[ADD FUND LOGO] [ADD EURO FLAG]
THE FRANCE GROWTH FUND, INC.
666 THIRD AVENUE
NEW YORK, NEW YORK 10017
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 30, 2002
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THIS IS THE FORMAL AGENDA FOR THE ANNUAL MEETING OF STOCKHOLDERS OF THE FRANCE
GROWTH FUND, INC. (THE "FUND"). IT TELLS YOU WHAT MATTERS WILL BE VOTED ON AND
THE TIME AND PLACE OF THE MEETING, IN CASE YOU WANT TO ATTEND IN PERSON.
To our Stockholders:
The Annual Meeting of the Fund's stockholders will be held at 10:00 a.m.,
New York City time, on Thursday, May 30, 2002, at the offices of UBS
PaineWebber, Inc., 14th Floor Boardroom, 1285 Avenue of the Americas, New York,
New York 10019, for the following purposes:
1. To approve a change in the Fund's investment program by amending the Fund's
fundamental investment objective, policies and restrictions.
2. To amend the Fund's Articles of Incorporation to change the name of the
Fund to The European Multi-Strategy Investment Company.
3. To approve a new investment advisory agreement between the Fund and Credit
Agricole Asset Management U.S. Advisory Services, the Fund's investment
adviser (the "Adviser"), with an increase in the advisory fee payable to
the Adviser.
4. To approve a proposal allowing the Adviser, subject to Board approval, to
select, supervise and replace, if necessary, investment managers to
directly manage a portion of the Fund's portfolio and to materially modify
existing subadvisory agreements without obtaining stockholder approval of
the new or amended subadvisory agreement.
5. To elect four (4) directors in Class II to serve for a term expiring on the
date of the Annual Meeting of Stockholders in 2005.
6. To consider and act upon a stockholder proposal recommending that the Board
of Directors expedite the process to ensure Fund shares can trade at net
asset value.
Stockholders of record of the Fund's common stock at the close of business
on March 28, 2002 are entitled to vote at this meeting and any related adjourned
meeting.
[Add Signature]
Steven M. Cancro
SECRETARY
Dated: April __, 2002
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD. YOU MAY USE THE ENCLOSED ENVELOPE. NO POSTAGE IS
REQUIRED IF THE ENVELOPE IS MAILED IN THE UNITED STATES. PLEASE TAKE A FEW
MINUTES TO VOTE NOW AND HELP SAVE THE FUND THE COST OF ADDITIONAL SOLICITATIONS.
TO THE STOCKHOLDERS OF THE FRANCE GROWTH FUND, INC.
Dear Fellow Stockholders:
This letter summarizes the information contained in the attached proxy
statement. Please review the entire proxy statement before you vote.
The Board of Directors (the "Board") of the France Growth Fund (the
"Fund"), at a special meeting held February 28, unanimously approved an
innovative European investment program for the Fund. Under this new investment
program, the Fund would expand its focus to include all of Europe. While the
Fund would continue to seek long-term capital appreciation, it would do so
through a dynamic multi-manager, multi-strategy investment approach. By adopting
a diversified approach to the investment of Fund assets as well as the
strategies employed within each approach, the Fund will seek to achieve strong
performance with reduced volatility in both rising and falling markets. The
Board also approved a proposed change in the Fund's name to The European
Multi-Strategy Investment Company to more accurately reflect its new direction.
This new investment program was developed in response to dramatic changes
that have taken place across Europe since the Fund's inception in 1990.
Significant changes include the formation of the European Monetary Union
("EMU"), the elimination of local currencies and the adoption of a common
currency, the Euro, in twelve countries, including France. The Board believes
that the EMU will serve as a foundation for the integration of the securities
markets and economies throughout Europe. This integration should help create a
variety of investment opportunities set forth in more detail in the accompanying
proxy statement. Given these developments, the Board concluded that investing
primarily in French equity securities is now too narrow a focus for the Fund.
This new investment program would draw heavily upon the expertise of Credit
Agricole Asset Management U.S. Advisory Services, the Fund's investment adviser
(the "Adviser"), to implement the diversification of the Fund's assets across
investment managers and investment strategies. Specifically, the Adviser would
research, evaluate and identify investment managers with demonstrated expertise
at implementing a particular investment strategy or strategies. Upon Board
approval, the Adviser would allocate Fund assets to these investment managers
either for direct management or through investments in existing alternative
investment vehicles managed by the investment managers. The Adviser would also
directly manage a portion of the Fund's assets, focusing primarily on direct
investments in publicly traded European issuers. The Adviser would be permitted
to consider a wide range of investment strategies for different tranches of the
Fund's portfolio, including equity long/short strategies, merger and convertible
arbitrage strategies, short selling and the use of leverage. These types of
strategies, which were pioneered in the context of private hedge funds, would be
made available by the Fund to its public investors. It is the closed-end
structure of the Fund that makes utilizing these types of investment strategies
feasible.
You are being asked to approve this new investment program for the Fund.
This requires amendments to the Fund's fundamental investment objective,
policies and restrictions to allow the Fund to expand its investment focus to
include all of Europe, as well as to implement certain new investment strategies
and techniques (PROPOSAL 1). Because the Fund would no longer invest primarily
in French securities if Proposal 1 is approved, you are also being asked to
approve a change in the Fund's name to more accurately reflect the proposed new
investment objective and focus (PROPOSAL 2) YOUR BOARD UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR EACH OF PROPOSALS 1 AND 2.
Alternative investment vehicles, such as hedge funds, typically charge
investors a higher advisory fee than do traditional mutual funds, as well as a
performance fee based upon positive performance. Higher fees reflect more
complex investment strategies and techniques which investment managers use in
managing these alternative investment vehicles. Under the new investment
program, the Board would be asking the Adviser to utilize many of the same
strategies and techniques used by these alternative investment managers, and a
higher fee would afford the Adviser additional resources to implement the
investment program. The Board also expects that the Adviser would, subject to
Board approval, select, supervise and replace, if necessary, investment managers
to manage different portions of the Fund's assets which the Adviser allocates to
particular investment strategies. The investment managers which are engaged to
directly manage portions of the Fund's portfolio (the "Portfolio Managers")
would be compensated by the Adviser out of the fees paid by the Fund to the
Adviser.
In recognition of this broader array of functions and responsibilities, the
Board believes it is appropriate to increase the compensation of the Adviser.
This will require the approval of a new advisory agreement which will increase
the advisory fee and specifically permit the Adviser to delegate portfolio
management responsibilities to selected Portfolio Managers. Unlike hedge fund
structures, the Adviser would not, however, receive an additional fee based upon
the Fund's performance. The Board recognizes that the increase in fee would be
significant. However, the Board hopes that the Fund's performance will more than
make up for the higher fee. (PROPOSAL 3). YOUR BOARD UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR PROPOSAL 3.
In the interest of smooth administration, the Board is requesting that you
approve a proposal which would allow the Adviser, subject to Board approval, to
hire and replace Portfolio Managers and materially modify a subadvisory
agreement without stockholder approval. This would allow the Fund to save the
time and expense of calling a special meeting of stockholders each time the
Adviser recommends a change in Portfolio Managers or materially modifies an
existing subadvisory agreement. If this proposal is approved, the Fund would
seek exemptive relief from the Securities and Exchange Commission to allow the
Adviser to make Portfolio Manager changes without stockholder approval (PROPOSAL
4). YOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR PROPOSAL 4.
With respect to matters that occur annually, your Board is recommending
that you re-elect Messrs. Bult, Demoliere, Longchampt and Rapaccioli who are
standing for re-election as Board members of the Fund (PROPOSAL 5) Each of the
nominees has brought valuable experience and insight to the Board from their
varied careers in finance and industry and have participated on a Board which
has taken significant actions to create value for you, our stockholders. We
believe that their experience and knowledge will be very helpful to the Board in
implementing this proposed change in direction for the Fund. Mr. Demoliere is a
representative of Bankgesellschaft Berlin AG, the Fund's largest shareholder as
of the record date. YOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR EACH OF
THE NOMINEES IN PROPOSAL 5.
The Fund also has received a proposal recommending that the Board of
Directors expedite the process to ensure Fund shares can trade at net asset
value (PROPOSAL 6). The Board believes that the Fund's closed-end structure is
critical to the successful implementation of this new investment program.
ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE AGAINST THIS
PROPOSAL 6.
If you have any questions about the Meeting agenda or how to vote, please
call [provide telephone #]. Thank you for investing in the Fund.
Yours sincerely,
Jean A. Arvis
CHAIRMAN
THE FRANCE GROWTH FUND, INC.
666 THIRD AVENUE
NEW YORK, NEW YORK 10017
ANNUAL MEETING OF STOCKHOLDERS
MAY 30, 2002
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PROXY STATEMENT
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This proxy statement is being used by the Board of Directors of The France
Growth Fund, Inc. (the "Fund") to solicit proxies to be voted at the Annual
Meeting of the Fund's Stockholders (the "Meeting"). This Meeting will be held at
10:00 a.m., New York City time, on Thursday, May 30, 2002, at the offices of UBS
PaineWebber, Inc., 14th Floor Boardroom, 1285 Avenue of the Americas, New York,
New York 10019. There are several significant actions being proposed for
consideration by stockholders at this Meeting.
First, the Board is recommending a significant change in the investment
program of the Fund. This will require changes in the Fund's investment
objective, policies and restrictions to permit implementation of the new
investment program. Second, the Board is proposing a new name for the Fund which
is more reflective of the Fund's new mandate. Third, the Board is recommending
the approval of a new investment advisory agreement with Credit Agricole Asset
Management U.S. Advisory Services, the Fund's investment adviser (the
"Adviser"), at a higher advisory fee which would afford the Adviser additional
resources to implement the proposed new investment program. Fourth, stockholders
are being asked to permit the Adviser to implement the multi-manager component
of the investment program without obtaining stockholder approval of changes in
investment managers or of material modifications of existing subadvisory
agreements, subject to the receipt of an exemptive order from the Securities and
Exchange Commission. Fifth, the Meeting is also being held to elect four (4)
directors. Finally, stockholders are being asked to consider and act upon a
stockholder proposal.
This proxy statement and form of proxy are being mailed to stockholders on
or about April __, 2002. The Fund's Annual Report for the fiscal year ended
December 31, 2001 was mailed to stockholders on March 1, 2002. STOCKHOLDERS MAY
OBTAIN, WITHOUT CHARGE, A COPY OF THE FUND'S MOST RECENT ANNUAL REPORT BY
WRITING TO THE FUND AT THE ADDRESS LISTED ABOVE OR BY CALLING 800-331-1710.
WHO IS ELIGIBLE TO VOTE
Stockholders of record on March 28, 2002 are entitled to attend and vote at
the Meeting or any related adjourned meeting. Each share of common stock is
entitled to one vote. Shares represented by properly executed proxies, unless
revoked before or at the Meeting, will be voted according to stockholders'
instructions. If you sign a proxy but do not fill in a vote, your shares will be
voted FOR the approval of a change in the Fund's investment program, FOR the
approval of a change in the Fund's name, FOR the approval of a new investment
advisory agreement with the Adviser, FOR giving the Adviser the flexibility to
engage Portfolio Managers without
obtaining stockholder approval, FOR the election of the nominees for director
named in this proxy statement, and AGAINST a stockholder proposal recommending
that the Board of Directors expedite the process to ensure Fund shares can trade
at net asset value.
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APPROVAL OF A SIGNIFICANT CHANGE TO THE FUND'S INVESTMENT PROGRAM
(PROPOSAL 1)
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL 1.
Stockholders of the Fund are being asked to approve a significant change in
the Fund's investment program. This change would require amendments to the
Fund's fundamental investment objective, policies and restrictions. Stockholder
approval of these amendments is required because the Fund's current investment
objective of seeking capital appreciation through investment primarily in French
equity securities is a fundamental policy that can be changed only by vote of
the stockholders. In addition, several of the Fund's investment policies and
restrictions which mandate investment primarily in French equity securities and
limit the use of certain investment strategies and techniques by the Fund are
also fundamental and may only be changed by vote of the stockholders. The Board
has determined that this change in the Fund's investment program is in the best
interests of the Fund and its stockholders and has voted unanimously to
recommend that stockholders approve this new investment program.
The new investment objective, strategies, policies and techniques
constituting the new investment program are set forth in detail below under the
heading `THE PROPOSED NEW INVESTMENT PROGRAM FOR THE FUND'. If stockholders
approve this proposal, the proposed investment objective will be adopted by the
Fund as a fundamental objective. Any further change to the investment objective
would then require additional action by stockholders. The proposed investment
policies and strategies of the Fund will become non-fundamental policies. This
will give the Board the flexibility to modify the particular Fund's investment
policies as deemed appropriate without seeking further stockholder approval.
Finally, a revised set of fundamental investment restrictions would be adopted
in order to allow the Fund to implement the new investment program. A comparison
of the proposed fundamental restrictions and the Fund's existing fundamental
restrictions is set forth below, along with the reasons for each proposed change
under the heading `HOW WOULD THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS
CHANGE IF THIS PROPOSAL IS APPROVED?'.
The new investment program may involve significant additional risks
relative to the Fund's current investment program. It is important that
stockholders read and understand all of the risks associated with this proposed
new investment program before voting. The principal risks associated with the
new investment program are set forth under the heading `PRINCIPAL RISKS OF
INVESTING IN THE FUND'. Additional risks are described in APPENDIX A to this
proxy statement. Please be sure to review Appendix A in addition to the
information set forth below.
WHY THE BOARD IS RECOMMENDING THESE CHANGES NOW?
Over the past year, it has become increasingly clear to the Board that the
French securities markets in which the Fund primarily invests have been
undergoing dramatic change. France is one of the twelve countries participating
in European Monetary Union. In January 1999, the Euro was introduced as the
common currency among the twelve participating countries. As of March 1 of this
year, the local currencies of each of the twelve countries have been retired and
are no longer in circulation. While these developments have been significant in
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their own right, monetary union has had a more far reaching effect than the
sharing of a single currency. It is serving as a dynamic catalyst for
integration of the twelve economies and securities markets of the participating
countries into one market, referred to as the Eurozone. The Board believes that
a move towards integration will create an array of new and diverse investment
opportunities for the Fund.
Monetary union has encouraged the mergers and acquisitions of a significant
number of companies throughout Europe. European merger and acquisition activity
grew at the fastest rate in the world last year. Monetary union has triggered a
wave of consolidations among financial intermediaries and the emergence of
innovative financial products and techniques. Monetary union has allowed
securities exchanges and settlement systems of Eurozone countries to cooperate
more closely and, in some cases, merge operations. It has required the
coordination of economic policies among the twelve Eurozone countries and the
adoption of one fiscally responsible monetary policy by all twelve of the
countries. Overall, the European investment landscape has changed dramatically
since the inception of the Fund in May of 1990.
At a meeting held on October 2, 2001, the Board created a special
committee, the France Growth Fund Mandate Review Committee (the "Special
Committee"), comprised of five directors, to evaluate ways in which the Fund
could be better positioned to take advantage of the changes taking place in
Europe. The Special Committee held four formal meetings to discuss a wide range
of options and worked with the officers of the Fund, the Adviser and legal
counsel to the Fund and legal counsel to the independent directors to develop
and present a recommended course of action to the Board. The Board considered
the recommendation of the Special Committee at a regular quarterly meeting held
on December 11, 2001 and instructed the Special Committee to further refine its
recommendation. The Special Committee also held extensive discussions with the
Adviser as to the Adviser's experience and expertise in implementing a new
investment program for the Fund. The Board held a special meeting on January 31,
2002 for the specific purpose of evaluating the Special Committee's revised
recommendation and the Adviser's ability to implement the proposed investment
program. At that special meeting, the Board expressed its support for the new
direction recommended for the Fund. The Board created a second special committee
comprised of six directors, the Investment and Strategy Committee (the "ISC"),
to formulate the specific components of the proposed new investment program and
to recommend the program to the Board. The Board considered the recommendations
of the ISC at a second special meeting held on February 28, 2002 and, at that
meeting, unanimously determined that adopting the proposed new investment
program would be in the best interests of the Fund and its stockholders.
Specifically, the Board found that:
o The continuing integration of the economies and securities markets of
Europe is creating an array of new and diverse investment opportunities for
the Fund.
o The significant increase in merger and acquisition activity and
consolidations among European companies, including traditionally French
companies, has left the Fund with fewer desirable investment opportunities
within France.
o The Fund is not well positioned to seek to take full advantage of new
European investment opportunities because of its focus of investing
primarily in equity securities of French
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companies and because of certain limiting fundamental investment policies
and investment restrictions.
o The proposed new investment program, which would involve different
investment managers employing a diverse selection of European focused
investment strategies, would provide the Fund with the opportunity to
realize attractive long-term investment returns at a controlled level of
risk as measured by lower volatility in returns.
o The Adviser has significant experience and expertise in managing a European
portfolio of investments. The Adviser also has significant experience and
expertise in constructing a portfolio of investments based upon its
evaluation, identification and monitoring of investment managers and
investment funds to achieve a target allocation of assets across investment
strategies.
o The Board would retain sufficient oversight responsibility in the selection
of investment managers and investment funds because the Board, or a
committee of the Board comprised primarily of independent directors, would
be required to review and approve all investment manager and investment
fund recommendations by the Adviser.
o Implementation of the new investment program would require the Adviser to
undertake significant additional responsibilities and functions, which
would warrant the additional compensation reflected in a new advisory
agreement between the Fund and the Adviser.
o The Fund's closed-end structure is fundamental to the successful
implementation of the proposed new program.
WHAT IS THE PROPOSED NEW INVESTMENT PROGRAM FOR THE FUND?
Beginning on the following page is a description of the proposed new
investment program for the Fund. The proposed new investment program consists of
the proposed new investment objective, strategies and policies for the Fund.
Approval of this Proposal 1, together with the approval of Proposals 2 and 3
which are discussed in detail below, would mean that the Fund would adopt the
investment objective, policies and strategies set forth under the heading
`PROPOSED NEW INVESTMENT PROGRAM FOR THE FUND'. It is important that
stockholders also review the principal risks associated with this proposed new
program and the additional risks set forth in APPENDIX A to this proxy
statement. The Board has unanimously recommended that stockholders vote to
approve this new investment program for the Fund.
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PROPOSED NEW INVESTMENT PROGRAM FOR THE FUND
THE INFORMATION PRESENTED IN THIS SECTION WOULD BECOME APPLICABLE FOR THE
FUND ONLY IF STOCKHOLDERS APPROVE PROPOSALS 1, 2 AND 3.
NAME OF THE FUND
The European Multi-Strategy Investment Company.
INVESTMENT OBJECTIVE
INVESTMENT OBJECTIVE. The Fund seeks long-term capital appreciation through a
multi-manager multi-strategy program of investment in a wide range of European
investment opportunities. The Fund seeks to control risk as measured by
volatility of returns through diversification of investment managers selected to
manage the Fund's assets and through diversification of the investment
strategies and styles employed by these managers. Through manager and strategy
selection, the Fund seeks risk-adjusted rates of return that are more attractive
than the returns generated by more traditional open-end investment companies
which focus on European investments.
PRINCIPAL INVESTMENT STRATEGIES
INVESTMENT STRATEGY. The Adviser uses three different approaches to seek to
achieve the Fund's investment objective. By adopting a diversified approach to
the investment of Fund assets as well as the types of strategies employed within
each approach, the Fund seeks to achieve strong performance results that are
less volatile in both rising and falling markets than investments made according
to a single approach or with a focus on a particular investment strategy.
Subject to review and approval by the Board, the Adviser will allocate assets
among and within the following three approaches based upon extensive qualitative
and quantitative analysis and due diligence by the Adviser:
o SELECTION OF PORTFOLIO MANAGERS: The Adviser may recommend to the Board for
its approval the appointment of one or more investment managers to directly
manage a portion of the Fund's portfolio pursuant to separate subadvisory
agreements (the "Portfolio Managers"). The Adviser seeks to engage
Portfolio Managers which have consistently demonstrated the ability to
achieve superior investment results in implementing a particular investment
strategy as compared to other advisers who use a similar strategy. The
Adviser will be responsible for monitoring, supervising and replacing the
Portfolio Managers subject to Board approval.
o INVESTMENT IN ALTERNATIVE INVESTMENT VEHICLES: The Adviser may seek to gain
exposure to investment managers through investments in established
alternative investment vehicles which they manage and which have investors
other than the Fund (the "Portfolio Funds"). The Adviser will conduct an
evaluation process when identifying Portfolio Funds similar to the process
used to select Portfolio Managers. The Adviser seeks to recommend to the
Board for approval Portfolio Funds which have consistently demonstrated the
ability to
- 6 -
generate superior investment results when managed in accordance with a
particular investment strategy as compared to other funds managed according
to a similar strategy. The Adviser will monitor the performance of each
Portfolio Fund and will recommend to the Board, where appropriate, the
substitution of Portfolio Funds.
o DIRECT INVESTMENTS BY THE ADVISER IN UNDERLYING SECURITIES: The Adviser,
drawing upon its extensive European investment management experience, may
directly invest a portion of the Fund's assets in securities of European
issuers. The Adviser may employ a variety of investment strategies when
directly managing a portion of the Fund's assets, but expects to focus
primarily on employing an equity long/short strategy with net long exposure
to the market.
Through these three approaches, the Fund expects to invest, under normal
conditions, at least 80% of net assets, including borrowing for investment
purposes, in equity and fixed income securities of companies which are
economically tied to developed countries within Europe. The Fund intends to
invest at least 65% of its net assets in long and short positions in equity
securities of companies which are economically tied to developed countries
within Europe and in collateral maintained with respect to the Fund's short
positions. There is no requirement as to the percentage of the Fund's assets
which must be allocated to any one of the three investment approaches (I.E., to
Portfolio Managers vs. Portfolio Funds vs. direct investment by the Adviser).
However, it is expected that a significant majority of the Fund's assets will be
directly invested by the Adviser particularly as the Adviser begins to implement
the new investment program. The Fund is non-diversified, which means the Fund
has additional flexibility to concentrate its investments in particular
securities, if deemed appropriate by the Adviser.
Equity securities include common and preferred stocks, warrants, rights,
convertible securities, depositary receipts and shares, trust certificates,
limited partner and membership interests, shares of other investment companies,
equity participations and equity related derivatives. Fixed income securities
include bonds, notes and money market instruments. The Fund may invest in
companies of any size and there is no limit on the Fund's investments in
securities of companies which are not listed on a securities market or are not
publicly traded. The Fund may invest up to 20% of net assets in securities of
companies located outside of Europe.
The following countries are currently considered by the Fund to be developed
European countries: Austria, Belgium, Denmark, Finland, France, Germany,
Holland, Ireland, Italy, Liechtenstein, Norway, Portugal, Spain, Sweden,
Switzerland and United Kingdom. In the future other countries may also be
included by the Fund in this category.
For purposes of the 80% policy, companies are considered to be economically tied
to developed European countries if (i) the company is organized under the laws
of any of the countries; (ii) the securities of the company are traded
principally in any one of the countries; or (iii) the company derives during its
most recent fiscal year at least 50% of its revenues and profits from goods
produced or sold, investments made, or services performed within the countries
or has at least 50% of its assets in the countries. For purposes of this 80%
policy, the term "companies" includes operating companies and public and private
investment funds which invest primarily in companies which are economically tied
to developed European countries, irrespective of whether the public or private
investment funds are organized under the laws of a non-European country.
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ALLOCATION OF ASSETS TO PORTFOLIO MANAGERS AND PORTFOLIO FUNDS. The Adviser
intends to draw upon the expertise of other investment managers which focus on
European investments and which, based on the Adviser's experience and expertise
in identifying investment managers, can best implement a particular investment
strategy for the Fund. Specifically, over time the Adviser intends to allocate a
portion of the Fund's assets to one or more Portfolio Managers and to invest the
Fund's assets in one or more Portfolio Funds. The selection of a Portfolio
Manager or Portfolio Fund is subject at all times to the review and approval by
the Board.
The Adviser believes that successful selection of Portfolio Managers and
Portfolio Funds is based upon extensive research, analysis and due diligence.
The Adviser employs both a top-down and bottom-up approach and a combination of
quantitative and qualitative analysis in the selection process. The top-down
aspect of the process involves a review by the Adviser of the array of
investment strategies which could be used by the Fund and an assessment of each
strategy's risk/return relationship, liquidity and correlation with general
market movements. A full analysis of the expected performance and risk of
various asset allocation mixes is undertaken using proprietary modeling
techniques. Based upon the Adviser's assessment of current and projected
economic, market and political conditions and the results of its modeling of
proposed allocations, the Adviser develops a target allocation of Fund assets
across several investment strategies.
At the same time, the Adviser conducts an extensive review of potential
Portfolio Managers and Portfolio Funds to seek to identify the best candidates
for the Fund. First, the Adviser uses a combination of quantitative and
qualitative analysis to screen the universe of available investment managers and
funds. In addition to mathematical models and statistical analysis which are
used to sort investment managers and funds, the Adviser conducts extensive
interviews of potential candidates. From the results of the initial screening
process, the Adviser develops a short list of up to 20 investment managers and
funds with demonstrated expertise in implementing a specific type of investment
strategy. The Adviser conducts extensive due diligence of each candidate on the
short list, including interviews with key personnel, reference checks and
on-site visits to verify the information used as the basis for the analysis of
each investment manager or fund and to help formulate the Adviser's specific
recommendations. In recommending specific Portfolio Managers and Portfolio Funds
for approval by the Board, the Adviser considers the following factors:
o the Portfolio Manager's or Portfolio Fund's performance during various time
periods and market cycles.
o the Portfolio Manager's or Portfolio Fund investment manager's reputation
and experience and effectiveness at implementing its investment philosophy.
o the presence and effectiveness of the Portfolio Manager's and Portfolio
Fund's risk management discipline.
o the composition and transparency of the Portfolio Manager's or Portfolio
Fund's investment portfolio.
o the Portfolio Manager's or Portfolio Fund's fee structure.
- 8 -
o the quality, experience and stability of the Portfolio Manager's and
Portfolio Fund investment manager's organization and its investment
personnel.
o the amount of the Portfolio Manager's assets under management or the asset
size of the Portfolio Fund.
By recommending individual Portfolio Managers and/or Portfolio Funds to
implement the mix of investment strategies selected as part of the Adviser's
target allocation, the Adviser seeks to construct a portfolio for the Fund that
is broadly diversified across investment strategies and markets within Europe.
The goal is to provide returns which are superior to more traditional European
open-end equity funds (which generally employ only one primary investment
strategy, rather than several) with lower volatility in those returns. The
Adviser expects that it will generally allocate no more than 15% of the Fund's
assets at the time of purchase to any one Portfolio Manager or Portfolio Fund.
The Adviser also expects to limit the Fund's investments in Portfolio Funds to
funds which determine prices for their portfolios no less frequently than
weekly. The Fund will not look through a Portfolio Fund to its underlying
investments to determine whether the Fund is in compliance with any of its
investment policies or restrictions.
MONITORING OF PORTFOLIO MANAGERS AND PORTFOLIO FUNDS AND REALLOCATION OF ASSETS.
The Adviser monitors the Portfolio Managers and Portfolio Funds selected through
a combination of weekly net asset value updates, position reports and periodic
in-person and telephone contact. The Adviser will evaluate changes in the
Portfolio Manager's or Portfolio Fund's investment strategy or organization to
determine whether those changes would diminish the expected risk-return
relationship for that portion of the Fund's portfolio. The Adviser will continue
to conduct the same top-down and bottom-up analysis to refine allocations among
investment strategies and Portfolio Managers and Portfolio Funds. Any changes in
Portfolio Managers or Portfolio Funds or in the allocation of assets to either
must be approved by the Board. The Board may delegate that responsibility in the
context of Portfolio Funds to a committee of the Board comprised primarily of
independent directors.
SPECIFIC INVESTMENT STRATEGIES UTILIZED. In addition to diversifying among
approaches by which the Fund's assets will be invested, the Adviser seeks to
diversify the types of investment strategies utilized within each of the three
investment approaches. The investment strategies set forth below represent the
types of strategies and investment techniques that the Portfolio Managers and
Portfolio Funds selected for the Fund may utilize. Similarly, when managing a
portion of the Fund's assets directly, the Adviser may also employ one or more
of the investment strategies set forth below. However, it is expected that the
Adviser will primarily focus on implementing an equity long/short strategy with
net long exposure with respect to the Fund's assets that it is directly
managing.
EQUITY LONG/SHORT STRATEGY. The investment manager's stock picking ability, on
both the long and the short side, is key to the success of this strategy. Under
this strategy, the investment manager purchases stocks of companies it believes
are undervalued and will outperform the equity markets. At the same time, it
sells short the stocks of companies it believes are overvalued and will
underperform the general market. The short positions may be opportunistic or
instituted solely for hedging purposes. The stocks purchased and sold short
frequently have similar characteristics, such as capitalization and industry, so
that changes in price arising solely
- 9 -
from general market movements may be expected to be offset by the long and short
positions. Positive returns generally occur when the investment manager's stock
selection strategy establishes long positions which appreciate more than its
short positions in a rising market and short positions which depreciate more
than its long positions in a falling market.
In selecting stocks and short positions for the Fund, the Adviser may use
exclusively a growth style or a value style or may employ some combination of
both styles, such as growth at a reasonable price. The Adviser is also not
limited to investing primarily in any one segment of the European equity market
as classified by market capitalization, industry category or sector. The Adviser
may select Portfolio Managers or Portfolio Funds advised by investment managers
with particular expertise in any of these styles.
EVENT DRIVEN STRATEGIES. This category of strategies generally involves
investing in opportunities created by significant transactional events, such as
spinoffs, mergers and acquisitions, reorganizations, recapitalizations, share
buybacks and bankruptcies. In addition, positions may be taken in related
securities of different companies or in different securities of the same issuer
for the purpose of arbitraging differences in share prices. Because investments
are situation-specific, returns are relatively uncorrelated with the movements
of the securities markets, although the supply of opportunities in particular
styles may be impacted by market conditions. The Adviser may allocate assets to
several event-driven strategies (either directly or most likely through a
Portfolio Manager or Portfolio Fund) at the same time to seek to reduce the
volatility associated with reliance on a single strategy that may perform poorly
in some market environments. The most common type of event-driven strategy which
the Adviser expects the Fund to employ is merger arbitrage.
MERGER ARBITRAGE. Merger arbitrage is designed to profit from the
successful completion of announced merger and acquisition transactions
involving publicly owned companies. A number of trading practices may be
employed to capture the potential profit of merger and acquisition
transactions. Typically, the Fund would establish merger arbitrage
positions by purchasing the shares of a target company at a discount to the
value of the consideration offered in the merger or tender offer (whether
cash or securities). When the consideration is shares of the acquiring
company, the Fund may also sell short shares of the acquiring company. The
number of shares sold short generally is based on the exchange ratio
specified in the merger agreement. Hedging the target shares against the
consideration offered in the merger or tender offer produces the merger
arbitrage profit spread--effectively the discount to the merger
consideration at which the target company trades--which will be received by
the Fund upon the transaction closing. The merger arbitrage positions both
establish defined trading profit spreads and also are intended to provide
an overall portfolio hedge against general market volatility.
RELATIVE VALUE STRATEGIES. This category of strategies generally involves the
exploitation of disparities in pricing relationships between instruments with
similar pricing characteristics. Quantitative security selection techniques are
often used to identify and capture profits from mis-priced securities and to
reduce risk by balancing long and short market exposures. The residual risk
created by this process is a spread position whose management requires an
understanding of the factors determining the spread. Relative value strategies
are not dependent
- 10 -
on the general direction of market movements, and often involve arbitrage
techniques. The returns tend to have low correlations relative to the broader
securities indices. The most common type of relative value strategy which the
Adviser expects the Fund to employ is convertible arbitrage.
CONVERTIBLE ARBITRAGE. Convertible arbitrage consists of buying debt
securities, preferred stocks and other securities convertible into common
stock and hedging a portion of the equity risk inherent in these
securities. This hedging is achieved by selling short some or all of the
common stock issuable upon exercise of the convertible security. If the
market price of the common stock increases above the conversion price on
the convertible security, the price of the convertible security will
increase. The Fund's increased liability on the short position would, in
whole or in part, reduce this gain. If the price of the common stock
declines, any decline in the price of the convertible security would offset
the Fund's gain on the short position. The Fund profits from this strategy
by receiving interest and/or dividends on the convertible security and by
adjusting the amount of equity risk that is hedged by short sales.
TACTICAL TRADING. This category of strategies speculates on the direction of
prices of equities, bonds, currencies and commodities in cash and derivatives.
The returns from these types of strategies can be volatile given the liberal use
of leverage, often enhanced with derivatives, and the unhedged nature of the
positions. The correlation of returns with traditional securities indices tends
to be low. Tactical trading strategies can be either system driven or
discretionary. System driven investment managers deploy trend-following and
other computer driven models based on technical analysis of pricing data, while
discretionary investment managers rely more on fundamental analysis, though
technical analysis is not ignored. In either case, the investment manager's
skill is in timing the entry and exit of their positions. Global macro
strategies fall into this category.
SHORT SALES. Each of the investment strategies which the Adviser, Portfolio
Managers and Portfolio Funds may employ involves taking both long and short
positions in securities. The long positions generally increase in price in a
rising market (and decrease in a declining market). Short positions generally
incur losses in a rising market (and profit from market declines). Consequently,
the long and short positions tend to cancel out the effect of general stock
market trends. Short positions are taken when the Fund sells securities short.
In a short sale, the Fund borrows securities from a broker and sells the
borrowed securities. The proceeds of the sale are generally used to secure the
Fund's obligation to the lending broker and are invested in liquid securities.
Since the Fund is obligated to return the borrowed securities, the Fund will
benefit from a short sale if the market price of the security sold short
declines in value because the Fund would have to pay less to replace the
borrowed security. The Fund will incur a loss if the security increases in price
because the Portfolio would have to pay more to replace the borrowed security.
LEVERAGE. Many of these investment strategies involve the purchase of securities
on margin and the borrowing of money from brokers and banks for investment
purposes. This practice, known as leverage, involves particular risks which are
discussed further under the section `PRINCIPAL RISKS OF INVESTING IN THE FUND'
below. Leverage can increase the investment return when the
- 11 -
Fund earns a greater return on the investments purchased with borrowed funds
than it pays for the use of those funds. The use of leverage can also decrease
investment return if the Fund fails to earn as much on investments purchased
with borrowed funds as it pays for the use of those funds.
DERIVATIVES. The Fund may use futures, options, forward foreign currency
contracts, swaps and other derivatives to implement its investment strategies. A
derivative is a security or instrument whose value is determined by reference to
the value or the change in value of one or more securities, currencies, indices
or other financial instruments. The Fund may use derivatives for a variety of
purposes, including:
o As a hedge against adverse changes in stock market prices, interest rates
or currency exchange rates.
o As a substitute for purchasing or selling securities.
o To increase the Fund's return as a non-hedging strategy that may be
considered speculative.
TEMPORARY AND DEFENSIVE MEASURES. The Fund may, from time to time, take
temporary or defensive positions in cash, cash equivalents and short-term high
quality fixed income securities to attempt to minimize extreme volatility caused
by adverse market, economic or other conditions. However, the liquidity of many
of the Fund's investments is limited, so the Fund's ability to invest in such
instruments may also be limited. Any such temporary or defensive positions could
prevent the Fund from achieving its investment objective.
INVESTMENT OBJECTIVE, POLICIES AND PERCENTAGE LIMITATIONS. The investment
objective of the Fund is fundamental and may not be changed without stockholder
approval. The Fund's investment policies and restrictions, except as otherwise
indicated, are not fundamental and may be changed by action of the Board without
stockholder approval. Unless otherwise specified, percentage limitations on
investments will be applied at the time of investment to direct investments made
by the Fund. The Fund's investment limitations are not applied to the portfolio
securities held by the Portfolio Funds in which the Fund may invest.
- 12 -
PRINCIPAL RISKS OF INVESTING IN THE FUND
The Adviser seeks to construct a portfolio for the Fund with sufficient
diversification across investment strategies and markets to reduce the overall
volatility of the Fund's performance relative to more traditional open-end funds
which focus on European investments. However, there can be no assurance that the
Fund will achieve its investment objective or the desired level of
diversification. If the Fund does not achieve the desired level of
diversification or if the Adviser is incorrect about its assessment of the
effects of diversification in particular instances, the Fund may experience
significantly greater volatility than a traditional open-end European investment
company. There is no guarantee or representation being made that the Fund's
investment program will be successful.
Because of the types of investment strategies and investment techniques which
the Fund may utilize, you should consider an investment in the Fund to involve a
substantial degree of risk. In particular, the Fund's use of short sales,
leverage and derivative transactions can cause the value of the Fund's portfolio
to appreciate or depreciate at a greater rate than if those techniques were not
used, which could result in significant losses to the Fund.
THE FUND'S INVESTMENT PROGRAM SHOULD BE CONSIDERED SPECULATIVE AND ENTAILS A
HIGH DEGREE OF RISK. YOU SHOULD CONSIDER THE FUND AS A SUPPLEMENT TO AN OVERALL
INVESTMENT PROGRAM AND SHOULD INVEST ONLY IF YOU UNDERSTAND AND ARE WILLING TO
UNDERTAKE THE RISKS INVOLVED. YOU MAY EXPERIENCE A SIGNIFICANT DECLINE IN THE
VALUE OF YOUR INVESTMENT AND COULD LOSE MONEY. ADDITIONAL INFORMATION REGARDING
THE RISKS OF PARTICULAR INVESTMENT STRATEGIES AND TECHNIQUES AVAILABLE TO THE
FUND ARE SET FORTH IN APPENDIX A TO THIS PROXY STATEMENT.
INVESTMENT RELATED RISKS.
EQUITY SECURITIES. Although several of the investment strategies attempt to
neutralize some of the effects of general trends in the equity markets, the
Fund's portfolio will likely retain a net long exposure to equity market
movements. An investment in the Fund would thus be subject to the risks
associated with investing in equity securities of foreign issuers generally.
Equity securities, particularly common stocks, have historically generated
higher average returns than fixed income securities but have also experienced
significantly more volatility in those returns. An investor could lose money on
his or her investment or the Fund might not perform as well as other investments
if any of the following occurs:
o European equity markets drop in price, experience significant volatility,
or perform poorly relative to U.S. equity markets.
o An adverse event, such as an unfavorable earnings report, depresses the
price of a particular company's stock or reduces trading liquidity.
o The investment manager is incorrect about the attractiveness, value or
potential appreciation or depreciation of a particular investment.
Investing primarily in securities of European issuers involves unique risks
compared to investing in securities of U.S. issuers. These risks include:
- 13 -
o less information about some European issuers or markets may be available
due to less rigorous disclosure or accounting standards or regulatory
practices.
o European securities markets are still generally smaller, less liquid and
more volatile than U.S. securities markets. In a rapidly changing market,
the investment manager may not be able to sell securities in the Fund's
portfolio at times, in amounts and at prices it considers reasonable.
o adverse effect of currency exchange rates or controls on the value of the
fund's investments.
o The economies of European countries may grow at slower rates than expected
or may experience a downturn or recession.
o Economic, political and social developments may adversely affect the
securities markets.
o Withholding and other non-U.S. taxes may decrease the fund's return.
SMALLER CAPITALIZATION COMPANIES. The Fund may invest in equity securities
without restriction as to the market capitalization of issuers, including
securities of companies with market capitalizations that are small compared to
other publicly traded companies (including micro-cap companies). Smaller
companies may have more limited product lines, markets, or financial resources
or may depend on a small inexperienced management group. Securities of small
companies may trade less frequently and in lesser volume than more widely held
securities and their values may fluctuate more abruptly or erratically than
securities of larger companies. They may also trade in the over-the-counter
market or on a regional exchange, or may otherwise have limited liquidity. These
securities may therefore be more vulnerable to adverse market developments than
securities of larger companies. Also, there may be less publicly available
information about smaller companies and less market interest in their securities
as compared to larger companies, and it may take longer for the prices of the
securities to reflect the full value of a company's earnings potential or
assets.
SHORT SALES. Short sales are an integral part of many of the investment
strategies. Short sales involve significant risks, including:
o The Fund may incur a loss as a result of a short sale if the market value
of the borrowed security increases between the date of the short sale and
the date the Fund replaces the security.
o The Fund may be unable to repurchase the borrowed security at a particular
time or at an acceptable price. When the Fund is short a security, the
lender may terminate the loan at a time when the Fund is unable to borrow
the same security from another lender. When this happens the Fund is
required to close out its short position at the current market price which
may be higher than the price at the time the Fund sold the security short.
o Although the Fund's gain is limited to the amount received upon selling a
security short, its potential loss is unlimited.
- 14 -
MERGER ARBITRAGE. In addition to risks generally associated with equity
securities and short sales, merger arbitrage involves the risk of loss in the
event:
o A proposed transaction is not completed, is negatively renegotiated or is
delayed and the price of the target company's securities declines. This
failure or delay may result from regulatory restrictions, negative
competitive or financial developments, the inability to obtain shareholder
approval, the absence of financing or other transaction contingencies.
Because the market price of the target's securities will generally have
risen significantly in response to the proposed transaction, the
corresponding market decline may be substantial.
o In the event of the failure of a merger transaction or a significant delay
in its completion, the price of the stock of the acquiring company, which
the Fund has sold short, may increase significantly.
LEVERAGE. If the Fund has borrowed money to make investments and those
investments decline in value, the Fund's loss will be greater than if the Fund
had not borrowed to make those investments. If the Fund does not generate
sufficient cash flow from operations, it may not be able to repay borrowings
within the required time or may be forced to sell investments at disadvantageous
times in order to repay borrowings. Interest payments and fees incurred in
connection with borrowings will increase the Fund's expense ratio and will
reduce any income the Fund otherwise has available for distributions. The Fund's
obligation to make interest or principal payments on borrowings may prevent the
Fund from taking advantage of attractive investment opportunities. The Fund is
not permitted to borrow for any purposes if, immediately after such borrowing,
it would have an asset coverage (as defined in the Investment Company Act of
1940) of less than 300% with respect to indebtedness.
IMPACT OF HIGH PORTFOLIO TURNOVER. The Fund may engage in active and frequent
trading to achieve its principal investment strategies. This may lead to the
realization and distribution to stockholders of higher capital gains, which
would increase their tax liability. Frequent trading also increases transaction
costs, which could detract from the Fund's performance.
PURCHASING INITIAL PUBLIC OFFERINGS. The Fund may purchase securities of
companies in initial public offerings or shortly thereafter. There are special
risks associated with these investments, including a limited number of shares
available for trading, unseasoned trading, lack of investor knowledge of the
issuer, and limited operating history. These factors may contribute to
substantial price volatility for the shares of these companies. Some companies
conducting initial public offerings are involved in relatively new industries or
lines of business, which may not be widely understood by investors. Some of
these companies may be undercapitalized or regarded as developmental stage
companies without revenues or operating income, or the near term prospects of
achieving them.
DERIVATIVES. These are financial instruments which derive their performance, at
least in part, from the performance of an underlying asset, index or interest
rate. Derivatives can be volatile and involve various types and degrees of risk.
Even a small investment in derivatives can have a significant impact on the
Fund's exposure to stock market values, interest rates or currency exchange
rates. If changes in a derivative's value do not correspond to changes in the
value of the Fund's other investments, the Fund may not fully benefit from or
could lose money on the
- 15 -
derivative position. In addition, some derivatives involve risk of loss if the
person who issued the derivative defaults on its obligation. Certain derivatives
may be less liquid and more difficult to value.
NON-DIVERSIFIED STATUS. The Fund would be a `non-diversified' investment
company. There would be no percentage limitations imposed by the Investment
Company Act of 1940 (the "1940 Act") on the percentage of the Fund's assets that
may be invested in the securities of any one issuer. To the extent the Fund
invests more of its assets in a single issuer, the Fund's share price may be
more susceptible to events effecting that issuer. However, the Fund generally
will not invest more than 15% of the value of its assets (measured at the time
of purchase) in the securities of a single Portfolio Fund.
FIXED INCOME SECURITIES. Investment in fixed income securities may offer
opportunities for income and capital appreciation, and may also be used for
temporary defensive purposes and to maintain liquidity. Fixed income securities
are obligations of the issuer to make payments of principal and/or interest on
future dates. These securities may pay fixed, variable, or floating rates of
interest, and may include zero coupon obligations. Fixed-income securities are
subject to the risk of the issuer's inability to meet principal and interest
payments on its obligations (I.E., credit risk) and are subject to price
volatility due to such factors as interest rate sensitivity, market perception
of the creditworthiness of the issuer, and general market liquidity (I.E.,
market risk).
SPECIAL RISKS OF THE MULTI-MANAGER APPROACH.
The allocation of assets by the Adviser to Portfolio Managers and the investment
by the Fund in Portfolio Funds involve special risk. These risks are in addition
to the investment risks discussed above.
USE OF MULTIPLE ADVISERS. While the Adviser selects Portfolio Managers and
Portfolio Funds based upon an assessment of the Fund's overall portfolio, the
individual Portfolio Managers and Portfolio Funds will focus on implementing
their respective investment strategies and will not take into account the impact
their investment decisions may have on any other portion of the Fund's
portfolio. The Portfolio Managers and Portfolio Funds, and the Adviser with
respect to the assets it is directly managing, are expected to make investment
decisions independently of the other advisers' decisions. While this
independence is intended to improve diversification, it may result in situations
where Portfolio Managers, Portfolio Funds and the Adviser are competing with
each other for the same positions in the market. If the Adviser, the Portfolio
Managers or the Portfolio Funds maintain similar positions, the Fund may become
more concentrated in the securities of particular issuers. It may also result in
situations where each adviser is taking opposite positions for the Fund at the
same time, such as when one Portfolio Manager sells a portfolio security for the
Fund when another is purchasing the same security for the Fund's portfolio.
These conflicting transactions may result in increased brokerage expenses for
the Fund without generating positive returns.
PORTFOLIO FUNDS NOT REGISTERED. The Portfolio Funds generally will not be
registered as investment companies under the 1940 Act and thus the Fund will not
be entitled to the protections of the 1940 Act with respect to its investments
in the Portfolio Funds. The
- 16 -
investment managers which serve as adviser to or general partner for the
Portfolio Funds will often not be registered as investment advisers under the
Investment Advisers Act of 1940. Most of the Portfolio Funds will be organized
under the laws of countries other than the United States. An investment in these
Portfolio Funds may be subject to risks not present when investing in a private
fund organized in the United States, such as increased difficulty in enforcing
the Fund's rights offshore.
PORTFOLIO FUNDS SECURITIES GENERALLY ILLIQUID. The securities of Portfolio Funds
in which the Fund may invest are generally anticipated to be illiquid.
Subscriptions to purchase the securities of Portfolio Funds are generally
subject to restrictions or delays. Similarly, the Fund may not be able to
dispose of Portfolio Fund securities that it has purchased in a timely manner.
If adverse market conditions develop during any period in which the Fund is
unable to sell Portfolio Fund securities, the Fund might obtain a less favorable
price than prevailed when the Fund made the decision to buy or sell.
PORTFOLIO FUND OPERATIONS NOT TRANSPARENT. The Adviser will not be able to
control the activities of the Portfolio Funds on a continuous basis. A Portfolio
Fund may use investment strategies that differ from its past practices and which
are not fully disclosed to the Adviser. These strategies may involve risks that
are not anticipated by the Adviser. Some Portfolio Funds have limited operating
history and some investment managers have limited experience in managing assets.
DIFFICULTY IN VALUING THE FUND'S INVESTMENTS. The Fund anticipates that market
prices will not be readily available for many of the Portfolios Funds in which
it invests. Accordingly, the valuation of the Fund's investments in Portfolio
Funds will often be determined based on valuations provided by the investment
advisers for such Portfolio Funds. These valuations provided by the Portfolio
Funds will be reviewed by the Board's Fair Valuation Committee, which must
determine in accordance with the Fund's valuation procedures, that the value
represents the fair value of the Fund's investment. Although the Adviser will
review the valuation procedures used by the investment advisers, the Adviser and
the Board will often have little or no means of independently verifying
valuations provided by the investment advisers and, as a result, the Fund may
rely significantly on values of Portfolio Funds that are reported by the
Portfolio Funds themselves. The Fund may not have current information about the
securities in which the Portfolio Funds invest or their valuations.
MULTIPLE LEVELS OF FEES AND EXPENSES. By investing in Portfolio Funds indirectly
through the Fund, the Fund's stockholders will bear:
o asset based management fees at the Fund level, in addition to
o any asset based and performance based management fees or allocations of net
profits at the Portfolio Fund level.
Stockholders will also bear (i) their proportionate share of the fees and
expenses of the Fund (including operating costs, distribution expenses,
brokerage transaction expenses and administration fees) and (ii) indirectly
similar expenses of the Portfolio Funds as a result of the Fund's investment in
the Portfolio Fund. Each Portfolio Fund generally will be subject to a
- 17 -
performance based fee or allocation of profits based upon its own performance,
irrespective of the performance of the other Portfolio Funds in which the Fund
invests or the Fund's overall performance. Accordingly, an investment manager to
a Portfolio Fund with positive performance may receive a performance based fee
from the Portfolio Fund, and thus indirectly from the Fund and its stockholders,
even if the Fund's overall performance is negative. Generally, fees payable on
an annualized basis to investment managers of Portfolio Funds will range from 1%
to 3% of the Portfolio Fund's average net asset value and performance fees or
incentive allocations generally range from 10% to 25% of the Portfolio Fund's
net profits. In most cases, investor access to the Portfolio Funds may be
limited or not available. However, a stockholder who does meet the conditions
imposed by a Portfolio Fund may be able to invest directly in the Portfolio Fund
and avoid paying expenses at the Fund level. Those stockholders would not have
the benefit of the Adviser's work in evaluating and identifying Portfolio Funds
for investment.
---------------------------------------------------------------
END OF THE `PROPOSED NEW INVESTMENT PROGRAM OF THE FUND' SECTION
Please see APPENDIX A to this proxy statement for additional information
concerning the risks associated with particular investments and the use of
particular investment techniques.
---------------------------------------------------------------
- 18 -
HOW WOULD THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS CHANGE IF THIS PROPOSAL
IS APPROVED?
The Fund is subject to several fundamental investment restrictions which
would prevent the Fund from effectively implementing the proposed new investment
program. The success of the investment program depends upon the Adviser having
as much flexibility to allocate Fund assets across investment managers and
investment strategies as is permitted within the framework of the 1940 Act which
governs the operation of registered investment companies such as the Fund. If
this Proposal is approved (together with Proposals 2 and 3), the Fund's
fundamental restrictions would be liberalized to permit the use of the types of
investment strategies and techniques described above. Set forth in the table
below are the proposed new fundamental restrictions which would take effect if
this Proposal is approved and the Fund's current fundamental restrictions
together with an explanation for the proposed changes.
- ------ --------------------------------------- --------------------------------------- -------------------------------
PROPOSED FUNDAMENTAL RESTRICTIONS CURRENT FUNDAMENTAL RESTRICTIONS REASON FOR THE CHANGE
The following restrictions are The following restrictions are
fundamental policies of the Fund fundamental policies of the Fund
which cannot be changed without the which cannot be changed without the
approval of the holders of a majority approval of the holders of a majority
of the Fund's outstanding voting of the Fund's outstanding voting
securities (as defined by the 1940 securities (as defined by the 1940
Act). The percentage limitations set Act). The percentage limitations set
forth below apply only at the time an forth below apply only at the time an
investment is made by the Fund investment is made by the Fund.
The Fund may not: The Fund may not:
- ------ --------------------------------------- --------------------------------------- -------------------------------
1. issue senior securities, except to issue senior securities or borrow This restriction would be
the extent permitted by the 1940 Act, money, except that the Fund may revised to permit the Fund to
including that (a) the Fund may borrow from banks (i) to finance borrow money to finance
borrow money from banks, brokers and repurchases and/or tenders for its investments. The 1940 Act
other lenders, to finance portfolio shares or for the clearance or provides that the total
transactions and engage in other settlement of transactions, (ii) for amount of the Fund's
transactions involving the issuance temporary or emergency purposes in borrowing may not exceed
by the Fund of "senior securities" amounts not exceeding 5% of its total one-third of the value of the
representing indebtedness, and (b) assets (not including the amount Fund's assets (including the
the Fund may borrow money from banks borrowed), or (iii) as may be amount borrowed).
for temporary or emergency purposes necessary to enable the fund to
or in connection with repurchases of maintain its qualification as a
or tenders for Fund shares. regulated investment company for U.S.
tax purposes. The Fund's
borrowings under clauses (i) and
(iii) may not in the aggregate
result in there being asset
coverage of less than 300% as
defined in the 1940 Act, and the
Fund will not purchase securities
while any such borrowings in
excess of 5% of its total assets
are outstanding.
- ------ --------------------------------------- --------------------------------------- -------------------------------
- 19 -
- ------ --------------------------------------- --------------------------------------- -------------------------------
2. pledge, mortgage or otherwise pledge, mortgage or otherwise This restriction would be
encumber its assets, except to secure encumber its assets, except to secure revised to permit the Fund to
permitted borrowings or in connection permitted borrowings or in connection invest more broadly in
with settlement of permitted with the routine settlement of European issuers.
transactions in securities or transactions in French securities or
derivatives. with options, futures contracts,
futures options transactions and
forward currency contracts.
- ------ --------------------------------------- --------------------------------------- -------------------------------
3. NO CORRESPONDING RESTRICTION. make short sales of securities or This restriction would be
maintain a short position on any removed to permit the Fund to
security. utilize investment strategies
which require the use of
short sales.
- ------ --------------------------------------- --------------------------------------- -------------------------------
4. NO CORRESPONDING RESTRICTION. purchase any security on margin, This restriction would be
except such short-term credits as may removed to permit the Fund to
be necessary or routine for the utilize investment strategies
clearance or settlement of which require the flexibility
transactions and except in connection to purchase securities on
with options, futures contracts, margin.
futures options transactions and
forward currency contracts.
- ------ --------------------------------------- --------------------------------------- -------------------------------
5. act as an underwriter of securities act as an underwriter of securities The second portion of the
of other issuers, except to the of other issuers; except to the restriction would be removed
extent the Fund may be deemed to be extent that the Fund may be deemed to so that the Fund could
an underwriter in connection with the be an underwriter in connection with purchase interests in private
sale of securities in its portfolio the sale of securities in its funds which may be based in
or the disposition of portfolio portfolio or the disposition of the U.S. or abroad.
securities or of subscription rights portfolio securities or of
thereto under applicable laws. subscription rights thereto under
applicable law. The Fund will not
purchase securities, the sale of
which by the Fund could be
effected without prior
registration under the Securities
Act of 1933, as amended, except
that this restriction shall not
preclude the Fund from acquiring
French securities or other
non-U.S. securities.
- ------ --------------------------------------- --------------------------------------- -------------------------------
6. NO CORRESPONDING RESTRICTION. invest more than an aggregate of 25% This restriction would be
of its total assets in securities not removed to give the Fund
listed on any securities exchange greater flexibility to invest
that are not readily marketable, or in a variety of private
in repurchase agreements having a investment funds. The Fund
maturity greater than seven days, or would adopt a non-fundamental
in any combination of both. policy which provides that
the Fund may not invest more
than 25% of total assets in
illiquid securities.
- ------ --------------------------------------- --------------------------------------- -------------------------------
7. purchase any security (other than purchase any security (other than The restriction would be
obligations of the United States obligations of the United States changed to lower the
government, its agencies or government, its agencies or percentage of Fund assets
- ------ --------------------------------------- --------------------------------------- -------------------------------
- 20 -
- ------ --------------------------------------- --------------------------------------- -------------------------------
instrumentalities) if as a result as instrumentalities) if as a result as which must be diversified to
to 50% of its total assets (i) more to 75% of its total assets (i) more 50%. This would mean the
than 5% of the Fund's total assets than 5% of the Fund's total assets Fund would change from a
(taken at current value) would then (taken at current value) would then diversified fund to a
be invested in securities of a single be invested in securities of a single non-diversified fund. This
issuer or (ii) the Fund would own issuer or (ii) the Fund would own would afford the Adviser
more than 10% of the voting more than 10% of the voting greater flexibility to
securities of any single issuer. securities of any single issuer. concentrate the Fund's
investments in particular
issuers but would also mean
the value of the Fund's
assets may be more
susceptible to changes in
the value of particular
portfolio securities.
- ------ --------------------------------------- --------------------------------------- -------------------------------
8. invest 25% or more of its total invest 25% or more of its total No change is proposed.
assets in any particular industry. assets in any particular industry.
- ------ --------------------------------------- --------------------------------------- -------------------------------
9. purchase, hold or deal in real purchase or sell commodities, This restriction would be
estate, except that it may invest in commodity contracts, real estate or split into two restrictions.
securities that are secured by real interests in real estate, except that The first would involve
estate or that are issued by the Fund may enter into, purchase and investing in real estate and
companies that invest or deal in real sell futures contracts, futures would involve a change in
estate. options and forward currency form rather than substance.
contracts, and except that it may
purchase and sell securities
which are secured by real estate
or commodities and securities of
companies which invest or deal in
real estate or commodities.
- ------ --------------------------------------- --------------------------------------- -------------------------------
purchase or sell commodities or The second restriction would
commodity contracts, except that it be revised to make it clear
may purchase and sell foreign that the Fund would have the
currency, options, futures and flexibility to invest in a
forward contracts, including those variety of derivative
related to indices, and options on contracts.
indices, and may invest in commodity
pools and other entities that
purchase and sell commodities and
commodity contracts.
- ------ --------------------------------------- --------------------------------------- -------------------------------
10 make loans of money or securities to make loans, except through the This restriction would be
other persons, except through purchase of debt obligations modified to permit the Fund
purchasing fixed income securities, consistent with the Fund's investment to lend portfolio securities.
lending portfolio securities or policies and except to the extent
entering into repurchase agreements that the acquisition of securities
in a manner consistent with the subject to repurchase agreements
Fund's investment policies be may deemed to be loans.
- ------ --------------------------------------- --------------------------------------- -------------------------------
11 NO CORRESPONDING RESTRICTION. make any investment for the purpose This restriction would be
of exercising control or management restated as a non-fundamental
of an issuer. restriction.
- ------ --------------------------------------- --------------------------------------- -------------------------------
- 21 -
With respect to these investment restrictions, and the investment policies
set forth above under the heading, `PROPOSED NEW INVESTMENT PROGRAM FOR THE
FUND' above, the Fund will not look through the Portfolio Funds to their
underlying securities. If a percentage restriction is adhered to at the time of
an investment or transaction, a later change in the percentage resulting from a
change in the value of the Fund's assets, unless otherwise stated, will not
constitute a violation of that policy or restriction.
BOARD'S RECOMMENDATION
At a special meeting held on February 28, 2002, the Board, including all of
the directors who are not interested persons of the Fund, the Adviser or the
Fund's principal underwriter (the "Independent Directors"), determined that the
proposed investment program is in the best interests of the Fund and its
stockholders. The Board has voted unanimously to approve changes to the Fund's
non-fundamental investment policies and restrictions in accordance with the
proposed new investment program and to recommend that stockholders vote to
approve changes to the Fund's fundamental investment objective, fundamental
policies and restrictions to allow the Fund to implement the proposed new
investment program. These changes would not take effect unless and until
stockholders approve this Proposal and Proposals 2 and 3 set forth below.
REQUIRED VOTE
Adoption of this Proposal 1 requires the approval of a majority of the
outstanding voting securities of the Fund, which, under the 1940 Act, means the
affirmative vote of the lesser of (i) 67% or more of the shares of the Fund
represented at the meeting, if at least 50% of all outstanding shares of the
Fund are represented at the meeting in person or by proxy, or (ii) 50% or more
of the outstanding shares of the Fund entitled to vote at the meeting. Because
the successful implementation of the new investment program would also require a
change in the Fund's name and the adoption of a new investment advisory
agreement with the Adviser as set forth under Proposals 2 and 3 below, the
proposed investment program would not become effective unless stockholders vote
to approve Proposals 1, 2 and 3.
FOR THE REASONS SET FORTH ABOVE, THE BOARD UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE TO IMPLEMENT THE PROPOSED NEW INVESTMENT PROGRAM FOR THE FUND
BY VOTING FOR THIS PROPOSAL 1.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
- 22 -
TO APPROVE A CHANGE IN THE NAME OF THE FUND
(PROPOSAL 2)
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL 2.
In connection with the proposed change in the Fund's investment program set
forth under Proposal 1 above, the Board is also recommending that the Fund adopt
a new name which is more reflective of the Fund's proposed new mandate. If this
Proposal 2 is approved, the new name of the Fund would be The European
Multi-Strategy Investment Company.
A new, more reflective name would also be required under the 1940 Act. The
Securities and Exchange Commission (the "SEC") has recently adopted a new rule
under the 1940 Act which governs the use of names by U.S. registered mutual
funds. This rule requires that a mutual fund with a name suggesting a particular
type of investment or investment in a particular geographic region must invest
primarily in the type of investment or geographic region suggested by the name.
Because of the Fund's current use of "France" in its name, the new rule requires
the Fund to invest at least 80% of its net assets in French securities. If
Proposal 1 is approved and the new investment program is adopted, the Fund would
invest primarily in securities of companies which are economically tied to
developed countries within Europe. The continued use of the Fund's current name
would no longer be permitted.
At the special meeting held on February 28, 2002, the Board unanimously
approved an amendment to the Fund's Articles of Incorporation (the "Articles")
and Bylaws to change the Fund's name and recommended that stockholders vote to
approve the amendment. The Board determined that the new name would be a more
accurate reflection of the Fund's proposed new investment program. The Articles
require that stockholders approve a change in the Fund's name.
WHAT IS THE REQUIRED VOTE ON THIS PROPOSAL?
Approval of the name change amendment to the Articles requires the
affirmative vote of the holders of a majority of the Fund's outstanding shares.
This Proposal will only take effect if stockholders also vote to approve
Proposals 1 and 3. If Proposals 1, 2 and 3 are approved, the name change would
occur upon the filing by the Fund of an amendment to the Articles in the Fund's
state of organization.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS APPROVE A CHANGE IN THE
FUND'S NAME BY VOTING FOR THIS PROPOSAL 2.
- 23 -
TO APPROVE A NEW INVESTMENT ADVISORY AGREEMENT
(PROPOSAL 3)
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL 3.
The Board has unanimously approved an innovative new investment program for
the Fund. As described in Proposal 1, this investment program would expand the
Fund's investment focus to include all of Europe. It would also involve the
implementation of a dynamic multi-manager, multi-strategy investment approach by
the Adviser. The Adviser would be responsible for constructing a target
allocation of assets across investment strategies, researching and identifying
investment managers which can effectively implement a particular investment
strategy or strategies and then monitoring the performance of these investment
managers. The investment managers which are engaged to directly manage portions
of the Fund's portfolio would be compensated by the Adviser out of the fees paid
by the Fund to the Adviser. The Adviser would also continue to directly manage a
portion of the Fund's assets according to the broader European mandate.
To perform this broader array of functions and responsibilities, the Board
believes it is reasonable and appropriate to increase the compensation paid by
the Fund to the Adviser. This will require the approval of a new advisory
agreement pursuant to which the Fund would pay an increased advisory fee to the
Adviser and which would specifically permit the Adviser to delegate some of the
portfolio management responsibilities to the Portfolio Managers. The Adviser
would not, however, receive any performance fee or incentive allocation based
upon the Fund's net profits under the proposed new advisory agreement.
WHY DOES THE BOARD BELIEVE A HIGHER INVESTMENT ADVISORY FEE IS NECESSARY?
The Board is proposing an increase in the advisory fee only after very
careful consideration of several factors. First, the Board considered the
significant additional responsibilities that the Adviser would have if it were
to implement this new investment program. Second, the Board evaluated the
experience and expertise of the Adviser in managing a European portfolio of
investments and in constructing an investment portfolio through a multi-manager,
multi-strategy investment approach. Third, the Board reviewed information
concerning other registered investment companies which employ similar investment
programs and the compensation paid by these funds to their respective investment
managers.
INCREASED SCOPE, COMPLEXITY, AND COSTS. The Board recognizes that the proposed
new investment program would involve a significant increase in scope and
complexity over the Fund's current investment program. The new investment
program would involve a broader investment focus which would include all of
Europe. This would require the Adviser to review and evaluate a significantly
greater number of issuers and investment opportunities across a larger universe
of countries. It is expected that the Adviser would need to assign additional
investment professionals who cover non-French Europe to the investment decision
making process for the Fund.
Within the broader European landscape, the new investment program would require
the Adviser to carefully construct a portfolio based upon a target allocation of
assets across investment
- 24 -
managers and investment strategies. The Adviser would be responsible for
researching, evaluating and identifying potential investment managers which have
demonstrated an expertise at implementing one or more particular investment
strategies. The Adviser would then be responsible for monitoring the investment
managers' performance and adjusting the target allocations based upon the
Adviser's assessment of changes in economic, political and market conditions.
The goal of this process would be to achieve sufficient diversification in both
the approach by which assets are invested and the types of strategies employed
within each approach to generate consistently strong performance results that
are less volatile in both rising and falling markets than investments made
according to a single approach or with a focus on a particular investment
strategy.
In order to identify attractive investment managers and promising investment
strategies, the Adviser would need to allocate significant additional resources
in terms of time, investment personnel and technology to constructing and then
managing the Fund's portfolio. The portfolio construction process would involve
very careful and complex qualitative and quantitative analysis by the Adviser.
It would involve in depth modeling on macro- and micro- economic levels and the
assessment of business and political trends within the growing and rapidly
changing European economies. It would also involve greater use of the securities
markets when implementing specific strategies through the use of short sales and
derivative instruments. It is also expected that the Adviser would need to draw
upon the expertise and research capabilities of many different core groups
within the Adviser and within the broader Credit Agricole S.A. organization in
implementing the Fund's new investment program.
The Board believes that the scope and complexity of the proposed new investment
program would result in significantly greater costs to the Adviser in managing
the Fund. With all that the new investment program would demand of the Adviser,
the Board and the Adviser do not believe that the advisory fee structure under
the existing advisory agreement would provide sufficient resources to enable the
Adviser to successfully implement this new investment program for the Fund.
ADVISER HAS THE EXPERTISE TO IMPLEMENT THE NEW INVESTMENT PROGRAM. The proposed
investment program would require the Adviser to implement investment strategies
and techniques and cover markets which the Adviser does not currently use or
cover in depth in managing the Fund's assets. For that reason, the Board
carefully evaluated the Adviser's experience and expertise in implementing the
type of investment program which is being proposed for the Fund. The Board found
that the Adviser has significant experience in managing an investment portfolio
with a European mandate and which utilizes the sophisticated investment
strategies and techniques that would be part of the Fund's proposed new
investment program.
Of the $145 billion in assets managed by the Adviser and its affiliates as of
December 31, 2001, approximately $125 billion or 86% are invested by the Adviser
and its affiliates pursuant to a broader European mandate. The Adviser and its
affiliates also manage seven private investment funds with approximately $2
billion in assets which utilize a multi-manager, multi-strategy investment
approach similar to the approach being proposed for the Fund. Within the Credit
Agricole S.A. organization, 37 employees, including 15 investment professionals,
are dedicated to supporting this multi-manager, multi-strategy investment
approach.
- 25 -
PROPOSED FEE WOULD BE COMPETITIVE. There is a very small universe of U.S.
registered investment companies which utilize a multi-manager, multi-strategy
investment program similar to the program being proposed for the Fund. It does
not appear that any of these funds focus primarily on the European landscape as
would the Fund. All of these funds are organized as closed-end funds because of
the inherent advantages of this structure when utilizing these types of
investment strategies.
The complexity of the investment program employed by these funds is reflected in
the compensation paid by the funds to the investment managers. These investment
managers typically receive an advisory or management fee in the range of 2.00%
of the fund's average daily net assets. Most also receive a performance fee or
incentive allocation based upon a percentage of the net profits of the fund, in
addition to the advisory or management fee. The funds which pay a performance
fee or incentive allocation to their respective investment managers are
generally available only to investors who meet certain minimum annual income and
net worth tests.
The Board has reviewed a number of registered closed-end investment companies to
determine whether the advisory fee structure being proposed by the Board for the
Adviser to implement the new investment program would be competitive within the
industry. The Board found that most pay a performance fee or incentive
allocation in addition to the advisory or management fee which generally ranges
from 10% to 25% of net profits. The advisory or management fee rates of funds
with a performance fee or incentive allocation generally range from 1.00% to
3.00%. Because the Adviser will not receive a performance fee or incentive
allocation from the Fund, the Board believes that it is more appropriate to
consider the fee structure of the funds which also do not pay a performance fee
or incentive allocation to their investment managers. Of the limited number of
funds with no performance fee or incentive allocation, the advisory or
management fee rates generally range from 1.50% to 2.50%, with no reduction in
the fee rate if the funds reach certain asset sizes (I.E., no breakpoints). If
the new advisory agreement is approved, the Fund would pay the Adviser an
advisory fee at the rate of 2.00% of the Fund's average weekly net assets up to
$200 million, 1.75% on the next $200 million, and 1.50% of such assets in excess
of $400 million.
FACTORS CONSIDERED BY THE BOARD
As discussed in greater detail under Proposal 1 above, the Board has actively
considered over the course of several meetings adopting a new investment program
for the Fund. An integral part of this analysis involved a careful assessment of
whether the Adviser has the requisite experience, expertise and resources to be
able to implement the significantly broader and more complex investment program
which the Board has been considering. The Board held a special meeting at the
Adviser's offices in Paris on January 31, 2002 for the specific purpose of
evaluating the Adviser's capabilities in implementing a new investment program
for the Fund. At that meeting, the Adviser and its advisory affiliates within
the Credit Agricole S.A. organization made several in depth presentations to the
Board regarding the Adviser's abilities to implement a new investment program
with the scope and degree of sophistication being considered by the Board.
Following the special meeting, the Board reviewed additional materials provided
by the Adviser, including information on the private investment funds which are
managed by the Adviser or its affiliates according to a similar investment
program as is being proposed for the Fund. At the
- 26 -
special meeting held on February 28, 2002, the Board, including all of the
Independent Directors, unanimously determined that it would be in the best
interests of the Fund and its stockholders to adopt a new investment advisory
agreement between the Fund and the Adviser with a higher advisory fee rate. In
making this determination, the Board found that:
o The Adviser has generated consistently strong performance for the Fund,
with the Fund significantly outperforming its benchmark index since its
inception;
o The Adviser has significant experience and expertise in managing a European
portfolio of investments and in implementing a multi-manager,
multi-strategy investment program;
o The Adviser also has extensive experience in selecting, supervising and
replacing, if necessary, investment managers who would be engaged, subject
to Board approval, to implement specific investment strategies for portions
of the Fund's portfolio;
o The greater scope and complexity of the new investment program would
require the Adviser to allocate significant additional resources and incur
significant additional costs to effectively manage the Fund's portfolio;
o The proposed advisory fee structure, and the resulting total expense ratio
of the Fund, would be competitive with the fees and total expense ratios of
U.S. registered investment companies employing a similar multi-manager,
multi-strategy investment program;
o The Adviser would not receive any performance fee or incentive allocation
from the Fund based upon the Fund's investment returns or net profits.
o The proposed advisory fee is fair and reasonable in relation to the scope
and complexity of the proposed new investment program for the Fund.
INFORMATION ABOUT THE ADVISER.
Credit Agricole Asset Management U.S. Advisory Services has served as the Fund's
investment adviser since the Fund's inception in 1990. Over that time frame, the
Adviser has generated consistently strong performance for the Fund. Since the
Fund's inception through December 31, 2001, the Fund has outperformed its
benchmark index, the SBF 120 Index, by approximately 72.39% based upon changes
in net asset value per share. The Index does not reflect the deduction of fees
and expenses, making the Fund's out performance even more remarkable.
The Adviser, located at 90 Boulevard Pasteur, 75015 Paris France, serves as the
investment adviser to the Fund pursuant to an investment advisory agreement
dated July 1, 1996 (the "existing agreement"). The Adviser has served as the
Fund's investment adviser since the Fund's inception on May 18, 1990. The
Adviser is a French company registered as a U.S. investment adviser under the
Investment Advisers Act of 1940 and is managed by Credit Agricole Asset
Management, an indirect wholly-owned subsidiary of Credit Agricole S.A. Credit
Agricole Asset Management, through its subsidiaries, provides fully
discretionary investment advisory services to a broad range of clients
throughout the world, including mutual funds, alternative investment vehicles,
pension plans, endowments, foundations, and high net worth individuals.
- 27 -
Together with its subsidiaries, Credit Agricole Asset Management had assets
under management of approximately U.S. $145 billion at December 31, 2001.
INFORMATION ABOUT THE TERMS OF THE EXISTING AND THE PROPOSED NEW ADVISORY
AGREEMENTS.
The terms of the existing and proposed advisory agreements are substantially
similar except for the following important differences. The proposed advisory
agreement would expressly permit the Adviser to engage Portfolio Managers,
subject to Board approval, to directly manage a portion of the Fund's assets and
would expressly permit the Adviser to select Portfolio Funds, subject again to
Board approval, for investment by the Fund. The proposed advisory agreement
would compensate the Adviser at a higher advisory fee rate. The proposed
advisory agreement would also slightly modify the treatment of expenses
currently payable by the Adviser and the Fund. Finally, the proposed advisory
agreement would have different effective and renewal dates. The form of the
proposed advisory agreement is attached to this proxy statement as Appendix B.
The following summary of the terms of the proposed advisory agreement is
qualified in its entirety by reference to the attached form of the proposed
advisory agreement.
ADVISORY SERVICES. Under the terms of both the existing and proposed advisory
agreements, the Adviser is responsible for providing continuously an investment
program for the Fund, consistent with the Fund's investment objective, policies
and restrictions and subject to the supervision and approval of the Board.
Specifically, the Adviser is required to determine what investments shall be
purchased, held, sold or exchanged by the Fund and what portion, if any, of the
Fund's assets will be held uninvested and to make changes in the fund's
investments. The Adviser also manages, supervises and conducts the other affairs
and business of the Fund. The proposed advisory agreement also expressly permits
the Adviser to engage Portfolio Managers, subject to Board approval, to directly
manage a portion of the Fund's assets and to select Portfolio Funds, subject to
Board approval, for investment by the Fund.
STANDARD OF CARE. Under each agreement, the Adviser is not liable for any loss
incurred in connection with the performance of its duties, or action taken or
omitted under the agreement, except (i) that the Adviser shall be under a
fiduciary duty with respect to receipt of compensation for services pursuant to
Section 36 of the 1940 Act and shall therefore be liable for a loss resulting
from a breach of such fiduciary duty (in which case any award of damages shall
be limited to the period and the amount set forth in Section 36(b)(3) of the
1940 Act) or (ii) for any loss resulting from the Adviser's willful misfeasance,
bad faith or gross negligence in the performance of, or from reckless disregard
of, its obligations and duties under the agreement.
EXPENSES. Under the terms of both the existing and proposed advisory agreements,
the Adviser bears all expenses of its employees and overhead incurred in
connection with its duties under the agreements and shall pay all salaries and
fees of the Fund's directors and officers who are also directors, officers or
employees of the Adviser with certain limited exceptions. Under each agreement,
the Fund will bear travel and other expenses of directors and officers of the
Fund who are directors, officers or employees of the Adviser or its affiliates
to the extent that such expenses relate to attendance at meetings of the Board
or any committees thereof. Under the proposed advisory agreement, the Fund would
be permitted to compensate the officers of the Fund who are also employees of
the Adviser or its affiliates for services rendered on behalf of the Fund. On an
annual basis, the Independent Directors would be permitted to determine if, and
- 28 -
to what extent, the officers should be compensated by the Fund for services
performed on behalf of the Fund. Such payments would not be made in lieu of or
be intended to replace any of the regular compensation paid by the Adviser or
its affiliates to the officers. Instead, the Board believes that the proposed
new investment program will require the officers of the Fund to undertake
significant additional responsibilities, and the Board desires the flexibility
to be able to compensate the officers for extraordinary services on behalf of
the Fund if the Independent Directors determine that such compensation is ever
warranted.
The Fund bears all of its other expenses including, among others: directors' and
officers' liability insurance; organizational expenses; legal expenses; auditing
and accounting expenses; taxes and governmental fees; stock exchange listing
fees; dues and expenses incurred in connection with membership in investment
company organizations; fees and expenses of the Fund's custodians, transfer
agent, dividend paying agent and registrar; payment for portfolio pricing
services to a pricing agent, if any; expenses of preparing share certificates
and other expenses in connection with the issuance, offering or underwriting of
securities issued by the Fund; expenses relating to investor relations; expenses
of registering or qualifying securities of the Fund for sale; freight, insurance
and other charges in connection with the shipment of the Fund's portfolio
securities, if any; brokerage commissions or other costs of acquiring or
disposing of any portfolio securities of the Fund; expenses of preparing and
distributing reports, notices and dividends to shareholders; expenses of the
Dividend Reinvestment Plan (except for brokerage expenses paid by participants
in such plan); costs of stationery; any litigation expenses; and costs of
shareholders, and other meetings.
ADVISORY FEES: EXISTING AGREEMENT. As compensation for its services under the
existing agreement, the Fund pays the Adviser, at the end of each calendar
month, an advisory fee computed at the annual rate of 0.90% of the Fund's
average weekly net assets up to $100 million and 0.80% of such assets in excess
of $100 million, based upon the net asset value of the Fund calculated at the
end of each week.
ADVISORY FEES: PROPOSED AGREEMENT. As compensation for its management and
advisory services in implementing the proposed new investment program, the Fund
would pay the Adviser an investment advisory fee equal to 2.00% of the Fund's
average weekly net assets up to $200 million, 1.75% on the next $200 million,
and 1.50% of such assets in excess of $400 million. The fee would be computed
daily and paid monthly. The Adviser would be responsible for paying subadvisory
fees to the Portfolio Managers engaged by the Adviser out of the Adviser's own
assets.
The Adviser may from time to time voluntarily agree not to impose all or a
portion of its advisory fee or otherwise take action to reduce expenses of the
Fund. Any such voluntary limitation or expense reduction may be discontinued or
modified by the Adviser at any time. The Adviser currently waives a percentage
of its advisory fee equal to the percentage at which the Fund shares trade below
their net asset value. The Adviser anticipates that it will discontinue this
voluntary waiver irrespective of whether this Proposal is approved.
- 29 -
EFFECT OF THE NEW ADVISORY FEE.
Set forth below is a table showing the dollar amount of actual advisory fees
paid by the Fund during the one year period ended December 31, 2001 under the
existing agreement and the dollar amount of fees that would have been paid under
the proposed agreement. The table also shows the differences (expressed as a
percentage of the existing fee and in dollar terms) between the amount that
would have been paid under the proposed agreement and the amount actually paid
under the existing agreement. Also set forth below is a comparative fee table
showing the amount of fees and expenses paid by the Fund as a percentage of
average daily net assets during the fiscal year ended December 31, 2001 and the
amount of fees and expenses stockholders would have paid if the proposed
agreement had been in effect. The figures shown for the new fee represent the
amounts that actually would have been paid under the proposed agreement during
the 12 months ended December 31, 2001. At December 31, 2001, the Fund had net
assets of approximately $104,269,924.
DOLLAR AMOUNT OF INVESTMENT ADVISORY FEES PAID
(ONE YEAR ENDED DECEMBER 31, 2001)
Difference from amount paid under
existing and proposed agreements
---------------------------------
Existing Proposed as a percentage of
Agreement Agreement the existing fee in dollars
----------- ----------- ------------------- -----------
Amount of advisory fees paid or $1,081,540 $2,453,851 +126.88% +$1,372,311
that would have been paid
Amount of advisory fees paid or $ 960,383 $2,163,136 +125.24% +$1,202,753
that would have been paid
(After waiver)*
The increase would amount to 112 cents on each $100 invested in the fund.
- ----------
* Due to voluntary expense limitations, the Adviser reduced its advisory fee
payable by the Fund.
- 30 -
COMPARATIVE FEE TABLE
(FISCAL YEAR ENDED DECEMBER 31, 2001)
Annual Fund Operating Expenses(1)
(as a percentage of average net assets)
Existing Proposed
agreement agreement
------------ ------------
Management fee 0.88% 2.00%
Distribution and service (12b-1) fee 0.00% 0.00%
Other expenses 1.05% 1.05%
------------ ------------
Total annual fund operating expenses 1.93% 3.05%
(1)These fees and expenses are set forth without regard to any management
fee waiver. Because the Adviser voluntarily agreed to waive a portion of
its management fee, the Fund's actual expenses were (or would have been, in
the case of the proposed agreement):
MANAGEMENT FEES 0.78% 1.76%
OTHER EXPENSES 1.05% 1.05%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.83% 2.81%
EXAMPLES
The following examples help you compare the costs of investing in the Fund under
the existing agreement and after giving effect to the fee increase reflected in
the proposed agreement with the cost of investing in other mutual funds. They
assume that: a) you invest $10,000 in the fund for the time periods shown, b)
you reinvest all dividends and distributions, c) your investment has a 5% return
each year, d) the fund's operating expenses remain the same and e) you redeem at
the end of each period.
NUMBER OF YEARS YOU
OWN YOUR SHARES EXISTING AGREEMENT PROPOSED AGREEMENT
------------------- ------------------ ------------------
1 year $196 $308
3 years $606 $942
5 years $1,042 $1,601
10 years $2,254 $3,365
OTHER PROVISIONS OF THE EXISTING AND PROPOSED AGREEMENT
MISCELLANEOUS
The existing agreement was first approved by the Board on ____ , 1996 and
entered into on July __, 1996. The existing agreement is renewable annually by
the vote of a majority of the
- 31 -
Board, including a majority of the Independent Directors, cast in person at a
meeting called for the purpose of voting on such renewal. The existing agreement
was last approved by the Board on June 19, 2001. If Proposals 1, 2 and 3 are
approved by stockholders, the proposed agreement will become effective on a date
to be determined by the Adviser and the Fund which shall be as soon as
practicable following the day of the Meeting, and will continue in effect for a
period of two years after its effective date and thereafter from year to year
subject to annual approval by the Board in the same manner as the existing
agreement. The existing agreement and the proposed agreement terminate if
assigned (as defined in the 1940 Act) and may be terminated without penalty by
either party (in the case of the Fund by vote of its Board or by a vote of a
majority of the outstanding voting securities of the Fund), upon 60 days'
written notice.
ADDITIONAL INFORMATION PERTAINING TO THE ADVISER.
The Adviser is a wholly owned subsidiary of Credit Agricole Asset Management, a
French company registered as an investment adviser with the Commission des
operations de bourse in France. The principal business address of Credit
Agricole Asset Management is also 90 Boulevard Pasteur, 75015 Paris France.
Credit Agricole Asset Management in turn is a wholly owned subsidiary of Credit
Agricole Indosuez, the largest French bank, and Segespar, an association of 48
regional French banks. Credit Agricole Indosuez and Segespar are wholly owned
subsidiaries of Credit Agricole S.A. The directors and principal executive
officers of the Adviser are as follows:
NAME OF DIRECTOR OR PRINCIPAL
EXECUTIVE OFFICER POSITIONS HELD WITH THE ADVISER
----------------------------- -------------------------------
Jean-Claude Kaltenbach Chairman
Patrice de Larrard Chief Executive Officer
Etienne Lombard Director and Legal Officer
Eric H. Jostrom Director
Ian G. McEvatt Director
Anne Meunier Director
Ayaz H. Ebrahim Director
Jacques Le Cossec Secretary
Bernard L. Chauvel, President of the Fund, serves as the Managing Director of
Predica, a life insurance company within the Credit Agricole S.A. organization.
Steven M. Cancro, Vice President and Secretary of the Fund, serves as First Vice
President and Senior Counsel of Credit Agricole Indosuez. Frederick J. Schmidt,
Vice President and Treasurer of the Fund, serves as Vice President of Credit
Agricole Indosuez.
- 32 -
Over the fiscal year ended December 31, 2001, the Adviser paid the following
amounts to brokers which are affiliates of the Adviser:
PERCENTAGE OF FUND'S
AGGREGATE AMOUNT OF AGGREGATE BROKERAGE
NAME OF AFFILIATED BROKER COMMISSIONS PAID COMMISSIONS
--------------------------- ------------------- ---------------------
Cheuvruex de Virieu* $27,347 8.18%
Carr Futures SNC* $6,051 1.81%
UBS Warburg** $13,445 4.02%
----------
* A direct or indirect subsidiary of Credit Agricole S.A.
** An indirect wholly owned subsidiary of UBS AG and an affiliate of
the Fund's administrator.
BOARD'S RECOMMENDATION
At the special meeting held on February 28, 2002, the Board, including all of
the Independent Directors, unanimously concluded that the advisory fee is fair
and reasonable and in the best interests of the Fund's stockholders, and by a
vote cast at the meeting, unanimously approved the proposed new advisory
agreement between the Fund and the Adviser and recommended that stockholders
vote to approve the proposed advisory agreement.
REQUIRED VOTE
Adoption of this Proposal 3 requires the approval of a majority of the
outstanding voting securities of the Fund, which under the 1940 Act, means the
affirmative vote of the lesser of (i) 67% or more of the shares of the Fund
represented at the meeting, if at least 50% of all outstanding shares of the
fund are represented at the meeting, or (ii) 50% or more of the outstanding
shares of the fund entitled to vote at the meeting. The new investment advisory
agreement will not take effect, however, unless stockholders also approve
Proposals 1 and 2 set forth above.
FOR THE REASONS SET FORTH ABOVE, THE BOARD UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS APPROVE THE NEW INVESTMENT ADVISORY AGREEMENT BETWEEN THE FUND AND
THE ADVISER BY VOTING FOR THIS PROPOSAL 3.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
- 33 -
TO ALLOW THE ADVISER TO HIRE PORTFOLIO MANAGERS AND
MATERIALLY MODIFY A SUBADVISORY AGREEMENT WITHOUT
STOCKHOLDER APPROVAL
(PROPOSAL 4)
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL 4.
The central theme of the investment program which the Board is proposing
for the Fund is the multi-manager, multi-strategy investment approach. Under the
program, the Adviser will be responsible for identifying Portfolio Managers
which can directly manage portions of the Fund's assets and recommending
Portfolio Funds for investment by the Fund. It is expected that the Adviser will
seek to construct a portfolio for the Fund utilizing several Portfolio Managers
and Portfolio Funds at the same time in order to achieve a desired level of
diversification across investment managers and investment strategies. It is also
expected that the Adviser will monitor and adjust the allocations of assets to
the Portfolio Managers and Portfolio Funds, and replace existing Portfolio
Managers and Portfolio Funds as necessary, depending upon the Adviser's
continuing assessments of the economic, political and market conditions
throughout Europe as well as an assessment of the performance and other
attributes of the respective Portfolio Managers and Portfolio Funds.
Currently, the Adviser would be required to solicit both Board and
stockholder approval prior to the selection of Portfolio Managers for the Fund.
The Board believes that allowing the Adviser to engage Portfolio Managers and to
materially modify existing subadvisory agreements without seeking stockholder
approval of the new or modified subadvisory agreements would benefit the Fund
and its stockholders in several ways. The Board would remain responsible for
approving any Portfolio Managers recommended by the Adviser before the Portfolio
Manager could be engaged by the Adviser. Implementation of this Portfolio
Manager approval policy would require the receipt by the Fund and the Adviser of
an exemptive order from the SEC. If this Proposal is approved by stockholders,
the Fund intends to file an exemptive application with the SEC seeking the
required exemptive relief. However, there can be no assurance that the SEC will
grant the requested exemptive relief. If the Fund is unable to obtain exemptive
relief, the Fund and the Adviser would continue to employ the multi-manager
investment approach but would be required to solicit stockholder approval of new
Portfolio Manager selections.
WHY THE BOARD IS RECOMMENDING STOCKHOLDERS ADOPT THIS PORTFOLIO MANAGER APPROVAL
POLICY.
The Board believes that affording the Fund and the Adviser the flexibility
to engage new Portfolio Managers and materially modify existing subadvisory
agreements without stockholder approval will be of significant benefit to the
Fund as it implements the proposed new investment program. The Board expects
that the Adviser will recommend a number of Portfolio Managers for approval by
the Board over the course of a year. Absent exemptive relief, the Fund would be
required to call and hold special stockholder meetings, prepare and distribute
proxy materials and solicit votes from stockholders each time the Adviser
desires to appoint a Portfolio Manager or materially modify an existing
subadvisory agreement with a Portfolio Manager. This is a time intensive and
relatively expensive process. Without the delay inherent in calling and holding
- 34 -
special stockholder meetings, the Fund would be able to act more quickly and
with less expense to the Fund to appoint a Portfolio Manager when the Board and
the Adviser agree that the appointment would benefit the Fund.
The Board also believes that it would be appropriate to vest the selection,
supervision and evaluation of Portfolio Managers in the Adviser, subject to
review and approval by the Board, in light of the Adviser's experience and
expertise in implementing a multi-manager, multi-strategy investment approach.
The Board believes that if stockholders vote to approve the proposed new
advisory agreement, they would be expecting the Adviser to perform the function
of selecting, supervising and replacing, if necessary, Portfolio Managers on
their behalf. The Board believes that it will retain sufficient oversight in the
process to ensure that stockholders' interests are protected whenever the
Adviser recommends a Portfolio Manager or materially modifies a subadvisory
agreement. The Board, including a majority of the Independent Directors, will
continue to evaluate and approve all new subadvisory agreements as well as any
modification to existing subadvisory agreements. In its review, the Board will
analyze all factors it considers relevant to the determination, including the
nature, quality and scope of services provided by the Portfolio Manager. The
Board will also consider the investment performance of the Portfolio Manager and
the subadvisory fee to be paid by the Adviser to the Portfolio Manager. The
Board believes that its comprehensive review will ensure that the Adviser
continues to act in the best interests of the Fund and its stockholders. Each
subadvisory agreement will continue to be subject to all provisions of the 1940
Act, except for the specific provisions of the 1940 Act for which relief is
granted by the SEC.
EXEMPTIVE RELIEF IS REQUIRED BEFORE THE PORTFOLIO MANAGER APPROVAL PROCESS COULD
BE USED.
Before the Adviser would be able to implement the Portfolio Manager
approval process described above, the Fund and the Adviser would need to obtain
an order granting exemptive relief from the SEC. The exemptive relief would
allow the Fund and the Adviser to implement, subject to Board approval, new
subadvisory agreements with Portfolio Managers and materially modify existing
subadvisory agreements without obtaining stockholder approval of the new or
materially modified subadvisory agreement. The SEC has granted this type of
exemptive relief on the condition that the applicants obtain stockholder
approval of the proposed subadviser approval process. For that reason, the Board
determined that it was appropriate to seek stockholder approval of the proposed
Portfolio Manager approval process at the same time that it is seeking approval
of the proposed new investment program in order to save the expense of a
separate solicitation in the future if the proposed new investment program is
approved at the Meeting.
If relief is granted by the SEC, the Fund and the Adviser would expect
to be subject to several conditions imposed by the SEC to ensure that the
interests of the Fund's stockholders are adequately protected whenever the
Adviser acts under the Portfolio Manager approval policy. However, there can be
no assurance that the SEC will grant the requested relief. It is also possible
that the SEC may adopt in the future new rules which permit the Fund and the
Adviser to implement the Portfolio Manager approval process without obtaining
exemptive relief from the SEC. If that is the case, the Fund and the Adviser
would not file an exemptive application with the SEC. Instead, the Fund and the
Adviser would seek to comply with the conditions set forth in the rule to
implement the Portfolio Manager approval process without exemptive relief.
BOARD'S RECOMMENDATION
At the special meeting held on February 28, 2002, the Board, including all of
the Independent Directors, unanimously concluded that permitting the Adviser to
implement the multi-manager component of the proposed new investment program
without obtaining stockholder approval of new Portfolio Managers but with Board
supervision would be in the best interests of the Fund and its stockholders and,
by a vote cast at the meeting, unanimously recommended that stockholders vote to
approve this Proposal 4.
REQUIRED VOTE
Adoption of this Proposal 4 requires the approval of a majority of the
outstanding voting securities of the Fund, which under the 1940 Act, means the
affirmative vote of the lesser of (i) 67% or more of the shares of the Fund
represented at the meeting, if at least 50% of all outstanding shares of the
fund are represented at the meeting, or (ii) 50% or more of the outstanding
shares of the fund entitled to vote at the meeting.
FOR THE REASONS SET FORTH ABOVE, THE BOARD UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THIS PROPOSAL 4.
- 35 -
ELECTION OF DIRECTORS
(PROPOSAL 5)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES.
The Fund's Articles provide that the Board of Directors shall be divided as
equally as possible into three classes of directors (Class I, Class II and Class
III) serving staggered three-year terms. The term of office for directors in
Class II expires upon the election of Directors at the Meeting, Class III at the
2003 annual meeting and Class I at the 2004 annual meeting. The four (4) Class
II nominees - John Bult, Serge Demoliere, Michel Longchampt and Michel A.
Rapaccioli - stand for election to a term expiring on the date of the Annual
Meeting of Stockholders in 2005 or until their successors are elected and
qualified.
A plurality of all votes cast at the Meeting, with a quorum present, is
sufficient to elect a director. This means that the four (4) nominees for
director who receive the greatest number of votes will be elected. Unless
authority is withheld, it is the intention of the persons named in the form of
proxy to vote each proxy for the election of all of the nominees listed below.
Each nominee has indicated he will serve as a director if elected, and the Board
of Directors knows of no reason why any of these nominees would be unable to
serve. However, if any nominee should be unable to serve, the proxies received
will be voted for any other person designated to replace the nominee by the
Board of Directors.
INFORMATION REGARDING DIRECTORS AND NOMINEES
The following table shows certain information about the directors, the
nominees for director and the officers of the Fund. Each director, including
each nominee, has served as a director of the Fund since 1990, except for Mr.
Jean A. Arvis who became a director in February 1993, Messrs. Melville and Sell
who became directors in April 2000 and Messrs. Demoliere and Kipp, who became
directors in April 2001. Each officer is elected annually by the Board and
serves until the officer's successor is duly elected and qualifies, or until the
officer's resignation or removal by the Board.
TERM OF
OFFICE AND
NAME, ADDRESS AND (AGE) LENGTH OF PRINCIPAL OCCUPATIONS(S) DURING OTHER DIRECTORSHIPS
POSITION WITH THE FUND TIME SERVED PAST FIVE YEARS HELD BY DIRECTORS
- ----------------------- -------------- ----------------------------------------- -----------------------------
INDEPENDENT DIRECTORS
- ----------------------- -------------- ----------------------------------------- -----------------------------
Jean A. Arvis(1) (66) Class I Chairman of the Fund (since February Director, AXA Equity and
Vendome Rome Management Since 1993 1993); President, French Federation of Law (U.K.) (insurance),
3 Rue de Rome Insurance Companies (insurance) (since Fonciere Lyonnaise, AIG
Paris, France 75008 March 1997); Special Advisor, American Banque, Sofrace (Liban) and
International Group, Inc. (insurance) New London PLC.
(since January 1993); Senior Adviser,
Compagnie de Suez (until December 1995).
- 36 -
- ----------------------- -------------- ----------------------------------------- -----------------------------
Thomas C. Barry (56) Class III President and Chief Executive Officer, None
Zephyr Management, Inc. Since 1990 Zephyr Management, Inc. (since December
320 Park Avenue 1993); President and Chief Executive
New York, NY 10022 Officer, Rockefeller & Co., Inc.
(registered investment adviser) (March
1983-December 1993).
Walter J.P. Curley (78) Class III Venture Capital Investor; United States Director, Sotherby's
450 Park Avenue Since 1990 Ambassador to Ireland (1975-77) and to Holdings, Inc..
Suite 2104 France (1989-93); President, Curley
New York, NY 10022 Land Company; Board of Trustees, The
Frick Collection, Achelis
Foundation and Bodman
Foundation; Executive
Committee Member, The
American Society of the
French Legion of Honor; and
Honorary Chairman of the
French American Foundation.
Pierre H.R. Daviron (59) Class I Partner, DR Associates (consulting) None
c/o The France Growth Since 1990 (February 2002 to present and September
Fund, Inc. through December 1999); Executive Vice
666 Third Avenue President, Marque Millennium Capital
New York, NY 10017 Management Ltd. (January 2000 - February
2002); Managing Director (until September
1999), President and Chief Investment
Officer (August 1993-September 1998),
Oppenheimer Capital International
(asset management); Chairman of the
Board of the Fund (May 1990-February 1993).
Serge Demoliere (43) Class II Member, Board of Management (since 2001), None
Bankgesellschaft Since 2001 General Manager (prior to 2001),
Berlin BG-EH Nominee Bankgesellschaft Berlin AG,
Alexanderplatz 2
Berlin, Germany 10178
Dirk Kipp (39) Class I Director, Bankgesellschaft Berlin AG, None
Bankgesellschaft Berlin Since 2001 responsible for the Bank's proprietary
BG-EH equity trading.
Alexanderplatz 2
Berlin, Germany 10178
Michel Longchampt(1) (67) Class II Chairman of the Board, Macsteel None
Macsteel International Since 1990 International USA (since May 1999)
USA Corp. Nominee Chairman of the Board (until May
33 Westchester Ave 1999), President and Chief Executive
Suite 5101 Officer (until December 1997),
White Plains, NY 10604 Francosteel Corporation; Consultant,
Longchampt Resources (since January 1998).
- 37 -
- ----------------------- -------------- ----------------------------------------- -----------------------------
Gregory L. Melville (45) Class III Assistant Director, Bankgesellschaft None
Bankgesellschaft Berlin Since 2000 Berlin AG
BG-EH
Alexanderplatz 2
Berlin, Germany 10178
Michel A. Rapaccioli(1)(67) Class II President, Arfin (consulting) (since June None
62 bis rue des Belles Since 1990 1995); Vice President and Chief
Feuilles Nominee Financial Officer, Texasgulf Inc.
75116 Paris, France (fertilizers) (until May 1995); Senior
Vice President and Chief Financial
Officer, Elf Aquitaine, Inc. (holding
company) (until 1994); Chairman and
Director, Elf Trading, Inc. (oil)
(until 1994); Chairman and Chief
Executive Officer, Elf Technologies,
Inc. (until 1994) and Director and
officer of other affiliates of the Elf
group of companies (until 1994).
Moritz Sell(1) (33) Class III Market Strategist, Bankgesellschaft None
Bankgesellschaft Berlin Since 2000 Berlin AG
1 Crown Court
Cheapside
London EC2V 6LR
United Kingdom
John W. Spurdle, Jr.(1)(64) Class I Managing Partner, Spurdle & Company None
Spurdle & Co. Since 1990 (private finance); Chairman,
515 Madison Avenue Investment Management Partners Inc.
Suite 3702 (holding company); President, Asset
New York, NY 10022 Management Investment Co. (since
August 1997); and Advisory
Director, Bluestone
Capital Partners
(investment banking)
(since January 1998).
- ----------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS
- ----------------------------------------------------------------------------------------------------------------------------
John Bult* (65) Class II Chairman, PaineWebber International, Director, The Germany Fund,
PaineWebber International, Since 1990 Inc. Inc., The New Germany Fund,
Inc. Nominee Inc., the Central European
1285 Avenue of the Americas Equity Fund, Inc. and the
37th floor Greater China Fund, Inc.
New York, NY 10019
- 38 -
- ----------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUND
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------- -------------- ----------------------------------------- -----------------------------
Bernard Chauvel (48) President Managing Director, International
Predica Since 1997 Division, Predica (since January 2001);
50-56, rue de la Procession Regional Manager, Credit Agricole
Paris, France 75015 Indosuez (April 1997 to December 2000);
President, Credit Agricole (U.S.)
(January 1991 to May 1997).
Steven M. Cancro (47) Vice First Vice President and Senior Counsel,
666 Third Avenue President Credit Agricole Indosuez (New York).
New York, NY 10017 Since 1992
and
Secretary
Since 1991
Frederick J. Schmidt (42) Vice Vice President, Credit Agricole Asset
666 Third Avenue President Management (since July 1997); Vice
New York, NY 10017 Since 1992 President, Credit Agricole Indosuez
and (New York); Treasurer, Indocam Asia
Treasurer Strategic Growth Fund, Inc. (since
Since 1990 1994).
- ----------
(1) Member of the Audit Committee.
* Denotes an "interested person," as defined in the 1940 Act. Mr. Bult is an
"interested person" by reason of his affiliation with PaineWebber
Incorporated. PaineWebber Incorporated and its affiliate, PaineWebber
International (U.K.) Ltd., were among the principal underwriters of the
initial offering of the Fund's Common Stock in 1990. PaineWebber
Incorporated was the dealer-manager of the Fund's rights offering in 1994.
PaineWebber Incorporated, a broker-dealer registered under the Securities
Exchange Act of 1934, is the parent company of the Fund's administrator.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors has an Audit Committee composed entirely of
Independent Directors, as required by the New York Stock Exchange listing
standards. The Audit Committee is currently composed of Messrs. Arvis,
Longchampt, Rapaccioli, Sell and Spurdle (Chairman). The Audit Committee makes
recommendations to the Board with respect to the selection of independent
accountants and reviews with the independent accountants the scope and results
of the audit engagement. The Audit Committee also considers the range of audit
and non-audit fees, reviews and approves non-audit services provided by the
independent accountants and reviews the annual financial statements of the Fund.
The Audit Committee held three meetings during the Fund's fiscal year ended
December 31, 2001.
The Board no longer has a Nominating Committee. Instead, all of the
Independent Directors consider all candidates for election as a director of the
Fund and nominate the nominees to stand for election by the stockholders. The
Independent Directors consider prospective nominees suggested by stockholders.
At the present time, the Board of Directors does not have a Compensation
Committee or other committee performing similar functions.
- 39 -
The Board has created an Investment and Strategy Committee which is
comprised of Messrs. Arvis, Bult, Barry, Daviron (Chairman), Melville and Sell.
The purpose of the Investment and Strategy Committee is to oversee the
implementation of the proposed new investment program if adopted by
stockholders. The Investment and Strategy Committee must be comprised of at
least a majority of Independent Directors. At present, only one member, Mr.
Bult, is not an Independent Director.
During the Fund's fiscal year ended December 31, 2001, the Board of
Directors met four times, and each director, except for Messrs. Kipp and
Demoliere, attended at least 75% of the aggregate number of meetings of the
Board and meetings of committees of the Board of Directors on which such
director served. Messrs. Kipp and Demoliere attended 50% of the aggregate number
of meetings of the Board during the fiscal year ended December 31, 2001.
One of the Fund's directors, Mr. Arvis and one of the Fund's nominees, Mr.
Rapaccioli, are residents of France; two of the Fund's directors, Messrs.
Melville and Kipp, and one of the Fund's nominees, Mr. Demoliere, are residents
of Germany; one of the Fund's directors, Mr. Sell, is a resident of London.
Substantially all of the assets of such persons may be located outside of the
United States and as a result, it may be difficult for United States investors
to effect service of process upon such directors within the United States or to
realize judgments of courts of the United States predicated upon civil
liabilities of such directors under the federal securities laws of the United
States.
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
COMPANIES OVERSEEN BY
DOLLAR RANGE OF EQUITY DIRECTOR IN THE ADVISER'S
NAME OF DIRECTOR SECURITIES IN THE FUND FAMILY OF FUNDS*
- ---------------- ---------------------- -------------------------
INDEPENDENT DIRECTORS
- --------------------------------------------------------------------------------
Jean A. Arvis $50,001 to $100,000 $50,001 to $100,000
- --------------------------------------------------------------------------------
Thomas C. Barry $10,001 to $50,000 $10,001 to $50,000
- --------------------------------------------------------------------------------
Walter J.P. Curley $10,001 to $50,000 $10,001 to $50,000
- --------------------------------------------------------------------------------
Pierre H.R. Daviron $10,001 to $50,000 $10,001 to $50,000
- --------------------------------------------------------------------------------
Serge Demoliere None None
- --------------------------------------------------------------------------------
Dirk Kipp None None
- --------------------------------------------------------------------------------
Michel Longchampt $1 to $10,000 $1 to $10,000
- --------------------------------------------------------------------------------
Gregory L. Melville None None
- --------------------------------------------------------------------------------
Michel A. Rapaccioli $50,001 to $100,000 $50,001 to $100,000
- --------------------------------------------------------------------------------
Mortiz Sell None None
- --------------------------------------------------------------------------------
John W. Spurdle, Jr. $10,001 to $50,000 $10,001 to $50,000
- --------------------------------------------------------------------------------
INTERESTED DIRECTOR
- --------------------------------------------------------------------------------
John Bult $10,001 to $50,000 $10,001 to $50,000
- --------------------------------------------------------------------------------
- ----------
* There are no other registered investment companies in the Adviser's family
of funds.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Adviser pays the compensation and certain expenses of its personnel and
the personnel of its affiliates, if any, who serve as directors and officers of
the Fund. The Fund pays each of the Independent Directors an annual fee of
$7,500 plus an attendance fee of $700 for
- 40 -
each meeting of the Board of Directors and $700 for each meeting of the Audit
Committee and Investment and Strategy Committee attended. In addition, the Fund
reimburses all directors for certain out-of-pocket travel expenses in connection
with their attendance at meetings of the Board of Directors or any committees
thereof. The Fund pays an additional fee of $5,000 per year to Mr. Arvis for
providing certain consulting services to the Fund and an additional fee of
$4,000 per year to Mr. Spurdle for services as Chairman of the Audit Committee.
The Fund pays a fee of $3,000 per year and an additional fee of $2000 per month
for the six month period beginning January 31, 2002 (the date of creation of the
Committee) to Mr. Daviron for services as Chairman of the Investment and
Strategy Committee.
The following table provides information regarding the fees paid by the
Fund to the Independent Directors for their services for the Fund's fiscal year
ended December 31, 2001.
PENSION OR
RETIREMENT
BENEFITS ESTIMATED
AGGREGATE ACCRUED AS PART ANNUAL TOTAL
COMPENSATION OF FUND'S BENEFITS UPON COMPENSATION
NAME OF DIRECTOR FROM THE FUND EXPENSES RETIREMENT FROM THE FUND
- ---------------- ------------- --------------- ------------- -------------
Jean A. Arvis ............... $18,100 -0- -0- $18,100
- ---------------------------------------------------------------------------------------------
Thomas C. Barry ............. $ 9,600 -0- -0- $ 9,600
- ---------------------------------------------------------------------------------------------
W.L. Lyons Brown, Jr.* ...... $ 7,725 -0- -0- $ 7,725
- ---------------------------------------------------------------------------------------------
Walter J.P. Curley .......... $ 8,900 -0- -0- $ 8,900
- ---------------------------------------------------------------------------------------------
Pierre H.R. Daviron ......... $10,300 -0- -0- $10,300
- ---------------------------------------------------------------------------------------------
Serge Demoliere** ........... $ 3,125 -0- -0- $ 3,125
- ---------------------------------------------------------------------------------------------
Dirk Kipp** ................. $ 3,825 -0- -0- $ 3,825
- ---------------------------------------------------------------------------------------------
Michel Longchampt ........... $11,000 -0- -0- $11,000
- ---------------------------------------------------------------------------------------------
Gregory L. Melville** ....... $10,300 -0- -0- $10,300
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Michel A. Rapaccioli ........ $13,100 -0- -0- $13,100
- ---------------------------------------------------------------------------------------------
Jacques Regniez* ............ $ 5,075 -0- -0- $ 5,075
- ---------------------------------------------------------------------------------------------
Moritz Sell** ............... $11,000 -0- -0- $11,000
- ---------------------------------------------------------------------------------------------
John W. Spurdle, Jr ......... $16,100 -0- -0- $16,100
- ---------------------------------------------------------------------------------------------
- ----------
* Mr. W.L. Lyons Brown, Jr. and Mr. Jacques Regniez no longer served as
directors after the April 29, 2001 Annual Meeting of Stockholders.
** The fees paid for services rendered by the representatives of
Bankgesellschaft Berlin AG on the Board of Directors of the Fund, Messrs.
Demoliere, Kipp, Melville and Sell, are paid directly to Bankgesellschaft
Berlin AG.
INDEPENDENT AUDITORS
The Board of Directors have selected PricewaterhouseCoopers LLP ("PwC")
as the Fund's independent accountants for the current fiscal year ending
December 31, 2002. Representatives of PwC will be present and available for
questions at the Meeting.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee acts pursuant to a written charter first adopted
and approved on April 27, 2000 and reviewed on June 19, 2001. The role of the
Audit Committee is to assist the Board of Directors in its oversight of the
Fund's financial reporting process. Management of the Fund is responsible for
the preparation, presentation and integrity of the Fund's financial
- 41 -
statements, the Fund's accounting and financial and reporting principles and
internal controls and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. The Fund's independent auditors,
PwC, is responsible for auditing the Fund's financial statements and expressing
an opinion as to their conformity with generally accepted accounting principles.
The Audit Committee reviewed the Fund's audited financial statements for
the fiscal year ended December 31, 2001 at a meeting on February 28, 2002 and
discussed these financial statements with the Fund's management. The Audit
Committee also reviewed and discussed the audited financial statements and the
matters required by Statement on Auditing Standards 61, as amended
(Communication with Audit Committees) with PwC. PwC also provided the Audit
Committee with the written disclosures and the letter required by Independence
Standard No. 1 (Independence Discussions with Audit Committees) at a meeting on
December 10, 2001. In addition, the Audit Committee discussed with the
independent accountants their independence with respect to the Fund.
Stockholders are reminded, however, that the members of the Audit Committee
are not professionally engaged in the practice of auditing or accounting and are
not experts in the fields of auditing or accounting, including in respect of
auditor independence. Members of the Audit Committee rely without independent
verification on the information provided to them and on the representations made
by Fund management and PwC. Accordingly, the Audit Committee's oversight does
not provide an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles or appropriate
internal control and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. Furthermore, the Audit
Committee's considerations and discussions referred to above do not assure that
the audit of the Fund's financial statements has been carried out in accordance
with generally accepted auditing standards, that the financial statements are
presented in accordance with generally accepted accounting principles or that
the Fund's accountants are, in fact, "independent."
Based on its discussions with management and the independent accountants,
and its review of the representations and information provided by management and
the independent accountants, and subject to the limitation on the role and
responsibility of the Audit Committee referred to above, the Audit Committee
recommended to the Fund's Board of Directors that the audited financial
statements be included in the Fund's Annual Report to Stockholders for the year
ended December 31, 2001.
By the Audit Committee of the Board of Directors:
John W. Spurdle, Jr., CHAIRMAN
Jean A. Arvis
Michel Longchampt
Michael Rapaccioli
Moritz Sell
- 42 -
AUDIT FEES
The aggregate fees billed for professional services rendered by PwC for its
audit of the Fund's annual financial statements for the year ended December 31,
2001 contained in the Annual Report filed by the Fund amounted to $70,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
PwC did not provide any financial systems design or implementation services
during the year.
ALL OTHER FEES
The aggregate fees billed for all services rendered by PwC to the Fund, the
Adviser, and any entity controlling, controlled by, or under common control with
the Adviser that provides services to the Fund, other than the audit fees
described above, during the year ended December 31, 2001 amounted to $12.9
million. That figure includes $5,000 in fees for tax-related services billed to
the Fund.
STOCKHOLDER PROPOSAL
WITH RESPECT TO EXPIDITING THE PROCESS TO ENSURE THAT FUND
SHARES CAN TRADE AT NET ASSET VALUE
(PROPOSAL 6)
THE BOARD OF DIRECTORS OF THE FUND UNANIMOUSLY AND STRONGLY RECOMMENDS THAT
STOCKHOLDERS VOTE AGAINST PROPOSAL 6. THE DIRECTORS BELIEVE THE PROPOSAL IS
CONTRARY TO THE BEST INTERESTS OF STOCKHOLDERS.
STOCKHOLDER PROPOSAL
A stockholder has submitted the following proposal and supporting statement
for inclusion in this proxy statement. The stockholder claims beneficial
ownership of common stock of the Fund valued at over $2,000. The Fund will
provide the address of the proposing stockholder to any person who requests that
information by written or oral request to Steven M. Cancro, Secretary of the
Fund, 666 Third Avenue, New York, New York 10017.
RESOLVED, that shareholders of The France Growth Fund (the "Fund") recommend the
Board of Directors expedite the process to ensure Fund shares can trade at net
asset value (NAV) daily by converting to an open-end investment company.
SUPPORTING STATEMENT
The Fund no longer needs the closed-end format to achieve its current
investment objective. It hasn't for years. Shareholders made that statement loud
and clear two years ago (69.1% of shares that voted and 49.6% of outstanding
shares) on a similar open-ending proposal, but the Board in place at that time
refused to accept the will of the shareholders. Now, the Fund
- 43 -
is proposing a multi-strategy, pan-European focus, thereby altering the Fund's
risk-reward parameters materially, yet without providing an exit at NAV for
shareholders that do not want to go along with the plan. The Fund, de facto
expects that shareholders should sell their shares at a discount - possibly a
wide one - if they do not favor the proposed changes. A vote FOR this proposal
will send a message that liquidity at NAV has a place in the Fund's future.
The persistent discount to NAV over the years has caused shareholder
returns to underperform NAV returns on a long-term basis. Let us not forget that
shareholders have lost a considerable amount of money on their investment in the
past two years as the NAV has declined dramatically. Advantage Partners, L.P.,
wouldn't waste your time if the merits of voting FOR this proposal weren't
numerous.
With the Fund still languishing at discounts to NAV in the range of 12% to
15%, the economic cost of the discount to shareholders is approximately $13
MILLION TO $16 MILLION. It is certainly no consolation prize that the value of
the discount has shrunk while the stock price has been cut in half since
shareholders last passed an open-ending proposal!
Even if a fund trading at a 12% discount is open-ended, the benefits of
open-ending far outweigh the detrimental cost caused by its gaping discount in
the closed-end structure: A 13.6% BENEFIT VS. LESS THAN A 0.3% ON-GOING ANNUAL
COST. One-time conversion costs (approximately 0.25% of NAV), and on-going
incremental expenses (likely 0.1%-0.3% annually) are inconsequential in relation
to the price improvement that shareholders would receive as the share price
converges with NAV. The Fund may claim this is a one time benefit, but that
stance misses the reality that NAV is the trading price every day from that
point forward, allowing shareholders to obtain full value for their holdings,
and the liquidity to do so, at the time of their choosing. That is anything but
a one-time benefit, it is an every day benefit.
The closed-end format served the Fund well in earlier years. Perpetuating
this structure when making material changes in the investment focus, yet
providing no means for shareholders to opt for NAV first, makes little sense in
a fund saddled with a chronic discount. Give shareholders a fair choice as the
Fund seeks to change direction!
THE BOARD OF DIRECTORS RESPONSE TO THE STOCKHOLDER'S PROPOSAL:
The Board of Directors unanimously opposes the proposal described above and
recommends that stockholders vote AGAINST this proposal. The reasons for this
unanimous recommendation are as follows:
As described earlier in this proxy statement, your Board has approved an
innovative new European investment program for the Fund. Under this new program,
the Fund would seek long-term capital appreciation through a dynamic
multi-manager, multi-strategy investment approach.
Your Board strongly believes that the Fund's closed-end structure is
critical to the successful implementation of this new investment program. Many
of the new investment strategies which the Adviser and the investment managers
may use require a stable asset base upon which investment decisions can be made.
These strategies involve the careful use of
- 44 -
sophisticated investment techniques that work in balance with the long positions
in either stocks or bonds taken by the Adviser or the investment managers. If
the Fund were to operate in the open-end format, the Board believes that the
unpredictable inflows and outflows of capital to and from the Fund would
significantly disrupt the Adviser's and investment managers' ability to
successfully implement these investment strategies. In the closed-end format,
the Adviser and the investment managers work with a stable asset base which only
goes up or down depending upon the performance of the Fund's investments. The
Adviser and investment managers would not need to constantly manage cash flows
into and out of the Fund based upon unpredictable levels of new investments into
the Fund or redemptions out of the Fund. Instead, they would be able to focus on
seeking to achieve the Fund's long-term investment objective and would be able
to employ more detailed investment strategies when constructing the Fund's
portfolio.
In addition to being able to utilize less traditional investment strategies
for portions of the Fund's portfolio, the closed-end format would also afford
the Fund access to a new category of very talented investment managers which
would not otherwise be available to open-end mutual funds. These investment
managers manage collective investment vehicles which are exempt from
registration as investment companies. Interests in these funds are not publicly
traded and they are generally made available only to institutional and high net
worth individual investors. The Fund would access the investment management
skills of these investment managers through investments directly in these funds
(the "Portfolio Funds"). If the Fund were operating in the open-end format, the
Adviser believes it unlikely that it would be able to consider Portfolio Funds
as an available investment option for the Fund. Portfolio Funds typically
significantly restrict an investors ability to purchase or redeem interests in
the Portfolio Funds. Many of these funds permit new investments or sales of
existing investments on a quarterly basis only. An open-end mutual fund would
generally not be able to sell interests in the Portfolio Funds in a timely
manner to meet redemption requests and would similarly not be able to put new
cash inflows to work in the Portfolio Funds with any reasonable speed.
Your Board also does not believe that it would be in the best interests of
the Fund and its stockholders to seek to provide a means for some stockholders
to exit the Fund at net asset value at this time for several reasons.
Stockholders are being asked to consider and vote on this proposed change in the
Fund's investment program. If approved, the Adviser would not begin to implement
the proposed new investment program until June of this year. The Fund has
endeavored to provide as early an advance notice to stockholders of this
proposed change, beginning with a press release disseminated to the media on
January 8, 2002 and a second issued on February 28, 2002, as was legally
permissible. The Board believes that those stockholders who determine that the
Fund would no longer be an appropriate investment for them if the change is
approved would have sufficient time to reduce or liquidate their positions in
the Fund. The Board also believes that there has been sufficient liquidity in
the market to absorb any such sales, as the discount to net asset value has
averaged 11.16% over the first half of March, 2002. In addition, the Fund would
incur significant costs in an effort to engineer an exit option for some
stockholders at net asset value. These costs would be borne by all stockholders.
Given that the Board believes there is sufficient liquidity in the market and
that stockholders will have the opportunity to vote on the proposed changes, the
Board concluded that incurring significant costs to seek to create an exit
strategy for some would not be in the best interests of the Fund and its
stockholders at this time.
- 45 -
Your Board strongly believes that the proposed new direction for the Fund
is in the best interests of the Fund and its stockholders. The Board also
believes that the Fund's closed-end structure is a fundamental component of this
proposed new investment program and is critical to its successful
implementation. For these reasons, conversion of the Fund to the open-end format
would be incompatible with the Fund's new direction and the Board recommends
that stockholders vote against this proposal.
BOARD'S RECOMMENDATION
At the special meeting held on February 28, 2002, the Board, including all
of the Independent Directors, determined that continuing to operate the Fund in
the closed-end format would be in the best interests of the Fund and its
stockholders if the proposed new investment program is approved.
REQUIRED VOTE
Adoption of this Proposal 6 requires the approval of a majority of the
shares of the Fund present in person or by proxy at the meeting, if a quorum is
present at the Meeting.
FOR THE REASONS SET FORTH ABOVE, THE BOARD UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE AGAINST THIS PROPOSAL 6.
INFORMATION CONCERNING THE MEETING
SOLICITATION OF PROXIES
The cost of preparing, printing and mailing these proxy materials will be
borne by the Fund. In addition to the mailing of these proxy materials, proxies
may be solicited by telephone, by fax or in person by the directors, officers
and employees of the Fund, the Adviser, or Brinson Advisors, the Fund's
administrator, whose principal address is 51 West 52nd Street, New York, New
York 10019. Georgeson Shareholder Communications Corporation, a third party
solicitation firm, has agreed to provide proxy solicitation services to the Fund
at a cost of approximately $10,000. Brokerage houses, banks and other
fiduciaries may also be requested to forward these proxy materials to the
beneficial owners of Fund shares to obtain authorization for completing the
proxies and will be reimbursed by the Fund for their out-of-pocket expenses.
REVOKING PROXIES
A stockholder signing and returning a proxy has the power to revoke it at
any time before it is exercised by filing a written notice of revocation with
the Fund's secretary, c/o The France Growth Fund, Inc., 666 Third Avenue, New
York, NY 10017; or by returning a duly executed proxy with a later date before
the time of the Meeting; or if a stockholder has executed a proxy but is present
at the Meeting and wishes to vote in person, by notifying the secretary of the
Fund (without complying with any formalities) at any time before it is voted.
- 46 -
Being present at the Meeting alone does NOT revoke a previously executed
and returned proxy.
OUTSTANDING SHARES AND QUORUM
As of March 28, 2002, 12,072,000 shares of common stock of the Fund were
outstanding. Only stockholders of record on March 28, 2002 are entitled to
notice of and to vote at the Meeting. Thirty-three percent (33%) of the shares
of common stock issued and outstanding and entitled to vote at the Meeting will
be considered a quorum for the transaction of business.
OWNERSHIP OF COMMON STOCK
As of March 28, 2002, to the knowledge of the management of the Fund, there
were no persons known to be control persons of the Fund, as such term is defined
in Section 2(a)(9) of the 1940 Act. As of such date, the only persons known to
the Fund to have record or beneficial ownership of more than 5% of the
outstanding common stock of the Fund are the following:
NAME AND ADDRESS OF BENEFICIAL/ AMOUNT OF BENEFICIAL/ PERCENTAGE OF OUTSTANDING
RECORD OWNER RECORD OWNERSHIP SHARES
------------------------------- --------------------- -------------------------
(RECORD OWNER)
Cede & Co., as nominee for The Depository Trust
Company
P.O. Box 20
Bowling Green Station
New York, NY 10004
(BENEFICIAL OWNERS) ...................... 1,985,805 16.45%
Bankgesellschaft Berlin AG
Alexanderplatz 2
D-10178 Berlin
Germany*
President and Fellows of Harvard College . 1,017,181 8.43%
c/o Harvard Management Co., Inc.
600 Atlantic Avenue
Boston, MA 02210*
Lazard Freres & Co. LLC .................. 1,001,424 8.30%
30 Rockefeller Plaza
New York, NY 10020*
Atout France Europe ...................... 721,700 5.98%
Atout Futur
91 93 Blvd Pastuer
75300 Paris France*
Cargill Financial Markets PLC ............ 629,809 5.22%
Knowle Hill Park, Fairmile Lane,
Cobham
Surrey KT11 2PD, United Kingdom*
- ----------
* Based upon the most recent Schedules 13G filed by each entity with the SEC.
- 47 -
VOTING RIGHTS
The Fund expects that broker-dealer firms holding shares of the Fund in
"street name" for the benefit of their customers and clients will ask their
customers and clients how they want their shares voted on each proposal before
the Meeting. The Fund understands that, under the rules of the NYSE, these
broker-dealers may, without instructions from their customers and clients, grant
authority to the proxies designated by the Fund to vote on certain items to be
considered at the Meeting if no instructions have been received prior to the
date specified in the broker-dealer firm's request for voting instructions.
Certain-broker-dealer firms may also exercise discretion over shares held in
their name for which no instructions are received by voting such shares in the
same proportion as they have voted shares for which they have received
instructions.
The shares as to which the broker-dealer firms have granted authority to
the proxies designated by the Fund to vote on the items to be considered at the
Meeting, the shares as to which broker-dealer firms have declined to vote
("broker non-votes"), and the shares as to which proxies are returned by record
stockholders but which are marked "abstain" on any item will be included in the
Fund's tabulation of the total number of votes present for purposes of
determining whether the necessary quorum of stockholders exists. However,
abstentions and broker non-votes will not be counted as votes cast. Therefore,
abstentions and broker non-votes will have the effect of voting against
Proposals 1, 2, 3 and 4 but will not have an effect on the election of directors
or the stockholder proposal, although they will count toward the presence of a
quorum.
OTHER BUSINESS
The Board of Directors knows of no other matters to be presented for
consideration at the Meeting. If other business including any question as to an
adjournment of the Meeting is properly brought before the Meeting, proxies will
be voted according to the best judgment of the persons named as proxies.
TRANSACTIONS BY AFFILIATES
During the fiscal year of the Fund ended December 31, 2001, there were no
transactions in the common stock of the Adviser, its parents or subsidiaries by
any officer, director or nominee for election of director of the Fund in an
amount equal to or exceeding 1% of the outstanding common stock of such entity.
Mr. Arvis has indicated ownership of directors' qualifying shares (less than 1%
of the outstanding shares) of Credit Agricole Indosuez, the indirect parent
company of the Adviser.
- 48 -
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the Fund's Annual Meeting
of Stockholders in 2003 must be received by the Fund on or before ____________,
2003, in order to be included in the Fund's proxy statement and form of proxy
relating to that meeting. For a stockholder proposal which is not included in
the Fund's proxy statement to be considered timely, it must be received by the
Fund at least 90 days before the anniversary date of the mailing of the Fund's
proxy materials for the prior year's annual meeting.
Steven M. Cancro
SECRETARY
Dated: April __, 2002
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE AND RETURN THE
ENCLOSED PROXY CARD. PLEASE TAKE A FEW MINUTES TO VOTE NOW AND HELP SAVE THE
COST OF ADDITIONAL SOLICITATIONS.
- 49 -
APPENDIX A
THE EUROPEAN MULTI-STRATEGY INVESTMENT COMPANY
ADDITIONAL RISK INFORMATION
THE INFORMATION PRESENTED IN THIS APPENDIX A WOULD BECOME APPLICABLE FOR
THE FUND ONLY IF STOCKHOLDERS APPROVE PROPOSALS 1, 2 AND 3. PLEASE BE SURE TO
CAREFULLY REVIEW THE INFORMATION CONCERNING THE FUND'S PRINCIPAL RISKS CONTAINED
UNDER THE HEADING `PRINCIPAL RISKS OF INVESTING IN THE FUND' IN THE ATTACHED
PROXY STATEMENT ALONG WITH THE ADDITIONAL RISK INFORMATION SET FORTH BELOW.
SPECIAL INVESTMENT INSTRUMENTS AND TECHNIQUES
The Fund may utilize a variety of special investment instruments and techniques
to implement the investment strategies described in the proxy statement under
the heading `SPECIFIC INVESTMENT STRATEGIES UTILIZED'. The instruments the Fund
may use and the particular manner in which they may be used may change over time
as new instruments and techniques are developed or regulatory changes occur.
Certain of the special investment instruments and techniques that the Fund may
use are speculative and involve a high degree of risk, particularly in the
context of non-hedging transactions. These instruments and techniques may also
be used by the Portfolio Managers and by the Portfolio Funds. When these
instruments and techniques are used by Portfolio Funds, the Portfolio Funds
would directly be subject to the risks described below and the Fund would
indirectly be subject to the same risks through its investment in the Portfolio
Funds. Unless otherwise specified, percentage limitations shall be applied at
the time of investment to direct investments made by the Fund. The Fund's
investment limitations are not applied to the portfolio securities held by
Portfolio Funds in which the Fund may invest.
DERIVATIVES. The Fund may invest in, or enter into, derivative instruments.
These are financial instruments which derive their performance, at least in
part, from the performance of an underlying asset, index or interest rate.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular derivative and the
portfolio as a whole. Derivatives permit the Fund to increase or decrease the
level of risk of the portfolio, or change the character of the risk, to which
the portfolio is exposed in much the same way as the Fund can increase or
decrease the level of risk, or change the character of the risk, of the
portfolio by making investments in specific securities. Derivatives may entail
investment exposures that are greater than their cost would suggest, meaning
that a small investment in derivatives could have a large potential impact on
the Fund's performance. If the Fund invests in derivatives at inopportune times
or when market conditions are judged incorrectly, such investments may lower the
Fund's return or result in a loss. The Fund could also experience losses if
derivatives are poorly correlated with its other investments, or if it is unable
to liquidate its position because of an illiquid secondary market. The market
for many derivatives is, or suddenly can become, illiquid. Changes in liquidity
may result in significant, rapid and unpredictable changes in the prices for
derivatives.
A- 1 -
OPTIONS ON SECURITIES AND SECURITIES INDICES. The Fund may purchase and write
put and call options on securities and securities indices. It may also use
so-called `synthetic' options or other derivative instruments written by
broker-dealers or other permissible financial intermediaries. Options
transactions may be effected on securities exchanges or in the over-the-counter
market. When options are purchased over-the-counter, the Fund bears the risk
that the counterparty that wrote the option will be unable or unwilling to
perform its obligations under the option contract. Such options may also be
illiquid and, in such cases, the Fund may have difficulty closing out its
position. The Fund may purchase and may write and sell covered or uncovered call
and put options for hedging purposes and non-hedging purposes to pursue its
investment objective.
A put option gives the purchaser of the option the right to sell, and obligates
the writer to buy, the underlying security at a stated exercise price at any
time prior to the expiration of the option. Similarly, a call option gives the
purchaser of the option the right to buy, and obligates the writer to sell, the
underlying security at a stated exercise price at any time prior to the
expiration of the option. A covered call option is a call option with respect to
which the Fund owns the underlying security. The sale of such an option exposes
the Fund during the term of the option to possible loss of the opportunity to
realize appreciation in the market price of the underlying security or to the
possible continued holding of a security that might otherwise have been sold to
protect against depreciation in the market price of the security. A covered put
option is a put option with respect to which cash or liquid securities have been
placed in a segregated account on the Fund's books or with the Fund's custodian
to fulfill the obligation undertaken. The sale of such an option exposes the
Fund during the term of the option to a decline in price of the underlying
security while depriving the Fund of the opportunity to invest the segregated
assets.
The Fund may close out a position when writing options by purchasing an option
on the same security with the same exercise price and expiration date as the
option that it has previously written on the security. The Fund will realize a
profit or loss if the amount paid to purchase an option is less or more, as the
case may be, than the amount received from the sale thereof. To close out a
position as a purchaser of an option, the Fund would ordinarily make a similar
closing sale transaction, which involves liquidating the Fund's position by
selling the option previously purchased, although the Fund would be entitled to
exercise the option should it deem it advantageous to do so.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may enter into
financial futures contracts or purchase or sell put and call options on such
futures, including securities index, interest rate and currency exchange rate
futures contracts. Futures are generally bought and sold on the commodities
exchanges where they are listed and involve payment of initial and variation
margin. The sale of futures contracts creates a firm obligation by the Fund, as
seller, to deliver to the buyer the specific type of financial instrument called
for in the contract at a specific future time for a specified price (or, with
respect to index futures, the net cash amount). The purchase of futures
contracts creates a corresponding obligation by the Fund, as purchaser to
purchase a financial instrument at a specific time and price. Options on futures
contracts are similar to options on securities except that an option on a
futures contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract and obligates the seller to deliver such
position, if the option is exercised.
A- 2 -
The use of derivatives that are subject to regulation by the Commodity Futures
Trading Commission (the "CFTC") could cause the Fund to be a commodity pool,
which would require the Fund to comply with certain rules of the CFTC. However,
the Fund intends to conduct its operations to avoid regulation as a commodity
pool. The CFTC rules currently provide that the Fund may use commodity futures
and option positions (i) for bona fide hedging purposes without regard to the
percentage of assets committed to margin and option premiums, or (ii) for other
purposes permitted by the CFTC to the extent that the aggregate initial margin
and option premiums required to establish such non-hedging positions (net of the
amount that the positions were `in the money' at the time of purchase) do not
exceed 5% of the net asset value of the Fund's portfolio, after taking into
account unrealized profits and losses on such positions. The Adviser intends to
monitor use of futures and related options by Portfolio Managers and Portfolio
Funds to help assure compliance with this limitation. If applicable CFTC rules
change, these percentage limitations may change or different conditions may be
applied to the Fund's use of certain derivatives.
The Fund may enter into futures contracts on exchanges located outside the
United States. Foreign markets may offer advantages such as trading
opportunities or arbitrage possibilities not available in the United States.
Foreign markets, however, may have greater risk potential than domestic markets.
For example, some foreign exchanges are principal markets so that no common
clearing facility exists and an investor may look only to the broker for
performance of the contract. In addition, any profits the Fund might realize in
trading could be eliminated by adverse changes in exchange rates and losses
could be incurred. Transactions on foreign exchanges may include both
commodities which are traded on domestic exchanges and those which are not.
Unlike trading on domestic commodity exchanges, trading on foreign commodity
exchanges is not regulated by the CFTC. No assurance can be given that a liquid
market will exist for any particular futures contract at any particular time.
Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the trading day. Futures contract prices could move to the limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and potentially subjecting the Fund to
substantial losses. In addition, the low margin or premiums normally required
when entering into futures contracts may provide a large amount of leverage, and
a relatively small change in the price of a security or contract can produce a
disproportionately larger profit or loss.
Successful use of futures is also subject to the Adviser's and Portfolio
Managers' ability to predict correctly movements in the direction of the
relevant market, and, to the extent the transaction is entered into for hedging
purposes, to ascertain the appropriate correlation between the transaction being
hedged and the price movements of the futures contract. Pursuant to regulations
and published positions of the SEC, the Fund may be required to segregate
permissible liquid assets in connection with its commodities transactions in an
amount generally equal to the value of the underlying commodity. The segregation
of such assets will have the effect of limiting the Fund's ability otherwise to
invest those assets.
A- 3 -
SWAP AGREEMENTS. The Fund may enter into equity, interest rate, index and
currency exchange rate swap agreements. These transactions are entered into in
an attempt to obtain a particular return when it is considered desirable to do
so, possibly at a lower cost than if the Fund had invested directly in the asset
that yielded the desired return. Swap agreements are two-party contracts entered
into primarily by institutional investors for periods ranging from a few weeks
to more than a year. In a standard swap transaction, two parties agree to
exchange the returns (or differentials in rates of return) earned or realized on
particular predetermined investments or instruments, which may be adjusted for
an interest factor.
The gross returns to be exchanged or `swapped' between the parties are generally
calculated with respect to a notional amount (i.e., the return on or increase in
value of a particular dollar amount invested at a particular interest rate or in
a particular foreign currency), or in a `basket' of securities representing a
particular index. Forms of swap agreements include interest rate caps, under
which, in return for a premium, one party agrees to make payments to the other
to the extent interest rates exceed a specified rate or `cap'; interest rate
floors, under which, in return for a premium, one party agrees to make payments
to the other to the extent interest rates fall below a specified level or
`floor'; and interest rate collars, under which a party sells a cap and
purchases a floor or vice versa in an attempt to protect itself against interest
rate movements exceeding given minimum or maximum levels.
Most swap agreements entered into by the Fund would require the calculation of
the obligations of the parties to the agreements on a net basis. Consequently,
the Fund's current obligations (or rights) under a swap agreement generally will
be equal only to the net amount to be paid or received under the agreement based
on the relative values of the positions held by each party to the agreement. The
risk of loss with respect to swaps is limited to the net amount of interest
payments that the Fund is contractually obligated to make. If the other party to
a swap defaults, the Fund's risk of loss consists of the net amount of payments
that the Fund contractually is entitled to receive.
HEDGING TRANSACTIONS. The Fund may utilize a variety of financial instruments,
such as derivatives, options, interest rate swaps, caps and floors, futures and
forward contracts to seek to hedge against declines in the values of its
portfolio positions as a result of certain changes in the equity markets and
market interest rates, changes in currency exchange rates, and other events.
Hedging against a decline in the value of portfolio positions does not eliminate
fluctuations in the values of portfolio positions or prevent losses if the
values of such positions decline. Instead, hedging establishes other positions
designed to gain from those same developments which are intended to offset the
decline in the portfolio positions' value. Hedging transactions may also limit
the opportunity for gain if the value of the hedged portfolio positions should
increase. It may not be possible for the Adviser or Portfolio Managers to hedge
against a change or event at a price sufficient to protect the Fund's assets
from the decline in value of the portfolio positions anticipated as a result of
such change. In addition, it may not be possible to hedge against certain
changes or events at all. The Fund is not obligated to establish hedges for
portfolio positions and may decline to do so. The Fund does not generally intend
to hedge its foreign currency exposure to changes in the value of the U.S.
dollar.
A- 4 -
To the extent that hedging transactions are effected, their success is dependent
on the Adviser's and Portfolio Managers' ability to correctly predict movements
in the direction of the equity markets or sectors thereof, currency exchange
rates, interest rates or other events being hedged against in relation to the
corresponding movements in the Fund's positions. While the Fund may enter into
hedging transactions to seek to reduce certain specific or general risks, the
unanticipated occurrence or the non-occurrence of other events being hedged
against may result in a poorer overall performance for the Fund than if the Fund
had not engaged in any such hedging transaction. In addition, the degree of
correlation between price movements of the instruments used in a hedging
strategy and price movements in the portfolio position being hedged may vary.
For a variety of reasons, the Fund may not seek to establish a perfect
correlation between such hedging instruments and the portfolio holdings being
hedged. Such imperfect correlation may prevent the Fund from achieving the
intended hedge or expose the Fund to additional risk of loss.
COUNTERPARTY CREDIT RISK. Many of the markets in which the Fund effects its
transactions are `over-the-counter' or `interdealer' markets. The participants
in these markets are typically not subject to credit evaluation and regulatory
oversight as are members of `exchange based' markets. To the extent the Fund
invests in swaps, derivative or synthetic instruments, or other over-the-counter
transactions, on these markets, the Fund may take a credit risk with regard to
parties with whom it trades and may also bear the risk of settlement default.
These risks may differ materially from those entailed in exchange-traded
transactions which generally are backed by clearing organization guarantees,
daily marking-to-market and settlement, and segregation and minimum capital
requirements applicable to intermediaries. Transactions entered into directly
between two counterparties generally do not benefit from such protections. This
exposes the Fund to the risk that a counterparty will not settle a transaction
in accordance with its terms and conditions because of a dispute over the terms
of the or because of a credit or liquidity problem, thus causing the Fund to
suffer a loss. This `counterparty risk' is accentuated for contracts with longer
maturities where events may intervene to prevent settlement, or where the Fund
has concentrated its transactions with a single or small group of
counterparties. The Fund is not restricted from dealing with any particular
counterparty or from concentrating any or all of their transactions with one
counterparty. The ability of the Fund to transact business with any one or
number of counterparties, the lack of any independent evaluation of such
counterparties' financial capabilities and the absence of a regulated market to
facilitate settlement may increase the potential for losses by the Fund.
USE OF LEVERAGE. The Fund may directly or indirectly borrow funds from brokerage
firms and banks. Borrowing for investment purposes is known as `leverage.' The
Fund may also `leverage' its portfolio by using options, swaps, forwards and
other derivative instruments. While leverage presents opportunities for
increasing the Fund's total return, it has the effect of potentially increasing
losses as well. Accordingly, any event that adversely affects the value of an
investment, either directly or indirectly, by the Fund could be magnified to the
extent that leverage is employed by the Fund. The cumulative effect of the use
of leverage by the Fund, directly or indirectly, in a market that moves in a
direction that is adverse to expectations could result in a loss to the Fund
that would be greater than if leverage were not employed. In addition, to the
extent that the Fund borrows funds, the rates at which it can borrow may affect
A- 5 -
the operating results of the Fund. Furthermore, the use of leverage may subject
the Fund to losses greater than the amount of capital invested by the Fund.
The anticipated use of short-term margin borrowings by the Fund may result in
certain additional risks to the Fund. For example, should the securities that
are pledged to brokers to secure the Fund's margin accounts decline in value, or
should brokers from which the Fund has borrowed increase their maintenance
margin requirements (i.e., reduce the percentage of a position that can be
financed), then the Fund could be subject to a `margin call', pursuant to which
the Fund must either deposit additional funds with the broker or suffer
mandatory liquidation of the pledged securities to compensate for the decline in
value. In the event of a precipitous drop in the value of the assets of the
Fund, the Fund might not be able to liquidate assets quickly enough to pay off
the margin debt and might suffer mandatory liquidation of positions in a
declining market at relatively low prices, thereby incurring substantial losses.
The Fund is subject to the 1940 Act requirement that an investment company
satisfy an asset coverage requirement of 300% of its indebtedness, including
amounts borrowed measured at the time the investment company incurs the
indebtedness. This means that the value of the Fund's total indebtedness may not
exceed one-third the value of its total assets (including such indebtedness).
These limits do not apply to the Portfolio Funds and, therefore, the Fund's
portfolio may be exposed to the risk of highly leveraged investment programs of
certain Portfolio Funds and, as a result, the volatility of the value the
interests in the Portfolio Funds may be significant.
CURRENCIES. The Fund invests substantially all of its assets in securities
denominated in currencies other than the U.S. dollar. The Fund may, but does not
currently intend to, hedge some or all of its foreign currency exposure. Because
the Fund's foreign currency exposure is likely to be unhedged, the value of the
position will fluctuate with U.S. dollar exchange rates as well as the price
changes of its investments in the various local markets and currencies. An
increase in the value of the U.S. dollar compared to the other currencies in
which the Fund makes its investments will reduce the effect of increases and
magnify the effect of decreases in the prices of such securities in their local
markets. Conversely, a decrease in the value of the U.S. dollar will have the
opposite effect on a Portfolio Fund's non-U.S. dollar securities by amplifying
the effect of increases and reducing the effect of decreases in the prices of
such securities in their local markets.
WARRANTS AND RIGHTS. The Fund may purchase and hold warrants and rights.
Warrants are derivative instruments that permit, but do not obligate, the holder
to subscribe for other securities or commodities. Rights are similar to
warrants, but normally have a shorter duration and are offered or distributed to
shareholders of a company. Warrants and rights do not carry with them the right
to dividends or voting rights with respect to the securities that they entitle
the holder to purchase, and they do not represent any rights in the assets of
the issuer. As a result, warrants and rights may be considered more speculative
than certain other types of equity securities. In addition, the values of
warrants and rights do not necessarily change with the values of the underlying
securities or commodities and these instruments cease to have value if they are
not exercised prior to their expiration dates.
RESTRICTED AND ILLIQUID INVESTMENTS. The Fund may invest in securities that are
subject to legal or other restrictions on transfer or for which no liquid market
exists. The market prices, if any, for
A- 6 -
these securities tend to be volatile and the Fund may not be able to sell them
when it desires to do so or to realize what it perceives to be their fair value
in the event of a sale. The sale of restricted and illiquid securities often
requires more time and results in higher brokerage charges or dealer discounts
and other selling expenses than does the sale of securities eligible for trading
on national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. For those portions of the Fund's portfolio
which are managed by the Adviser or Portfolio Managers, restricted securities
for which no market exists and other illiquid investments are valued at fair
value, as determined in accordance with procedures approved and periodically
reviewed by the Board of Directors of the Fund. The Fund's investments in
Portfolio Funds will generally be illiquid and subject to substantial
restrictions on transfer. The Fund may liquidate an interest and withdraw from a
Portfolio Fund pursuant to limited withdrawal rights. The lack of liquidity of
these investments may adversely affect the Fund if it has to sell these
investments at an inopportune time or price.
A- 7 -
APPENDIX B
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
AGREEMENT dated as of __________ 2002, between The European Multi-Strategy
Investment Company, a Maryland corporation (the "Fund"), and Credit Agricole
Asset Management U.S. Advisory Services, a French corporation (the "Investment
Adviser").
WHEREAS, the Fund is a diversified, closed-end management investment company
registered with the Securities and Exchange Commission (the "SEC") under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Fund desires to retain the Investment Adviser to render certain
management and investment advisory services to the Fund and the Investment
Adviser is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, it is agreed between the parties as follows:
1. APPOINTMENT OF THE ADVISER. The Fund hereby appoints the Investment
Adviser to act as manager and investment adviser to the Fund for the period and
on the terms set forth in this Agreement. The Investment Adviser hereby accepts
such appointment and agrees to furnish the services herein set forth for the
compensation provided.
2. INVESTMENT ADVISORY AND MANAGEMENT SERVICES. The Investment Adviser
undertakes and agrees:
2.1 To make investment decisions on behalf of the Fund as to the structure
and composition of the Fund's investment portfolio and the acquisition and
disposition of securities by the Fund, all in accordance with the Fund's
investment objective and policies and subject to the direction and control of
the Board of Directors of the Fund; to provide or obtain such research and
statistical data as may be necessary in connection with the foregoing services;
and to decide on the selection of, and to place purchase and sale orders with,
brokers and dealers to execute portfolio transactions on behalf of the Fund;
2.2 To evaluate, select, supervise and replace, if necessary, one or more
investment advisers which are either registered as such or specifically exempt
from registration under the Investment Advisers Act of 1940, as amended, to act
as subadvisers (each, a "Subadviser") to provide some or all of the services set
forth in Paragraph 2.1 above, subject to the direction and control of the Board
of Directors of the Fund, all as shall be set forth in a written agreement to
which the Fund and the Investment Adviser shall be parties, which agreement
shall be subject to approval by the Board of Directors of the Fund in accordance
with the requirements of the 1940 Act, as such requirements may be modified by
rule, regulation or order of the SEC.
2.3 To research, evaluate and select collective investment vehicles for
investment by the Fund, subject to the approval of the Board of Directors of the
Fund and in accordance with the requirements of the 1940 Act, as such
requirements may be modified by rule, regulation or order of the SEC.
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2.4 To provide periodic reports to the Fund with respect to portfolio
transactions for the Fund; to provide at the request of the Board of Directors
such other reports relating to the investments of the Fund as are necessary for
the members of the Board of Directors to fulfill their fiduciary
responsibilities; and to maintain the books and records of the Fund required
under Rule 3la-l under the 1940 Act (other than those being maintained by the
Fund's administrator, custodians and transfer, dividend paying agent and
registrar);
2.5 To provide office facilities and personnel adequate to perform the
services undertaken by the Investment Adviser pursuant to this Agreement, to
arrange for the provision of administrative services for the Fund and to perform
those clerical and bookkeeping services which are not being furnished by the
Fund's administrator, custodians or transfer, dividend paying agent and
registrar, and
2.6 To comply with any and all provisions of the 1940 Act and the Advisers
Act and all provisions of any rules, regulations and orders of the SEC which are
now or may, from time to time, be applicable to the Investment Adviser and to
its directors, officers, employees and interested persons (as such term is
defined in the 1940 Act).
3. FEES. In consideration of the services described herein, the Fund will
pay to the Investment Adviser, at the end of each calendar month and in Euro, a
management and advisory fee (the "Advisory Fee") computed at the annual rate of
2.00% of the Fund's average weekly net assets up to U.S. $200 million, 1.75% of
the Fund's average weekly net assets on the next U.S. $200 million and 1.50% of
such assets in excess of U.S. $400 million, based upon the net asset value of
the Fund calculated at the end of each week. For the month and year in which
this Agreement becomes effective or terminates, there shall be an appropriate
proration on the basis of the number of days that the Agreement is in effect
during the month and year, respectively.
The Investment Adviser shall be entitled to receive the full Advisory Fee.
To avoid any confusion among Fund stockholders as to the maximum fee which the
Fund may pay to the Investment Adviser under this Agreement, disclosure of the
contractual advisory fee in documents filed with the Securities and Exchange
Commission and distributed to Fund stockholders shall be the Advisory Fee and
any reduction in the Advisory Fee shall be reflected as a voluntary fee waiver
by the Investment Adviser.
The net asset value of the Fund shall be calculated in accordance with the
provisions of the Fund's prospectus or at such other time or times as the Board
of Directors of the Fund may determine in accordance with the provisions of the
1940 Act. For each day on which net asset value of the Fund is not calculated,
the net asset value of a share of the Fund's common stock shall be deemed to be
the net asset value per share as of the close of business on the last day on
which such calculation was made for the purpose of the foregoing computations.
4. EXPENSES.
4.1 The Investment Adviser shall bear all expenses of its employees and
overhead incurred in connection with its duties under this Agreement. The
Investment Adviser shall also pay all salaries and fees of the Fund's directors
and officers who are also directors, officers or employees of the Investment
Adviser or its affiliates, except that (i) the Fund will bear travel and
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certain other expenses of directors and officers of the Fund who are directors,
officers or employees of the Investment Adviser or its affiliates to the extent
that such expenses relate to attendance at meetings of the Fund's Board of
Directors or any committees thereof, and (ii) the Fund may compensate certain
officers of the Fund who are also employees of the Investment Adviser or its
affiliates for services rendered by the officers on behalf of the Fund. With
respect to subparagraph (ii) above, on an annual basis, the Independent
Directors of the Fund shall determine whether and to what extent certain Fund
officers shall be compensated by the Fund for work performed on behalf of the
Fund. That determination shall be based on such factors as such Directors shall
determine in their sole discretion.
4.2 The Fund will bear all of its other expenses including, among others:
directors' and officers' liability insurance; organizational expenses (which
shall include out-of-pocket expenses and reasonable attorneys, fees, but not
overhead or employee costs of the Investment Adviser); legal expenses; auditing
and accounting expenses; taxes and governmental fees; stock exchange listing
fees; dues and expenses incurred in connection with membership in investment
company organizations; fees and expenses of the Fund's custodians, transfer
agent, dividend paying agent and registrar; payment for portfolio pricing
services to a pricing agent, if any; expenses of preparing share certificates
and other expenses in connection with the issuance, offering or underwriting of
securities issued by the Fund; expenses relating to investor relations; expenses
of registering or qualifying securities of the Fund for sale; freight, insurance
and other charges in connection with the shipment of the Fund's portfolio
securities, if any; brokerage commissions or other costs of acquiring or
disposing of any portfolio securities of the Fund; expenses of preparing and
distributing reports, notices and dividends to shareholders; expenses of the
Dividend Reinvestment Plan (except for brokerage expenses paid by participants
in such plan); costs of stationery; any litigation expenses; and costs of
shareholders and other meetings.
5. LIABILITY.
5.1 Neither the Investment Adviser nor any of its shareholders, officers,
directors, employees or agents shall be liable for any act or omission, error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which this Agreement relates, except (i) that the Investment
Adviser shall be under a fiduciary duty with respect to receipt of compensation
for services pursuant to Section 36 of the 1940 Act and shall therefore be
liable for a loss resulting from a breach of such fiduciary duty (in which case
any award of damages shall be limited to the period and the amount set forth in
Section 36(b)(3) of the 1940 Act) or (ii) for any loss resulting from willful
misfeasance, bad faith or gross negligence in the performance of, or from
reckless disregard of, the Investment Adviser's obligations and duties under
this Agreement.
5.2 To the extent permitted by the 1940 Act, the Advisers Act and the rules
and regulations promulgated thereunder and by other applicable law, the Fund
shall indemnify and hold harmless the Investment Adviser and its shareholders,
officers, directors, employees or agents from and against any Liability for and
any damages, expenses or losses incurred in connection with any act or omission
in the course of, connected with or arising out of any services to be rendered
hereunder, except by reason of willful malfeasance, bad faith or gross
negligence in the performance of, or by reason of reckless disregard of, the
Investment Adviser's obligations and duties under this Agreement.
- 3 -
5.3 The Investment Adviser shall not be liable for any losses caused by
disturbances of its operations by virtue of force majeure, riot or damage caused
by nature or due to other events for which it is not responsible (e.g., strikes,
lock-outs or acts of domestic or foreign authorities).
5.4 The Investment Adviser may rely on information reasonably believed by
it to be accurate and reliable.
5.5 The Investment Adviser does not assume responsibility for the acts or
omissions of any other person.
6. SERVICES NOT EXCLUSIVE. It is understood that the services of the
Investment Adviser are not deemed to be exclusive, and nothing in this Agreement
shall prevent the Investment Adviser or any of its affiliates from providing
investment advisory and asset management services to other investment companies
and other clients (whether or not their investment objectives and policies are
similar to those of the Fund) or from engaging in other activities. When other
clients of the Investment Adviser desire to purchase or sell a security at the
same time such security is purchased or sold for the Fund, it is understood that
such purchases and sales will, to the extent feasible, be allocated among the
Fund and such clients in a manner believed by the Investment Adviser to be
equitable to the Fund and such other clients. If two or more of the Investment
Adviser's clients purchase or sell the same security on a given day from the
same broker-dealer, such transactions may be averaged as to price.
7. NOTICES. Any notice or other communication required to be given pursuant
to this Agreement shall be in writing and shall be deemed duly given if
delivered or mailed by registered mail, postage prepaid, (i) to the Fund, c/o
Credit Agricole Indosuez, 666 Third Avenue, New York, New York 10017, U.S.A.,
Attention: Steven M. Cancro, Esq., Secretary; and (ii) to the Investment
Adviser, at 90 Boulevard Pasteur, 75015 Paris, France, Attention: Jean Claude
Kaltenbach, Chairman; or to such other address, or to the attention of such
other person or officer, as either party may from time to time designate to the
other party by written notice given in accordance with this Section 8.
8. DURATION AND TERMINATION. This Agreement shall become effective on the
date first set forth above and shall, unless sooner terminated pursuant hereto,
continue in effect for an initial term of twelve months ending on such date and
shall continue in effect thereafter for successive periods of twelve months
each; provided that each such continuance beyond the initial twelve month term
shall be specifically approved, at least annually, by a vote of a majority of
the members of the Board of Directors of the Fund who are not interested persons
(as defined in the 1940 Act) of either party to the Agreement, cast in person at
a meeting called for the purpose of voting on such approval, and by a vote of
either (i) the Fund's Board of Directors or (ii) a majority of the outstanding
voting securities of the Fund (as defined in the 1940 Act); provided, further,
that if the continuation of this Agreement is not so approved, the Investment
Adviser may, at the Fund's request, continue to serve in such capacity in the
manner and to the extent permitted by the 1940 Act and the rules and regulations
thereunder. Notwithstanding any of the foregoing, this Agreement may be
terminated by the Fund in the manner prescribed by the 1940 Act, without the
payment of any penalty, at any time upon no less than sixty
- 4 -
days' prior written notice to the Investment Adviser, or by the Investment
Adviser upon not less than sixty days' prior written notice to the Fund. This
Agreement shall automatically terminate in the event of its assignment (as
defined under the 1940 Act) by either party. Termination of this Agreement shall
not affect the right of the Investment Adviser to receive payment of any unpaid
balance of the compensation described in Section 3 earned prior to such
termination.
9. GOVERNING LAW. This Agreement shall be construed in accordance with the
laws of the State of New York, provided that nothing herein shall be construed
as being inconsistent with the 1940 Act, the Advisers Act, applicable French
laws and any rules, regulations and orders of the SEC.
10. MISCELLANEOUS.
10.1 Subject to the policy of obtaining best execution and to the other
requirements of the 1940 Act and subject, further, to the supervision and
control of the Board of Directors of the Fund, the Investment Adviser may place
brokerage orders for the Fund with, and obtain research from, affiliates of the
Investment Adviser; provided, however, that any commissions paid to such
affiliates shall be reasonable and fair in comparison to commissions received by
other brokers in connection with comparable transactions involving similar
securities. Any research provided to the Investment Adviser by third parties
shall be in addition to and not in lieu of the services to be provided herein
and shall not reduce the Investment Adviser's fees hereunder.
10.2 The captions in this Agreement are included for convenience only and
in no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
10.3 If any provisions of this Agreement shall be held or made invalid in
whole or in part, the other provisions of this Agreement shall remain in force.
Invalid provisions shall, in accordance with the intent and purpose of this
Agreement, be replaced by such valid provisions which in their economic effect
come as close as legally possible to such invalid provisions.
10.4 The Investment Adviser shall for all purposes herein provided be
deemed to be an independent contractor, and nothing herein shall be construed as
constituting the Investment Adviser an agent of the Fund.
10.5 The Investment Adviser shall be entitled to rely on any notice or
communication believed by it to be genuine and correct and to have been sent to
it by or on behalf of the Fund.
10.6 This Agreement may be executed in counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
instrument.
- 5 -
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first above written.
THE EUROPEAN MULTI-STRATEGY INVESTMENT COMPANY
By:
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Name:
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Title:
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CREDIT AGRICOLE ASSET MANAGEMENT
U.S. ADVISORY SERVICES
By:
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Name: Mr. Patrice de Larrard
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Title: Chief Executive Officer
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THE FRANCE GROWTH FUND, INC.
666 Third Avenue, New York, New York 10017
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Frederick J. Schmidt and Steven M. Cancro
as Proxies, each with full power of substitution, and hereby authorizes each of
them, with the authority in each to act in the absence of the other, to
represent and to vote, as designated below, all the shares of common stock of
The France Growth Fund, Inc. (the "Fund") held of record by the undersigned on
March 28, 2002 at the Annual Meeting of Stockholders of the Fund to be held on
May 30, 2002, or any adjournments thereof.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted "FOR" Proposals 1, 2, 3, 4 and 5 and "AGAINST" Proposal 6.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL
1, "FOR" PROPOSAL 2, "FOR" PROPOSAL 3, "FOR" PROPOSAL 4, "FOR" PROPOSAL 5 (THE
ELECTION OF NOMINEES FOR DIRECTORS), AND "AGAINST" PROPOSAL 6.
PROPOSALS (Please check one box for each proposal)
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR PROPOSAL 1.
1. To approve a change in the Fund's investment program by amending the Fund's
fundamental investment objective, policies and restrictions.
FOR / / AGAINST / / ABSTAIN / /
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR PROPOSAL 2.
2. To amend the Fund's articles of incorporation to change the name of the
Fund to The European Multi-Strategy Investment Company.
FOR / / AGAINST / / ABSTAIN / /
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 3.
3. To approve a new investment advisory agreement between the Fund and Credit
Agricole Asset Management U.S. Advisory Services, the Fund's investment
adviser (the "Adviser") with an increase in the advisory fee rate payable
to the Adviser.
FOR / / AGAINST / / ABSTAIN / /
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR PROPOSAL 4.
4. To approve a proposal allowing the Adviser, subject to Board approval, to
select and replace, if necessary, investment managers to directly manage a
portion of the Fund's portfolio and to materially modify existing
subadvisory agreements without obtaining stockholder approval of the new or
amended subadvisory agreement.
FOR / / AGAINST / / ABSTAIN / /
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE NOMINEES IN
PROPOSAL 5.
5. Election of Directors. To elect four (4) Directors in Class II to serve for
a term expiring on the date of the Annual Meeting of Stockholders in 2005.
FOR all nominees listed below / / WITHHOLD AUTHORITY / /
(except as marked to to vote for all nominees
the contrary below) listed below
Nominees: John Bult, Serge Demoliere, Michel Longchampt and Michel A.
Rapaccioli. (UNLESS AUTHORITY TO VOTE FOR ANY OF THE FOREGOING NOMINEES IS
WITHHELD, THIS PROXY WILL BE DEEMED TO CONFER AUTHORITY TO VOTE FOR EVERY
NOMINEE WHOSE NAME IS NOT LISTED BELOW.) INSTRUCTION: To withhold authority to
vote for any individual nominee, write that nominee's name in the following
space:
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YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE AGAINST PROPOSAL 6.
6. To consider and act upon a stockholder proposal recommending that the Board
of Directors expedite the process to ensure Fund shares can trade at net
asset value.
FOR / / AGAINST / / ABSTAIN / /
7. In their discretion, the proxies are authorized to consider and act upon
such other business as may properly come before the meeting or any
adjournments thereof.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
PLEASE SIGN EXACTLY AS NAME APPEARS BELOW. If shares are held jointly, each
Stockholder named should sign. If only one signs, his or her signature will be
binding. If the Stockholder is a corporation, the President or a Vice President
should sign in his or her own name, indicating title. If the Stockholder is a
partnership, a partner should sign in his or her own name, including that he or
she is a "Partner."
Dated: , 2002
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(By)
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Signature
(By)
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Signature