investment
objectives. The Advisor believes writing covered call options is
a conservative investment technique involving relatively little
risk (in contrast to writing uncovered options), but capable of
enhancing a Portfolio's total return. When writing a covered
call option, the Portfolio, in return for the premium, gives up
the opportunity for profit from a price increase of the optioned
security or currency above the exercise price, but conversely
retains the risk of loss should the price of the security or
currency decline. If a call option which the Fund has written
expires, the Fund will realize income in the amount of the
premium. If the call option is exercised, the Fund will realize
a gain or loss from the sale of the underlying security or
currency.
The premium received is the market value of an option. This
value is established by market factors and ordinarily fluctuates
from day to day. In determining whether a particular call option
should be written on a particular security or currency, the
Advisor will consider the reasonableness of the anticipated
premium and the likelihood that a liquid secondary market will
exist for the option.
Closing transactions will be effected in order to realize a
profit on an outstanding call option, to prevent an underlying
security or currency from being called, to permit the sale of the
underlying security or currency, or to permit the Portfolio to
write another call option on the underlying security or currency
with either a different exercise price or expiration date or
both. There is, of course, no assurance that a Portfolio will be
able to effect such closing transactions at favorable prices. If
the Portfolio cannot enter into such a transaction, it may be
required to hold a security or currency that it might otherwise
have sold.
Call options written by a Portfolio will normally have
expiration dates of less than nine months from the date written.
From time to time, a Portfolio may purchase an underlying
security or currency for delivery in accordance with an exercise
notice of a call option assigned to it, rather than delivering
such security or currency from its portfolio. In such cases,
additional costs may be incurred.
A Portfolio will realize a profit or loss from a closing
purchase transaction depending on whether the cost of the
transaction is less or more than the premium received from
writing the option. Because increases in the market price of a
call option will generally reflect increases in the market price
of the underlying security or currency, any loss resulting from
the repurchase of a call option is likely to be offset in whole
or in part by appreciation of the underlying security or currency
owned by the Fund.
PURCHASING LISTED CALL OPTIONS
The Portfolios may purchase listed call options. As the
holder of a call option, the Portfolio has the right to purchase
the underlying security or currency, at the exercise price, at
any time during the option period (American option) or at the
expiration date of the option (European option). The Portfolio
may enter into closing sale transactions with respect to such
options, exercise them or permit them to expire. Call options
may be purchased for the purpose of increasing current return, to
avoid tax consequences which might reduce its current return, or
to acquire the optioned securities or currencies.
The purchase of a call option enables the Portfolio to
acquire the optioned securities or currencies at the exercise
price of the call option plus the premium paid. At times the net
cost of acquiring securities or currencies in this manner may be
less than the cost of acquiring the securities or currencies
directly. This technique may also enable a Portfolio to purchase
a large block of securities or currencies that would be difficult
to acquire by direct market purchases. So long as it holds such
a call option rather than the underlying security or currency
itself, the Fund is partially protected from any unexpected
decline in the market price of the underlying security or
currency and in such event could allow the call option to expire,
incurring a loss only to the extent of the premium paid for the
option and transaction costs.
A Portfolio may also purchase call options on securities or
currencies it owns in order to protect unrealized gains on call
options previously written by it. A call option would be
purchased for this purpose where tax considerations make it
inadvisable to realize such gains through a closing purchase
transaction. Call options may also be purchased at times to avoid
realizing losses. Purchasing call options entails the risk that
the price of the optioned securities will not exceed the exercise
price of the option in which case the option will expire without
value.
PURCHASING LISTED PUT OPTIONS
The Portfolios may purchase listed put options. As the
holder of a put option, the Portfolio has the right to sell the
optioned security or currency at the exercise price at any time
during the option period. A Portfolio may enter into closing
sale transactions with respect to such options, exercise them or
permit them to expire. A Portfolio may purchase put options for
defensive purposes in order to protect against an anticipated
decline in the value of its securities or currencies. Such an
option would permit the Portfolio to sell the optioned security
or currency at the exercise price regardless of any decline in
the value of the security or currency. For example, a put option
may be purchased in order to protect unrealized appreciation of a
security or currency where the Advisor deems it desirable to
continue to hold the security or currency because of tax
considerations. The premium paid for the put option and any
transaction costs would reduce any capital gain otherwise
available for distribution when the security or currency is
eventually sold.
A Portfolio may also purchase put options when it does not
own the optioned security or currency. By purchasing put options
on a security or currency it does not own, the Fund seeks to
benefit from a decline in the market price of the underlying
security or currency. If the put option is not sold when it has
remaining value, and if the market price of the underlying
security or currency remains equal to or greater than the
exercise price during the life of the put option, the Fund will
lose its entire investment in the put option. In order for the
purchase of a put option to be profitable, the market price of
the underlying security or currency must decline sufficiently
below the exercise price to cover the premium and transaction
costs, unless the put option is sold in a closing sale
transaction, in which case the Portfolio's profit or loss on the
transaction will depend on whether the price it paid for the
option exceeds the price it received on its sale (plus
transaction costs).
DEALER OPTIONS
The Portfolios may also buy and sell dealer options. Certain
risks are specific to these options. While the Portfolio looks
to a clearing corporation to exercise listed options, if a
Portfolio were to purchase a dealer option, it would rely on the
dealer from whom it purchased the option to perform if the option
were exercised. Failure by the dealer to do so would result in
the loss of the premium paid by the Portfolio, as well as loss of
the expected benefit of the transaction.
Listed options generally have a continuous liquid market
while dealer options have none. Consequently, a Portfolio will
generally be able to realize the value of a dealer option it has
purchased only by exercising it or reselling it to the dealer who
issued it. Similarly, when a Portfolio writes a dealer option, it
generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction
with the dealer to which the Portfolio sold the option. While the
Portfolio will seek to enter into dealer options only with
dealers who will agree, and which the Advisor believes, will be
capable of entering into closing transactions, there can be no
assurance that a Portfolio will be able to liquidate a dealer
option at a favorable price at any time prior to expiration.
Until the Portfolio, as a covered dealer call option writer, is
able to effect a closing purchase transaction, it will not be
able to liquidate the option securities or currency until the
option expires or is exercised. In the event of insolvency of
the contra party, the Portfolio may be unable to liquidate a
dealer option. The inability to enter into a closing transaction
may result in material losses to a Portfolio.
Dealer options and the assets used to secure dealer options
currently are considered illiquid securities. Accordingly,
dealer options will be subject to the Portfolios' restriction
that not more than 15% of the value of a Portfolio's assets may
be invested in illiquid securities.
FUTURES CONTRACTS
The Portfolios may enter into financial futures contracts,
including stock index, interest rate and currency futures.
Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of specific
securities or currencies at a specified future time and at a
specified price. Financial futures contracts which are
standardized as to maturity date and the underlying financial
instruments are traded on national futures exchanges, and include
futures contracts on equity securities, debt securities and
foreign currencies. The Portfolios will only buy and sell
standardized contracts.
Securities index futures contracts may be used to provide a
hedge for a portion of a Portfolio's, as a cash management tool,
or as an efficient way for the Advisor to implement either an
increase or decrease in portfolio market exposure in response to
changing market conditions. A Portfolio may purchase or sell
securities index futures with respect to any securities index
whose movements are expected by the Advisor to have a significant
correlation with movements in the prices of all or portions of
the Portfolio's securities.
Interest rate or currency futures contracts may be used as a
hedge against changes in prevailing levels of interest rates or
currency exchange rates in order to establish more definitely the
effective return on securities or currencies held or intended to
be acquired by the Portfolio or protect the Portfolio from
effects of currency fluctuations. In this regard, a Portfolio
might sell interest rate futures as an offset (hedge) against the
effect of expected increases in interest rates or currency
exchange rates and purchase such futures as an offset against the
effect of expected declines in interest rates or currency
exchange rates. The Portfolios will engage in transactions in
financial futures contracts and options thereon only for bona
fide hedging, return enhancement and risk management purposes.
Transactions in financial futures contracts, and options
thereon, will be limited so that margin on transactions not
considered hedging under the rules of the Commodities Futures
Trading Corporation will not exceed 5% of a Portfolio's net
assets. When a Portfolio has a long position in a futures
contract or sells a put option on futures contracts or
securities, it must establish a segregated account with its
custodian bank containing cash or highly liquid, short-term U.S.
government securities in an amount equal to the purchase price of
the contract or the strike price of the put option (less any
margin on deposit). When the Portfolio sells a call option on a
futures contract, it must establish a segregated account with its
custodian bank containing cash or highly liquid, short-term U.S.
government securities in an amount that, when added to the amount
of the margin deposit, equals the market value of the instruments
underlying the call option (but are not less than the strike
price of the call option).
Successful use of futures contracts for hedging purposes is
subject to the Advisor's ability to correctly predict movements
in the direction of the market. It is possible that, when a
Portfolio has sold futures to hedge its portfolio against a
decline in a market, the index or indices, securities or
currencies on which the futures are written might advance and the
value of securities or currencies held in the Portfolio might
decline. If this were to occur, the Portfolio would lose money
on the futures and also would experience a decline in value in
its portfolio securities or currencies. However, while this might
occur to a certain degree, the Advisor believes that over time
the value of the Portfolio's investments will tend to move in the
same direction as the securities or currencies underlying the
futures, which are intended to correlate to the price movements
of the portfolio securities or currencies sought to be hedged.
It is also possible that if a Portfolio were to hedge against the
possibility of a decline in the market (adversely affecting
securities or currencies held in its portfolio) and prices
instead increased, the Portfolio would lose part or all of the
benefit of increased value of those securities or currencies that
it has hedged, because it would have offsetting losses in its
futures positions. In addition, in such situations, if the
Portfolio had insufficient cash, it might have to sell securities
or currencies to meet daily variation margin requirements. Such
sales of securities or currencies might be, but would not
necessarily be, at increased prices (which would reflect the
rising market). A Portfolio might have to sell securities or
currencies at a time when it would be disadvantageous to do so.
In addition to the possibility that there might be an
imperfect correlation, or no correlation at all, between price
movements in the futures contracts and the portion of the
portfolio being hedged, the price movements of futures contracts
might not correlate perfectly with price movements in the
underlying stock index, security or currency due to market
distortions. All participants in the futures market are subject
to margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, investors might
close futures contracts through offsetting transactions which
could distort the normal relationship between the underlying
instruments and futures markets. Also, the margin requirements
in the futures market are less than margin requirements in the
securities markets; as a result the futures market might attract
more speculators than the securities markets do. Increased
participation by speculators in the futures market might also
cause temporary price distortions. Due to the possibility of
price distortion in the futures market and also because of the
imperfect correlation between price movements in the underlying
instruments and movements in the prices of futures contracts,
even a correct forecast of general market trends by the Advisor
might not result in a successful hedging transaction over a very
short time period.
LENDING PORTFOLIO SECURITIES
For the purpose of realizing additional income, each
Portfolio may make loans of securities amounting to not more than
33 1/3% of its total assets. Securities loans would be made to
broker-dealers and financial institutions pursuant to agreements
requiring the loans to be secured by collateral at least equal to
the current value of the securities lent and "marked-to-market"
on a daily basis. Collateral will consist of cash, U.S. or
foreign securities, letters of credit or cash equivalents. While
the securities are being lent, the Portfolio will continue to
receive the equivalent of the interest or dividends paid by the
issuer of the securities, as well as interest on the investment
of the collateral or a fee from the borrower. The Portfolio has
a right to call a loan at any time. The Portfolio will not have
the right to vote securities while they are on loan, but it will
call 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 will only be made after analysis of the pertinent facts by
the Advisor when, in the judgment of the Advisor, the income from
such loans would justify the risk.
FOREIGN CURRENCY TRANSACTIONS
The Portfolios may engage in forward foreign currency
transactions to settle foreign securities transactions and/or
manage foreign currency risk. A forward foreign currency
exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number
of days from the date of the contract is agreed upon by the
parties, at a price set at the time of the contract. These
contracts are principally traded in the interbank market
conducted directly between currency traders (usually large,
commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are
charged for trades.
The Portfolios will generally enter into forward foreign
currency exchange contracts in two circumstances. First, when a
Portfolio enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to lock
in the U.S. dollar price of the security, by entering into a
forward contract for the purchase or sale, for a fixed amount of
dollars, of the amount of foreign currency involved in the
underlying security transactions. The Portfolio will be able to
protect itself against a loss resulting from an adverse change in
the relationship between the U.S. dollar and the foreign currency
during the period between the date the security is purchased or
sold and the date on which payment is made or received.
Second, when the Advisor believes that the currency of a
particular foreign country may suffer from, or enjoy, a
substantial movement against another currency, it may enter into
a forward contract to sell or buy the amount of one or more
foreign currencies, approximating the value of some or all of a
Portfolio's portfolio securities denominated in that foreign
currency. Alternatively, where appropriate, a Portfolio may
hedge all or part of its foreign currency exposure through the
use of a basket of currencies or a proxy currency where such
currencies or currency, in the Advisor's judgment, act as an
effective proxy for the Portfolio's currency exposure. The
prediction of short-term currency market movement is extremely
difficult, and the successful execution of a short term hedging
strategy is highly uncertain. The Advisor will consider the
effect a substantial commitment of Portfolio assets to forward
contracts would have on the investment program of the Portfolio
and the flexibility of the Portfolio to purchase additional
securities. Other than as set forth above, and immediately
below, a Portfolio also will not enter into forward contracts or
maintain a net exposure to such contracts where the consummation
of the contracts would obligate the Portfolio to deliver an
amount of foreign currency in excess of the value of the
Portfolio's securities or other assets denominated in that
currency. A Portfolio, however, in order to avoid excess
transactions and transaction costs, may maintain a net exposure
to forward contracts in excess of the value of the Portfolio's
securities or other assets denominated in that currency provided
the excess amount is covered by liquid, high-grade debt
securities, denominated in any currency, at least equal at all
times to the amount of such excess. Under normal circumstances,
consideration of the prospects for currencies will be
incorporated into the longer term investment decisions made with
regard to overall diversification strategies. However, the
Advisor believes that it is important to have the flexibility to
enter into such forward contracts when it determines that the
best interests of the Portfolio will be served.
INVESTMENT PERFORMANCE
Total Return
The Portfolios compute their average annual total return by
determining the average annual compounded rate of return during
specified periods that equates the initial amount invested to the
ending redeemable value of such investment. This is done by
dividing the ending redeemable value of the hypothetical $1,000
initial payment by $1,000 and taking the root of the quotient
equal to the number of years (or fractional portion thereof)
covered by the computation and subtracting one from the result.
Average annual total return figures are determined in accordance
with standard SEC requirements. The Portfolios compute their
aggregate total return by determining the aggregate compounded
rate of return during a specified period that likewise equates
the initial amount invested to the ending redeemable value of
such investment. The calculations of average annual total and
aggregate total return assume the reinvestment of all dividends
and capital gain distributions on the reinvestment dates during
the period and the deduction of all recurring charges. The
ending redeemable value is determined by assuming complete
redemption of the hypothetical investment and the deduction of
all non-recurring charges at the end of the period covered by the
computations.
Yield
The yield of the Portfolios may be calculated by dividing
the net investment income per share earned by the particular
Portfolio during a 30 day (or one month) period by the net asset
value per share on the last day of the period and annualizing the
result on a semi-annual basis. A Portfolio's net investment
income per share earned during the period is based on the average
daily number of shares outstanding during the period entitled to
receive dividends and includes dividends and interest earned
during the period minus expenses accrued for the period, net of
reimbursements.
MANAGEMENT OF THE FUND
The officers and directors of the Fund are listed below.
Unless otherwise noted, the address of each is 1325 Morris Drive,
Suite 203, Wayne, Pennsylvania 19087.
Dr. Richard T. Coghlan* Age 50. President and
Chairman of the Board of
Directors. Also, President,
director and controlling
stockholder of the Advisor and
Distributor.
Howard W. Gross Age 65. Director. Business
Consultant, West Palm Beach,
Florida. Previously,
Executive Vice President,
Henkel Corp.
Stephen Michael Alexander Age 44. Director. Chief
Executive Officer, IHI Alchen,
Inc., Bryn Mawr, Pennsylvania.
Lee G. Fishman Age 41. Director. President,
BPM Group, Inc., Merion
Station, Pennsylvania.
Elliot C. Kauffman Age 27. Treasurer and Senior
Investment Manager of the
Advisor.
Brian R. Cassidy Age 30. Secretary and Senior
Administrator of the Advisor.
*Dr. Coghlan is an "interested" director of the Fund, under
the Investment Company Act of 1940, by reason of being
affiliated with the Advisor.
Compensation Table
Pension or Total
Retirement Compensation
Benefits Estimated From
Aggregate Accrued Annual Registrant
Compensation as Part Benefits and Fund
Name of Person, From Registrant of Fund Upon Complex Paid
Position (Director's Fee) Expenses Retirement to Directors
Richard T. Coghlan -0- -0- -0- -0-
President and
Director
Howard W. Gross $2,000 -0- -0- $2,000
Director
Stephen Michael $2,000 -0- -0- $2,000
Alexander
Director
Lee G. Fishman $2,000 -0- -0- $2,000
Director
The Fund will pay directors, except Dr. Coghlan, fees of
$2,000 per year as shown above, plus reimbursement of expenses of
attending meetings of the Board.
PRINCIPAL HOLDERS OF SECURITIES
As of the date of the prospectus, the officers and directors
of the Fund, as a group, owned less than 1% of the outstanding
shares of either Portfolio.
INVESTMENT MANAGEMENT SERVICES
Under the Management Agreements with the Fund, the Advisor
is responsible for supervising and directing the investments of
the Portfolios in accordance with the Portfolio's investment
objectives, policies and restrictions. Dr. Coghlan, President of
the Advisor, is also responsible for placing all security
transactions of the Portfolios, and negotiation of commissions
where possible.
In transactions on U.S. stock exchanges, commissions are
negotiated. Traditionally, commission rates have generally not
been negotiated on foreign stock markets. In recent years,
however, an increasing number of foreign stock markets have
adopted systems of negotiated rates, although a number of markets
continue to operate with schedules of minimum commission rates.
In the case of securities traded in the over-the-counter markets,
there is generally no stated commission, but the security price
usually includes a markup. In underwritten offerings, the price
includes a disclosed, fixed commission.
It is expected that securities will ordinarily be purchased
in the primary markets for the securities, whether over-the-
counter or listed, and that listed securities may be purchased in
the over-the-counter market if such market is deemed, by the
Advisor, the primary market.
In purchasing and selling portfolio securities, the Advisor
seeks to obtain quality execution at the most favorable prices
through responsible broker-dealers and, in the case of agency
transactions, at competitive commission rates. Commission rates
are checked for competitiveness by reference to rates paid by
other institutional investors similar to the Fund. The Advisor
will consider such factors as the price of the security, the rate
of the commission, the size and difficulty of the order, the
reliability, integrity, financial condition, general execution
and operational capabilities of competing broker-dealers, and the
brokerage and research services they provide to the Advisor or
the Fund.
The Advisor may cause the Fund to pay a broker-dealer who
furnishes brokerage and/or research services a commission for
executing a transaction that is in excess of the commission
another broker would have charged for executing the transaction
if the Advisor determines in good faith that the commission is
reasonable in relation to the value of the brokerage or research
services provided. The Advisor may effect principal
transactions on behalf of the Portfolios with dealers who furnish
research services and designate any such dealer to receive
selling concessions, discounts or other allowances in connection
with the acquisition of securities in underwritings.
The Advisor receives a wide range of research services from
brokers and dealers covering investment opportunities throughout
the world, including information on economies, industries, groups
of securities, individual companies, statistics, political
developments, technical market action, pricing and appraisal
services, and performance analyses of all the countries in which
the Portfolios are likely to invest. Each year, the Advisor
assesses the contribution of the brokerage and research services
provided by broker-dealers, and allocates a portion of the
brokerage business of its clients, including the Fund, on the
basis of these assessments. In no instance is a broker or dealer
excluded from receiving business because it has not been
identified as providing research services.
The Investment Management Agreements between the Advisor and
the Fund were approved by the Portfolios' initial shareholders on
November 8, 1995 and became effective on the same date. As of
June 3, 1996, the predecessor Advisor (Strategic Investment
Services) underwent a reorganization, pursuant to which the
current Advisor assumed the business of the predecessor and the
investment advisory agreements with the current Advisor were
approved by the Board of Directors of the Fund. Richard T.
Coghlan controlled the predecesor Advisor and controls the
current Advisor. The only changes effected by the new agreements
were the commencement date and name of the Advisor. The
agreements require the Advisor to provide the Portfolios with a
continuous review of and recommendations regarding investment of
their assets. The agreements continue in full force until
November 7, 1997, and may be continued thereafter from year to
year if renewed annually by a majority vote of the Board of
Directors of the Fund, or by a vote of the holders of a majority
of the outstanding voting securities of the Portfolios, but in
either case, in order to effect any such continuance the terms of
the agreement must also be approved by a majority vote, cast in
person, of those Fund Directors who are not parties to the
agreement or interested persons of any such party, as defined by
the Investment Company Act of 1940, at a meeting called for the
purpose of considering the approval of the agreement. The
agreement terminates automatically if it is transferred or
assigned by either party, which would include a change of control
of the Advisor, and may be terminated by either party without
penalty on 60 days written notice.
SALE OF FUND SHARES
The Fund makes a continuous offering of its shares, but
retains the right to reject any offer to purchase its shares.
The net asset value per share of each Portfolio is
calculated as of the close of trading on the NYSE on each day the
NYSE is open for trading. The NYSE is closed on the following
days: New Year's Day, Washington's Birthday, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day, and the Fund does not accept purchase or
redemption orders on these days.
Trading in securities owned by the Portfolios may take place
in various foreign markets on days (such as Saturday) when the
Fund is not open for business and does not calculate the net
asset value of the Portfolios. Events affecting the values of
foreign portfolio securities that occur after the markets for
these securities are closed but before the time the Portfolios'
net asset values are calculated will not be reflected in the
Portfolios' net asset values unless the Advisor, in accordance
with policies adopted by the Board of Directors, determines that
the particular event should be taken into account in computing
the Portfolio's net asset value, in which case the affected
securities would be valued in good faith, at fair value.
Determination of net asset value (and the offering and
redemption price of shares) of the Portfolios may be suspended
when (a) the NYSE is closed, other than customary weekend and
holiday closings, (b) trading on the NYSE is restricted (c) an
emergency exists as a result of which disposal of securities
owned by a Portfolio is not reasonably practicable or it is not
reasonably practicable for the Portfolio fairly to determine the
value of its net assets, or (d) when the SEC may, by order,
permit for the protection of a Portfolio's shareholders.
DISTRIBUTION
The Board of Directors of the Fund and stockholders of each
Portfolio approved a Distribution Plan in accordance with Rule
12b-1 under the Investment Company Act of 1940 (the "Plan") which
provides for payment by each Portfolio of expenses related to the
distribution of Fund shares and shareholder services. Under the
Plan each Portfolio makes monthly payments of 1/48th of 1% of the
net asset value of the Portfolio (.25% on an annual basis) based
on the net asset value of the Portfolio.
The Plan remains in effect until November 7, 1996 and may be
continued for one year terms if approved at least annually by a
majority vote, cast in person, of both the Board of Directors and
Disinterested Directors of the Fund, at a meeting called for the
purpose of voting on the Plan. The Plan may be terminated at any
time, without penalty, by a vote of a majority of the Fund's
disinterested directors, or by vote of a majority of the
outstanding voting securities of the Portfolios. The Plan
terminates automatically in the event of an "assignment" of the
Plan as defined in section 2(a)(4) of the Investment Company Act
of 1940. Also while the Plan remains in effect the nomination of
the Disinterested Directors of the Fund is committed to the
discretion of such Directors.
The Board of Directors believe there is a reasonable
likelihood that the Plan will benefit the Portfolios and their
shareholders by promoting the sale of shares and encouraging the
retention of shares by holders. The benefits that would accrue
to the Portfolios by an increase in the level of sales of shares
are an enhanced ability to expand investment opportunities with
increased cash and certain costs of operation would be decreased
in proportion to the size of the Portfolio.
TAX STATUS
Each Portfolio intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986,
as amended ("Code"). In order to so qualify, a Portfolio must,
among other things, (i) derive at least 90% of its gross income
from dividends, interest, payments with respect to certain
securities loans, gains from the sale of securities or foreign
currencies, or other income (including but not limited to gains
from options, futures or forward contracts) derived with respect
to its business of investing in such stock, securities or
currencies; (ii) derive less than 30% of its gross income from
the sale or other disposition of stock or securities or certain
futures and options thereon held for less than three months
("short-short gains"); (iii) distribute at least 90% of its
dividend, interest and certain other taxable income each year;
and (iv) at the end of each fiscal quarter maintain at least 50%
of the value of its total assets in cash, government securities,
securities of other regulated investment companies and other
securities of issuers which represent, with respect to each
issuer, no more than 5% of the value of a Portfolio's total
assets and 10% of the outstanding voting securities of such
issuer, and with no more than 25% of its assets invested in the
securities (other than those of the government or other regulated
investment companies) of any one issuer or of two or more issuers
which the Portfolio controls and which are engaged in the same,
similar or related trades and businesses.
To the extent each of the Portfolios qualifies for treatment
as a regulated investment company, they will not be subject to
federal income tax on income and net capital gains paid to
shareholders in the form of dividends or capital gains
distributions.
An excise tax at the rate of 4% will be imposed on the
excess, if any, of each Portfolio's "required distributions" over
actual distributions in any calendar year. Generally, the
"required distribution" is 98% of a Portfolio's ordinary income
for the calendar year, plus 98% of its capital gain net income
recognized during the one-year period ending on October 31, plus
undistributed amounts from prior years. The Portfolios intend to
make distributions sufficient to avoid imposition of the excise
tax. Distributions declared by the Funds during October,
November or December to shareholders of record during such month
and paid by January 31 of the following year will be taxable to
shareholders in the calendar year in which they are declared,
rather than the calendar year in which they are received.
Gains or losses attributable to fluctuations in exchange
rates which occur between the time a Portfolio accrues interest
or other receivables or accrues expenses or liabilities
denominated in a foreign currency and the time the Portfolio
actually collects such receivables, or pays such liabilities, are
generally treated as ordinary income or loss. Similarly, a
portion of the gains or losses realized on disposition of debt
securities denominated in a foreign currency may also be treated
as ordinary gain or loss. These gains, referred to under the
Code as "Section 988" gains or losses, may increase or decrease
the amount of a Portfolio's investment company taxable income to
be distributed to its shareholders, rather than increasing or
decreasing the amount of the Portfolio's capital gains or losses.
When a Portfolio writes a call, or purchases a put option,
an amount equal to the premium received or paid by it is included
in the Portfolio's assets and liabilities as an asset and as an
equivalent liability.
In writing a call, the amount of the liability is
subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a
written option is the last sale price on the principal Exchange
on which such option is traded or, in the absence of a sale, the
mean between the last bid and asked prices. If an option which a
Portfolio has written expires on its stipulated expiration date,
the Portfolio recognizes a short-term capital gain. If a
Portfolio enters into a closing purchase transaction with respect
to an option which the Portfolio has written, the Portfolio
realizes a short-term gain (or loss if the cost of the closing
transaction exceeds the premium received when the option was
sold) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is
extinguished. If a call option which a Fund has written is
exercised, the Portfolio realizes a capital gain or loss from the
sale of the underlying security and the proceeds from such sale
are increased by the premium originally received.
The premium paid by a Portfolio for the purchase of a put
option is recorded in the Portfolio's statement of assets and
liabilities as an investment and is subsequently adjusted daily
to the current market value of the option. For example, if the
current market value of the option exceeds the premium paid, the
excess would be unrealized appreciation and, conversely, if the
premium exceeds the current market value, such excess would be
unrealized depreciation. The current market value of a listed
option is the last sale price on the principal Exchange on which
such option is traded or, in the absence of a sale, the mean
between the last bid and asked prices. If an option which a
Portfolio has purchased expires on the stipulated expiration
date, the Portfolio realizes a capital loss for federal income
tax purposes equal to the cost of the option. If a Portfolio
exercises a put option, it realizes a capital gain or loss (long-
term or short-term, depending on the holding period of the
underlying security) from the sale which will be decreased by the
premium originally paid.
The amount of any realized gain or loss on closing out an
option on an index future will result in a realized gain or loss
for tax purposes. Such options held by a Portfolio at the end of
each fiscal year on a broad-based stock index will be required to
be "marked-to-market" for federal income tax purposes. Sixty
percent of any net gain or loss recognized on such deemed sales
or on any actual sales will be treated as long-term capital gain
or loss and the remainder will be treated as short-term capital
gain or loss. Certain options, futures contracts and options on
futures contracts utilized by the Portfolios will be "Section
1256 contracts." Any gains or losses on Section 1256 contracts
held by a Portfolio at the end of each taxable year (and on
October 31 of each year for purposes of the 4% excise tax) are
"marked-to-market" with the result that unrealized gains or
losses are treated as though they were realized and the resulting
gain or loss is treated as a 60/40 gain or loss.
Dividends eligible for designation under the dividends
received deduction and paid by a Portfolio will qualify in part
for the 70% dividends received deduction for corporations
provided, that the Portfolio shares have been held for at least
45 days.
The Portfolios will notify shareholders each year of the
amount of dividends and distributions, including the amount of
any distribution of long-term capital gains and the portion of
its dividends which may qualify for the 70% deduction.
It is expected that certain dividends and interest received
by the Portfolios will be subject to foreign withholding taxes.
If more than 50% in value of the total assets of a Portfolio at
the close of any taxable year consists of stocks or securities of
foreign corporations, such fund may elect to treat any foreign
taxes paid by it as if paid by its shareowners. The Portfolios
will notify shareowners in writing each year whether they have
made the election and the amount of foreign taxes it has elected
to have treated as paid by the shareowners. If they make the
election, its shareowners will be required to include in gross
income their proportionate share of the amount of foreign taxes
paid by the Portfolios and will be entitled to claim either a
credit or deduction for their share of the taxes in computing
their U.S. federal income tax subject to certain limitations. No
deduction for foreign taxes may be claimed by shareowners who do
not itemize deductions.
Generally, a credit for foreign taxes is subject to the
limitation that it may not exceed the shareowner's U.S. tax
attributable to his or her total foreign source taxable income.
For this purpose, the source of each Portfolio's income flows
through to its shareowners. Gains from the sale of securities
will be treated as derived from U.S. sources and certain currency
fluctuation gains, including fluctuation gains from foreign
currency denominated debt securities, receivables and payables,
will be treated income derived from U.S. sources. The limitation
on the foreign tax credit is applied separately to foreign source
passive income (as defined for purposes of foreign tax credit)
such as foreign source passive income received from the
respective Portfolio. Because of changes made by the Code,
shareowners may be unable to claim a credit for the full amount
of their proportionate share of the foreign taxes paid by the
Portfolios.
Shareholders may be subject to a 31% withholding tax on the
dividends, distributions and redemption payments ("back-up
withholding") if their certified taxpayer identification number
is not on file with the Fund or if, to the Fund's knowledge, the
shareholder has furnished an incorrect number.
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code and Treasury regulations
currently in effect. For the complete provisions, reference
should be made to the pertinent Code sections and regulations.
The Code and regulations are subject to change by legislative or
administrative action at any time and retroactively.
Shareholders are urged to consult their tax advisors
regarding specific questions as to federal, state and local taxes
as well as the application of the foreign tax credit.
The foregoing discussion relates solely to U.S. federal
income tax law. Non-U.S. investors should consult their tax
advisors concerning the tax consequences of ownership of shares
of the Funds, including the possibility that distributions may be
subject to a 30% United States withholding tax (or a reduced rate
of withholding provided by treaty).
PRINCIPAL SHAREHOLDERS
As of April 30, 1996, the following entities held more than 5% of the shares
of the Global Equity Portfolio: Fox Family Partnership, a Pennsylvania
Limited Partnership, whose sole general partner is Richard J. Fox of 1325
Morris Drive, Suite 201, Wayne, PA 19087, with a holding of 92% and Jeffrey
M. & Dominique Reiff of 680 Merion Square Road, Gladwyn, PA 19035 holding 6%.
There were four shareholders with holdings over 5% of the Global Income
Portfolio: the Geraldine D. Fox Foundation with 11%, the Richard J. Fox
Foundation with 51%, the National Organization of Hearing Research with
9%, and the Institute for Bio-Information Research with 26% all at
1325 Morris Drive, Suite 201, Wayne, PA 19087.
The directors and officers of the Fund, as a group, own less than 1% of
the outstanding shares of either Portfolio. The Fox Family Partnership and
the Richard J. Fox Foundation have enough votes to control the policies of
both Portfolios whose shares they own and to elect the board of directors.
FINANCIAL STATEMENTS
The unaudited financial statements contained in the Fund's Semi-
annual Report to Shareholders, as of April 30, 1996, are
incorporated herein by reference and may be obtained from the
Fund without charge, upon request.
FINANCIAL STATEMENT
TAIT, WELLER & BAKER
Certified Public Accountants
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
S.I.S. Mercator Fund, Inc.
Wayne, Pennsylvania
We have audited the accompanying statement of assets and liabilities of S.I.S.
mercator Fund, Inc. (comprising, respectively, the Global Equity Portfolio and
the Global Income Portfolio) as of November 8, 1995. This financial statement
is the responsibility of the Fund's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of assets and
liabilities is free of material misstatement. An audit includes examining on
a test basis, evidence supporting the amounts and disclosures in the
statement of assets and liabilities. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit of the statement of assets and liabilities provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the
Global Equity Portfolio and the Global Income Portfolio as of
November 8, 1995, in conformity with generally accepted accounting principles.
/s/Tait, Weller & Baker
Philadelphia, Pennsylvania
November 8, 1995<PAGE>
S.I.S. MERCATOR FUND, INC.
Statement of Assets and Liabilities
November 8, 1995
Global Global
Equity Income
Portfolio Portfolio
ASSETS
Cash $100,000 $50,000
Prepaid registration fees 2,300 2,300
Deferred organization expense (Note 2B) 28,750 28,750
Total assets 131,050 81,050
LIABILITIES
Due to East Coast for expenses advanced (Note 2B) 27,800 27,800
Accrued expenses 3,250 3,250
Total liabilities 31,050 31,050
NET ASSETS (Note 3) $100,000 $50,000
Net asset value,
offering and redemption price per share $10.00 $10.00
At November 8, 1995 the components of
net assets were as follows:
Paid-in capital $100,000 $50,000
See notes to statement of assets and liabilities
S.I.S. MERCATOR FUND, INC.
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
November 8, 1995
(1) ORGANIZATION
S.I.S. Mercator Fund, Inc. (formerly Navigator Fund, Inc.) (the "Fund"), is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end management investment company and is authorized to
issue shares in separate series. The Fund currently offers shares in two
diversified series, the Global Equity Portfolio and the Global Income
Portfolio (the "Portfolios").
The Fund was incorporated on July 6, 1995, and between that date and November
8, 1995 the Fund had no operations other than those relating to organizational
matters and the registration of its shares under applicable securities laws.
On November 8, 1995 the Fund sold 10,000 shares of the Global Equity Portfolio
for $100,000 and 5,000 shares of the Global Income Portfolio for $50,000 (the
"Initial Shares") to Richard T. Coghlan, an Officer and director of the Fund
and principal shareholder of East Coast Consultants, Inc. ("East Coast"), the
Fund's principal underwriter and a general partner of Strategic Investment
Services ("Strategic"), the Fund's investment advisor.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed by
the Portfolios in the preparation of their financial statements. These
policies are in accordance with generally accepted accounting principles.
A. Federal Income Taxes. The Portfolios intend to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of their taxable income to
their shareholders. Therefore, no federal income tax provision is
required.
B. Deferred Organization Expenses. All of the expenses incurred by the Fund
in connection with the organization and the registration of the
Portfolios' shares were borne equally by each Portfolio and are being
amortized to expense on a straight-line basis over a period of five years.
Certain of the Fund's organization expenses were advanced by East Coast
which the Fund will reimburse after operations commence.
(3) CAPITAL STOCK
At November 8, 1995, the authorized capital of the Fund consisted of one
billion shares of $.01 par value common stock with 100 million shares
designated and classified the Global Equity Portfolio and 100 million shares
designated and classified the Global Income Portfolio.
S.I.S. MERCATOR FUND, INC
NOTES TO STATEMENT OF ASSETS AND LIABILITIES - (Continued
November 8, 1995
(4) INVESTMENT MANAGEMENT FEE AND ADMINISTRATION FEE
Investment Advisory Agreement. Strategic provides investment management
services to each of the Portfolios under an Investment Advisory Agreement.
Strategic provides the Portfolios with continuous investment programs, a
trading department, and selects brokers and dealers to effect securities
transactions. As compensation for its services Strategic is paid a monthly fee
which is equal to the annual rate of 0.90% of each Portfolio's average daily
net assets.
Administration Agreement. Strategic also serves as the Administrator of the
Fund under an Administration Agreement. The services include the
administration of the Fund's business affairs, supervision of services
provided by other organizations providing services to the Fund, including
the custodian, dividend disbursing agent, legal counsel and independent
accountants, preparation of certain Fund records and documents, record
keeping and accounting services. As compensation for these services
Strategic is paid a monthly fee which is equal to the annual rate of 0.25%
of each Portfolio's average daily net assets.
(5) DISTRIBUTION PLANS
Distribution Plan. The Portfolios have adopted Distribution Plans pursuant
to rule 12b-1 under the '40 Act, whereby each Portfolio may make monthly
payments at the annual rate of 0.25% of each Portfolio's average net assets
to East Coast for providing certain distribution services. These services
can include: promotion of the sale of Portfolio shares, preparation of
advertising and promotional materials, payment of compensation to persons
who have been instrumental in the sale of Portfolio shares, and for other
services and materials, including the cost of printing Fund prospectuses,
reports and advertising material provided to investors, and to defray
overhead expenses of East Coast incurred in connection with the promotion
and sale of Fund shares.
Shareholder Services Plan. The Portfolios have also adopted Shareholder
Services Plans (the "Plans") which are designed to promote the retention of
shareholder accounts. Under these Plans, the Portfolios are authorized to
pay East Coast a monthly fee which, on an annual basis, may not exceed 0.25%
of the average net assets of each Portfolio. Payments under the Plans would
be used, among other things, to compensate persons and/or organizations that
provide services to shareholders that are designed to encourage them to
maintain their investments in the Portfolios.
(6) OTHER TRANSACTIONS WITH AFFILIATES
Certain officers and directors of the Fund are also officers and/or directors
of Strategic and East Coast.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Statement of Assets and Liabilities as of
November 8, 1995 and Report of Independent
Accountants***
(a)(1) The financial statements contained in the
Report to Shareholders as of April 30, 1996
were filed electronically via the EDGAR system
on May 24, 1996 and are incorporated by
reference into the Statement of Additional
Information, except the Financial Highlights,
which were incorporated by reference into the
prospectus.
(b) Exhibits
(1) Articles of Incorporation*
(i) Amendment to Articles of Incorporation
(2) By-Laws*
(3) None
(4) (i) Specimen Security of The Global Equity
Portfolio*
(ii) Specimen Security of The Global Income
Portfolio*
(5) (i) Investment Advisory Agreement re the
Global Equity Portfolio*
(ii) Investment Advisory Agreement re the
Global Income Portfolio*
(6) Agreement with East Coast Consultants, Inc.*
(7) None
(8) (i) Custody Agreement with Bank of
California, N.A.*
(9) (i) Administration Agreement - Global
Equity Portfolio*
(ii) Administration Agreement - Global
Income Portfolio*
(iii) Transfer Agency Agreement*
(iv) Shareholder Service Plan*
(10) Opinion of counsel - to be filed with Rule
24f-2 Notice
(11) Consent of Independent Accountants
(12) Not applicable
(13) Subscription Agreement under Section 14(a)(3)
of Investment Company Act of 1940
(14) None
(15) Distribution Plan*
(16) Schedule for computation of performance
quotations**
(17) Financial Data Schedule ****
*Previously filed with original registration statement on
July 28, 1995.
**To be filed by amendment.
***Included in Statement of Additional Information.
**** Previously filed with Post-Effective Amendment No. 1 and
incorporated herein by reference.
Item 25. Persons Controlled by or Under Common Control with
Registrant
None
Item 26. Number of Holders of Securities
(1) (2)
Number of Record Holders
Title of Class as of April 30, 1996
Global Equity Portfolio 6
Global Income Portfolio 6
Item 27. Indemnification
Section 1 of Article XI of the Registrant's By-Laws
provides for indemnification, as set forth below.
With respect to the indemnification of the Officers and
Directors of the corporation:
(a) the Corporation shall indemnify each Officer
and Director made party to a proceeding, by reason of
service in such capacity, to the fullest extent, and in
the manner provided under Section 2-418 of the Maryland
General Corporation Law: (i) unless it is proved that
the person seeking indemnification did not meet the
standard of conduct set forth in subsection (b)(1) of
such section; and (ii) provided, that the Corporation
shall not indemnify any Officer or Director for any
liability to the Corporation or its security holders
arising from the willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved
in the conduct of such person's office.
(b) The provisions of clause (i) of paragraph (a)
herein notwithstanding, the Corporation shall indemnify
each Officer and Director against reasonable expenses
incurred in connection with the successful defense of
any proceeding to which such Officer or Director is a
party by reason of service in such capacity.
(c) The Corporation, in the manner and to the
extent provided by applicable law, shall advance to each
Officer and Director who is made party to a proceeding
by reason of service in such capacity the reasonable
expenses incurred by such person in connection
therewith.
Item 28. Business and Other Connections of Investment Advisor
Registrant's Investment Advisor (the "Advisor") was
organized in March, 1989. The principal place of
business of the Advisor is 1325 Morris Drive, Suite 203,
Wayne, PA 19087. The Advisor is engaged in the business
of providing investment advice and will provide
registrant with administrative and transfer agency
services.
The business, profession, vocation or employment of a
substantial nature in which each officer of the Advisor
is or has been, during the past two fiscal years,
engaged for his own account in the capacity of director,
officer, employee, partner or trustee is as follows:
Dr. Richard T. Coghlan, Chief Executive and Investment
Officer of the Advisor.
Brian R. Cassidy, investment accountant of the Advisor
since May, 1994, was previously a tax accountant with
the Internal Revenue Service.
Elliot C. Kauffman, a Senior Investment Manager of the
Advisor since April, 1994, was previously a Financial
Auditor for McGraw-Hill, Inc.
Item 29. Principal Underwriters
(a) East Coast Consultants, Inc., 1325 Morris Drive,
Suite 203, Wayne, PA 19087.
(b) See response to item 28, which is incorporated
herein by reference.
(c) None.
Item 30. Location of Accounts and Records
Accounts and records are maintained by the Advisor at
the address set forth in response to item 28 and the
custodian at 475 Sansome Street, San Francisco, CA
94111.
Item 31. Management Services
Registrant has entered into Administration Agreements
with the Advisor which have been filed as Exhibits 9(i)
and (ii) to this Registration Statement. Such services
are described in Part A hereof under "Fund
Administration."
Item 32. Undertakings
(a) Registrant hereby undertakes to file an amendment
to the Registration Statement with certified
financial statements showing the initial capital
received before accepting subscriptions from any
persons in excess of 25.
(b) Registrant undertakes to file a post-effective
amendment using uncertified financial statements
within four to six months from the effective date
of the registration statement.
(c) Registrant undertakes, if requested to do so by the
holders of at least 10% of its outstanding shares,
to call a meeting of shareholders for the purpose
of voting on the question of removal of a director
or directors, and to assist in communications with
other shareholders as required by section 16(c) of
the Investment Company Act of 1940.
<PAGE>
PART C
EXHIBIT LIST
EXHIBIT PAGE
(1) Semi-annual Report to Stockholders, as of April 30,
1996, incorporated herein by reference.
(2) Consent of Independent Accountants
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TAIT, WELLER & BAKER
Certified Public Accountants
We have issued our report dated November 8, 1995
accompanying the November 8, 1995 Statement of Assets and
Liabilities of S.I.S. Mercator Fund, Inc. (comprising,
respectively, the Global Equity Portfolio and the Global
Income Portfolio) which is included in Part C of Post-
Effective Amendment No. 2 to this Registration
Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and
Prospectus.
/S/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
May 29, 1996
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant, S.I.S. Mercator
Fund, Inc., certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933, and has duly caused this
Post-Effective Amendment to its Registration Statement, (Commission file
Nos. 33-95102 and 811-9078) to be signed on its behalf by the
undersigned, thereunto duly authorized, in Tredyffrin Township and the
Commonwealth of Pennsylvania on the 30th day of May, 1996.
S.I.S. Mercator Fund, Inc.
By: /s/Richard T. Coghlan
Richard T. Coghlan,
President
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement (file No. 33-95102)
has been signed belowy the following persons in the capacity and on the
date indicated.
Signature Title Date
President, May 30, 1996
Richard T. Coghlan Principal Executive
Richard T. Coghlan Officer and Director
Elliot C. Kauffman Treasurer May 30, 1996
Elliot C. Kauffman
Brian Cassidy Secretary May 30, 1996
Brian Cassidy
Stephen Michael Alexander Director May 30, 1996
Stephen Michael Alexander
Lee G. Fishman Director May 30, 1996
Lee G. Fishman
