<PAGE>
As filed with the Securities and Exchange Commission on January 26, 1996
1933 Act Registration No. ___
1940 Act Registration No. ___
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [__X__]
Pre-Effective Amendment No.____ [_____]
Post-Effective Amendment No.___ [_____]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [__X__]
Amendment No. _____
(Check appropriate box or boxes.)
TITAN INVESTMENT FUND, INC.
(Exact name of registrant as specified in charter)
9672 Pennsylvania Avenue
Upper Marlboro, MD 20772
(Address of principal executive offices)
Registrant's telephone number, including area code: (301) 599-1630
Gilbert Giordano, Esq.
Giordano, Villareale, & Vaughan, P.A.
9440 Pennsylvania Avenue
Upper Marlboro, MD 20772
(Name and address of agent for service)
Copies to:
ARTHUR J. BROWN, Esq.
DAPHNE D. TIPPENS, Esq.
Kirkpatrick & Lockhart LLP
Suite 200
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
Telephone: (202)778-9000
Approximate Date of Proposed Public Offering: As soon as
practicable after the effective date of this Registration Statement.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
an indefinite number of shares of common stock is being registered by this
registration statement.
<PAGE>
Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933, or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
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Titan Investment Fund, Inc.
Contents of Registration Statement
This registration statement consists of the following papers and
documents.
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
Titan Investment Fund, Inc.
--------------------------
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
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<PAGE>
Titan Investment Fund, Inc.:
This cross reference sheet relates to the Prospectus and Statement of
Additional Information for Titan Investment Fund, Inc..
Form N-1A Cross Reference Sheet
<TABLE>
<CAPTION>
Part A Item No.
and Caption Prospectus Caption
--------------- ------------------
<S> <C> <C>
1. Cover Page.............. Cover Page
2. Synopsis................ Prospectus Summary
3. Condensed Financial Performance Information
Information.............
4. General Description of Prospectus Summary; Investment Objectives
egistrant.............. and Policies; General Information
5. Management of the Fund.. Management and Administration of the Fund;
General Information
6. Capital Stock and other Cover Page; Dividends, Distributions and
Securities.............. Taxes: General Information
7. Purchase of Securities Being Purchase of Fund Shares; Determination of
Offered........... Net Asset Value; Management and
Administration of the Fund; Plan of
Distribution
8. Redemption or Repurchase.............. Redemptions and Repurchases
9. Legal Proceedings....... Not Applicable
Part B Item No. Statement of Additional
and Caption Information Caption
--------------- -----------------------
10. Cover page.............. Cover Page
11. Table of Contents....... Table of Contents
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<PAGE>
12. General Information and Not Applicable
History.............
13. Investment Objectives and Investment Policies and Restrictions
Policies............
14. Management of the Registrant.............. Investment Management, Administration and
Distribution Arrangements
15. Control Persons and Principal Holders of Investment Management, Administration and
Securities... Distribution Arrangements
16. Investment Advisory and Other Investment Management, Administration and
Services.......... Distribution Arrangements
17. Brokerage Allocation.... Investment Management, Administration and
Distribution Arrangements; Portfolio
Transactions
18. Capital Stock and Other Securities....... Investment Management, Administration and
Distribution Arrangements
19. Purchase, Redemption and Pricing of Valuation of Shares
Securities Being Offered......
20. Tax Status.............. Taxes
21. Underwriters............ Investment Management, Administration and
Distribution Arrangements
22. Calculation of Performance Data......... Performance Information
23. Financial Statements.... Financial Statements
</TABLE>
Part C
------
Information required to be included in Part C is set forth under
the appropriate item in Part C to this Registration Statement.
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<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements. None.
(b) Exhibits:
(1) Articles of Incorporation. Filed herewith.
(2) By-Laws. Filed herewith.
(3) Voting trust agreement. None.
(4) Specimen Security. None.
(5) (a) Form of Investment Advisory Agreement between Titan
Investment Fund, Inc. and Titan Investment Advisers, LLC.
[To be filed]
(b) Form of Administration Agreement. [To be filed]
(6) Form of Distribution Agreement. [To be filed]
(7) Bonus, profit sharing or pension plans. None.
(8) Form of Custodian Agreement. [To be filed]
(9) Form of Transfer Agency Contract. [To be filed]
(10) Opinion and Consent of Kirkpatrick & Lockhart LLP,
counsel to the Registrant. [To be filed]
(11) Consent of Independent Auditors. [To be filed]
(12) Financial statements omitted from prospectus. None.
(13) Letter of investment intent. [To be filed]
(14) Prototype Retirement Plan. None.
(15) Plan pursuant to Rule 12b-1. [To be filed]
(16) Schedule for Computation of Performance Quotations.
None.
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<PAGE>
Item 25. Persons Controlled By or Under Common Control with Registrant.
-------------------------------------------------------------
No person is controlled by or under common control with the
Registrant.
Item 26. Number of Holders of Securities
-------------------------------
The following information is given as of January 26,
1996:
Number of Record
Shareholders as of
Title of Class January 26, 1996
------------- -------------------
Shares of common stock,
par value $0.001 per share, in
Titan Investment Fund, Inc. 0
Item 27. Indemnification
---------------
Article 7, Section 1(b) of the Titan Investment Fund, Inc.'s
Articles of Incorporation provides that the Registrant will indemnify and
advance expenses as provided in the By-Laws to its present and past
directors, officers, employees and agents, and persons who are serving or
have served at the request of the Corporation as a director, officer,
employee or agent in similar capacities for other entities.
Section 11.01 of the Titan Investment Fund, Inc.'s By-Laws
provides that the Registrant will indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suite or proceeding, whether civil, criminal,
administrative or investigative ("Proceeding"), by reason of the fact that
he or she is or was a director, officer, employee, or agent of the
Registrant, or is or was serving at the request of the Registrant as a
director, office, employee, partner, trustee or agent of another
corporation, partnership, joint venture, trust, or other enterprise,
against all reasonable expenses (including attorneys' fees) actually
incurred, and judgments, fines, penalties and amounts paid in settlement
in connection with such Proceeding to the maximum extent permitted by law,
now existing or hereafter adopted.
In addition, Section 11.01 of the Titan Investment Fund, Inc.'s
By-Laws provides that whether or not there is an adjudication of liability
in a Proceeding, the Registrant shall not indemnify any such person for
any liability arising by reason of such person's willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in
the conduct of his or her office or under any contract or agreement with
the Registrant.
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Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be provided to trustees, officers
and controlling persons of the Fund, pursuant to the foregoing provisions
or otherwise, the Fund has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the Fund of expenses incurred or paid by a trustee,
officer or controlling person of the Fund in connection with the
successful defense of any action, suit or proceeding or payment pursuant
to any insurance policy) is asserted against the Fund by such trustee,
officer or controlling person in connection with the securities being
registered, the Fund will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Information as to the directors or officers of the Investment
Adviser is included in its Form ADV filed on January __, 1996 with the
Securities and Exchange Commission and is incorporated herein as
reference.
Item 29. Principal Underwriters
----------------------
(a) None.
(b) None.
(c) None.
Item 30. Location of Accounts and Records
--------------------------------
The books and other documents required by Section 31(a) of the
Investment Company Act of 1940 (the "1940 Act") and the Rules promulgated
thereunder are maintained in the physical possession of Titan Investment
Advisers, LLC, 9672 Pennsylvania Avenue, Upper Marlboro, MD 20772. All
other accounts, books and documents required by Section 31(a) and the
Rules promulgated thereunder are maintained in the physical possession of
Registrant's transfer agent and custodian.
Item 31. Management Services
-------------------
Not applicable.
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<PAGE>
Item 32. Undertakings
------------
Registrant hereby undertakes to file a post-effective amendment,
using financial statements which need not be certified, within four to six
months from the effective date of the Registrant's 1933 Act Registration
Statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Upper Marlboro, and the State of
Maryland, on the 26th day of January 1996.
TITAN INVESTMENT FUND, INC.
/s/ Mervin H. Zimmerman
By: ______________________________
Mervin H. Zimmerman
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Mervin H. Zimmerman President (Chief January 26, 1996
----------------------- Operating Officer)
Mervin H. Zimmerman
/s/ Joseph Bossert Treasurer (Principal January 26, 1996
------------------------ Financial and
Joseph Bossert Accounting Officer)
/s/ Lawrence A. Appleman Director January 26, 1996
------------------------
Lawrence A. Appleman
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<PAGE>
TITAN FINANCIAL SERVICES FUND
Prospectus dated _______ __, 1996
9672 Pennsylvania Avenue
Upper Marlboro, Maryland 20772
Titan Financial Services Fund (the "Fund"), a diversified, professionally
managed portfolio, is a separate series of Titan Investment Fund, Inc., a
newly organized, open-end management investment company. The Fund's
primary objective is capital appreciation. Its secondary objective is
moderate income. The Fund will seek to achieve its objectives by
investing principally in equity securities of financial services
companies, which include U.S. commercial banks, consumer banks, savings
and loan institutions, insurance companies, finance companies, mortgage
and other lenders, securities brokerage companies, credit card providers,
service providers to the banking and financial services sectors and
holding companies. See "Investment Objectives and Policies." No
assurance can be given that the Fund's investment objectives will be
realized.
This Prospectus concisely sets forth information about the Fund that you
should know before investing. Please retain this Prospectus for future
reference. A Statement of Additional Information ("SAI"), dated _______
__, 1996 (which is incorporated by reference herein), is on file with the
Securities and Exchange Commission. You can obtain a free copy of the
SAI, and further inquiries can be made, by contacting the Fund, or by
calling toll-free at ___________.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
No person has been authorized to give any information or make any
representations not contained in this Prospectus in connection with the
offering made by this Prospectus and, if given or made, such information
or representations must not be relied upon as having been authorized by
the Fund or its distributor. This Prospectus does not constitute an
offering by the Fund or its distributor in any jurisdiction in which such
offering may not be lawfully made.
TITAN FINANCIAL SERVICES FUND
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference
to the more detailed information included elsewhere in this Prospectus.
The Fund ...... Titan Financial Services Fund (the "Fund"), a
diversified, professionally managed portfolio, is a
separate series of Titan Investment Fund, Inc., a newly
organized, diversified, open-end management investment
company.
Investment
Objectives
and Policies... Capital appreciation and, secondarily, moderate income;
invests primarily in equity securities of financial
services companies, which include U.S. commercial banks,
consumer banks, savings and loan institutions, insurance
companies, finance companies, mortgage and other lenders,
securities brokerage companies, credit card providers,
service providers to the banking and financial services
sectors and holding companies.
Investment
Adviser........ Titan Investment Advisers, LLC (the "Investment
Adviser"). See "Management and Administration of the
Fund."
Administrator.. _______________________________ (the "Administrator").
See "Management and Administration of the Fund."
Purchases...... Shares of common stock are available through
______________ (the "Distributor") and by dealers who
have entered into selected dealer agreements with the
Distributor (the "Selected Dealers"). See "Purchase of
Fund Shares."
Offering
Price......... Offered at net asset value during the first 30 days of
the initial offering; thereafter, the Fund's shares may
be subject to a sales charge (maximum is 3.0% of public
offering price) and/or contingent deferred sales charge
(the "CDSC") (maximum is 2.0% of redemption proceeds on
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<PAGE>
certain redemptions made within 2 years). See "Purchase
of Fund Shares."
Redemptions.. The Fund's shareholders may redeem through __________,
the Fund's transfer agent (the "Transfer Agent").
Dividends...... Declared and paid annually; net capital gain also is
distributed annually. See "Dividends, Distributions and
Taxes."
Minimum
Purchase....... $5,000 for first purchase; $100 for subsequent purchases.
Who Should
Invest........ The Fund invests primarily in equity securities of
financial services companies, which include U.S.
commercial banks, consumer banks, savings and loan
institutions, insurance companies, finance companies,
mortgage and other lenders, securities brokerage
companies, credit card providers, service providers to
the banking and financial services sectors and holding
companies for such entities. Accordingly, the Fund is
designed for investors who are seeking capital
appreciation potential and to a lesser extent, moderate
income, for a portion of their assets and who can assume
the risks of greater fluctuation of market value
resulting from investment in a portfolio concentrated in
the banking and savings and loan industries. While the
Fund is not intended to provide a complete or balanced
investment program it can serve as one component of an
investor's long-term program to accumulate assets for
retirement, college tuition or other major goals.
Risk Factors... There can be no insurance that the Fund will achieve its
investment objective, and the Fund's net asset value will
fluctuate based upon changes in the value of its
portfolio securities. The Fund's concentration in the
banking and savings and loan industries subjects its
shares to greater risk than the shares of a fund whose
portfolio is not so concentrated and, in particular, its
shares will be affected by economic, legislative and
regulatory developments impacting those industries.
Neither the federal insurance of bank and savings and
loan deposits nor governmental regulation of the bank and
savings and loan industries ensures the solvency or
profitability of commercial banks and thrifts or their
holding companies or insurers against the risks of
investing in the equity securities issued by these
institutions. The Fund's investments in foreign
securities and its use of options also entail special
risks.
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<PAGE>
Expenses of
Investing in
the Fund...... The following table is intended to assist investors in
understanding the expenses associated with investing in
the Fund.
Shareholder Transactions Costs:
Maximum sales charge on purchases (as a % of
offering price) . . . . . . . . . . . . . . 3.00%
Sales charges on reinvested distributions . NONE
Deferred sales charges . . . . . . . . . . NONE
Redemption charges . . . . . . . . . . . . NONE
Annual Fund Operating Expenses (as a % of
average net assets):
Investment advisory fees . . . . . . . . . 0.75%
12b-1 distribution and service fees . . . . 0.75%
Other expenses (estimated)(after 0.50%
reimbursement). . . =====
Total Fund Operating Expenses (after 2.00%
reimbursement) . . . . . . . . . . . . . .
1 A contingent deferred sales charge is assessed on
redemption of shares purchased without an initial sales
charge and redeemed within two years of purchase; the
charge is up to 2% of the lesser of the cost basis or net
asset value of the shares redeemed.
Hypothetical Example of Effect of Expenses:
An investor would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the end of each time
period:
1 Year 3 Years
------ -------
Titan Financial Services Fund
THIS EXAMPLE ASSUMES THAT ALL DIVIDENDS AND OTHER DISTRIBUTIONS ARE
REINVESTED AND THAT THE PERCENTAGE AMOUNTS LISTED UNDER ANNUAL FUND
OPERATING EXPENSES REMAIN THE SAME IN THE YEARS SHOWN. This Example
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<PAGE>
should not be considered a representation of past or future expenses, and
the Fund's actual expenses may be more or less than those shown. The
actual expenses attributable to the Fund's shares will depend upon, among
other things, the level of average net assets, the extent to which the
Fund incurs variable expenses, such as transfer agency costs, and whether
the Investment Adviser reimburses all or a portion of the Fund's expenses
and/or waives all or a portion of its advisory fees.
DESCRIPTION OF THE TITAN FUND
The Fund is a newly organized, registered, open-end management investment
company whose shares are offered to the public.
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
The Fund's primary investment objective is capital appreciation. Its
secondary objective is moderate income. The investment objectives of the
Fund are fundamental and may not be changed without the approval of the
holders of a majority of the Fund's shares. There is no assurance that
the Fund's investment objectives will be achieved.
The Fund will seek to achieve its investment objectives by investing
at least 65%, and possibly up to 100%, of its total assets in equity
securities of U.S. commercial banks, consumer banks, savings and loan
institutions, and other financial services companies including, but not
limited to, insurance companies, finance companies, mortgage and other
lenders, securities brokerage companies, credit card providers and service
providers to the banking and financial services sectors, and holding
companies for each of the foregoing. Equity securities may include common
stocks, preferred stocks, securities convertible into common or preferred
stocks, warrants, and convertible bonds.
In seeking its objective, the Fund will concentrate on equity
securities of banks, savings and loan institutions and financial services
companies that are, in the Investment Adviser's opinion, undervalued both
from the standpoint of book value and earnings. The Investment Adviser
will seek to identify companies whose prospects are deemed attractive on
the basis of a growth in earnings and assets and the companies
fundamentals. Equity selection will be made on the basis of book value,
earnings, quality of assets, merger potential, and franchise value
(particularly in regard to banks and savings and loan institutions). The
Investment Adviser will pay particular attention to smaller banking
institutions with assets of $5 billion or less. In addition, the Fund
will invest in stronger mutual savings banks that have converted to
publicly held companies. The Fund will also endeavor to open deposit
accounts with mutual savings and loan associations with the intent of
subscribing to stock in the event the institutions go public. The Fund
will not invest in banks or savings and loan institutions or other banking
institutions headquartered in the States of Maryland, Virginia, Tennessee,
Alaska or Hawaii. The Investment Adviser believes that this limitation
will not materially affect the Fund's ability to achieve its objectives.
- 5 -
<PAGE>
The Fund may also invest up to 35% of its assets in equity securities
of other types of issuers and in debt securities of all issuers, including
money market investments. The market value of the debt securities in the
Fund's portfolio will also tend to vary in an inverse relationship with
changes in interest rates. For example, as interest rates rise, the
market value of debt securities tend to decline. The Fund also may invest
up to 20% of its total assets in American Depository Receipts ("ADRs").
The Fund will invest no more than 5% of its total assets in the
securities of any one issuer other than the U.S. government, except that
up to 25% of the Fund's total assets may be invested without regard to
this limitation. In addition, in order to be diversified, the Fund
normally will be invested in the securities of at least 30 separate
companies. The above shall be considered to be fundamental policies which
cannot be changed without stockholder approval.
The Fund does not constitute a complete investment program. Thus, it
is recommended that an investment in this Fund be considered only one
portion of your overall investment portfolio.
Special Considerations and Risks Relating to the Financial Services
Industry. Because the Fund's investments will be concentrated in the
financial services industry, its shares are subject to greater risks than
the shares of a fund whose portfolio is not so concentrated, and it will
be particularly affected by economic, legislative and regulatory
developments affecting those industries. Events may occur which
significantly affect the banking and financial services industries
resulting in the Fund's share value increasing or decreasing at rates
faster than the share value of a mutual fund with investments in many
industries.
Commercial banks, savings and loan institutions and their holding
companies are especially influenced by adverse effects of volatile
interest rates, portfolio concentrations in loans to particular
businesses, such as real estate and energy, and competition from new
entrants in their areas of business. These institutions are subject to
extensive federal regulation and, in some cases, to state regulation as
well. However, neither federal insurance of deposits nor regulation of
the bank and savings and loan industries ensures the solvency or
profitability of commercial banks or savings and loan institutions or
their holding companies, or insures against the risk of investing in the
equity securities issued by these institutions.
Investment banking, securities and commodities brokerage and
investment advisory companies also are subject to governmental regulation
and investments in those companies are subject to the risks related to
securities and commodities trading and securities underwriting activities.
Insurance companies also are subject to extensive governmental regulation,
including the imposition of maximum rate levels, which may be inadequate
for some lines of business. The performance of insurance companies will
be affected by interest rates, severe competition in the pricing of
- 6 -
<PAGE>
services, claims activities, marketing competition and general economic
conditions.
The financial services industry may be subject to greater government
regulation than many other industries and changes in governmental policies
and the need for regulatory approval may have a material effect on the
services of this industry. As previously noted, banks, savings and loan
institutions and finance companies are subject to extensive governmental
regulation which may limit both the financial commitments they can make,
including the amounts and types of loans, and the interest rates and fees
they can charge. Profitability is largely dependent on the availability
and cost of capital funds, and can fluctuate significantly when interest
rates change.
Specialized Risk Factors of Foreign Securities. As previously stated
in this Prospectus, the Fund may invest up to 20% of its total assets in
ADRs, which are securities convertible into securities of corporations
based in foreign countries. These investment may involve special risks
arising from political, economic and social developments abroad, as well
as those that may result from the differences between the regulations to
which U.S. and foreign issuers and markets are subject. These risks may
include expropriation, confiscatory taxation, withholding taxes on
dividends and interest, limitations on the use or transfer of Fund assets
and political or social instability or diplomatic developments. Moreover,
individual foreign economies may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. Securities of many foreign companies may be less
liquid and their prices more volatile than securities of comparable U.S.
companies.
While the Fund generally invests only in securities that are traded on
recognized exchanges or in over-the-counter ("OTC") markets, from time to
time foreign securities may be difficult to liquidate rapidly without
significantly depressing the price of such securities. There may be less
publicly available information concerning foreign issuers of securities
held by the Fund than is available concerning U.S. companies. Foreign
securities trading practices, including those involving securities
settlement where the Fund's assets may be released prior to receipt to
payment, may expose the Fund to increased risk in the event of a failed
trade or the insolvency of a foreign broker-dealer. Transactions in
foreign securities may be subject to less efficient settlement practices.
Legal remedies for defaults and disputes may have to be pursued in foreign
courts, whose procedures may differ substantially from those of U.S.
courts.
Because foreign securities ordinarily are denominated in currencies
other than the U.S. dollar (as are some securities of U.S. issuers),
changes in foreign currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities and net investment income and capital
gain, if any, to be distributed to shareholders by the Fund. If the value
- 7 -
<PAGE>
of a foreign currency rises against the U.S. dollar, the value of the
Fund's assets denominated in that currency will decrease. The exchange
rates between the U.S. dollar and other currencies are determined by
supply and demand in the currency exchange markets, international balances
of payments, speculation and other economic and political conditions. In
addition, some foreign currency values may be volatile and there is the
possibility of governmental intervention in the currency markets. Any of
these factors could adversely affect the Fund.
Hedging Strategies. The Fund may attempt to reduce the overall risk
of its investments (hedge) by purchasing and selling (writing) call and
put options on debt and equity securities which are listed on Exchanges or
are written in over-the-counter transactions ("OTC Options"). Listed
options, which are currently listed on several different Exchanges, are
issued by the Options Clearing Corporation ("OCC"). Ownership of a listed
call option gives the Fund the right to buy from the OCC the underlying
security covered by the option at the stated exercise price (the price per
unit of the underlying security) by filing an exercise notice prior to the
expiration date of the option. The writer (seller) of the option would
then have the obligation to sell to the OCC the underlying security at
that exercise price prior to the expiration date of the option, regardless
of its then current market price. Ownership of a listed put option would
give the Fund the right to sell the underlying security to the OCC at the
stated exercise price. OTC options are purchased from or sold (written)
to dealers or financial institutions which have entered into direct
agreements with the Fund. With OTC options, such variables as expiration
date, exercise price and premium will be agreed upon between the Fund and
the transacting dealer, without the intermediation of a third party such
as the OCC. The Fund will engage in OTC option transactions only with
primary U.S. government securities dealers recognized by the Federal
Reserve Bank of New York.
Illiquid Securities. The Fund may invest up to 15% of its net assets
in illiquid securities, including certain cover for OTC options and
securities whose disposition is restricted under the federal securities
law (other than "Rule 144A" securities the Investment Adviser has
determined to be liquid under procedures approved by the Fund's Board of
Directors). Rule 144A establishes a "safe harbor" from registration
requirements of the Securities Act of 1933 ("1933 Act") for resale of
certain securities to qualified institutional buyers. Institutional
markets for restricted securities have developed as a result of Rule 144A,
providing both readily ascertainable value for restricted securities and
the ability to liquidate an investment to satisfy share redemption orders.
An insufficient number of qualified institutional buyers interested in
purchasing Rule 144A-eligible restricted securities held by the Fund,
however, could affect adversely the marketability of such portfolio
securities and the Fund might be unable to dispose of such securities
promptly or at favorable prices.
When-Issued and Delayed Delivery Securities. The Fund may purchase
debt securities on a "when-issued" basis or may purchase or sell
securities for delayed delivery. In when-issued or delayed transactions,
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<PAGE>
delivery of the securities occurs beyond normal settlement periods, but
the Fund generally would not pay for such securities or start earning
interest on them until they are delivered. However, when the Fund
purchases securities on a when-issued or delayed basis, it immediately
assumes the risks or ownership, including the risk of price fluctuation.
Failure by a counterparty to deliver a security purchased on a when-issued
or delayed basis may result in a loss or missed opportunity to make an
alternative investment. Depending on market conditions, the Fund's when-
issued and delayed delivery purchase commitments could cause its net asset
value per share to be more volatile, because such securities may increase
the amount by which the Fund's total assets, including the value of when-
issued and delayed delivery securities held by the Fund, exceed its net
assets.
Other Information. When the Investment Adviser believes that
conditions in the securities markets warrant a temporary defensive
strategy, the Investment Adviser may temporarily invest up to 100% of the
Fund's total assets in debt securities, preferred stock, cash or money
market instruments or invest in any other securities the Investment
Adviser considers consistent with such defensive strategies. It is
impossible to predict when, or for how long, the Investment Adviser may
use these alternative strategies.
The Fund has no previous operating history nor does its Investment
Adviser.
The Fund intends to buy and hold securities for capital appreciation.
Although the Fund does not intend to engage in substantial short-term
trading as a means of achieving its investment objective, it may sell
portfolio securities without regard to the length of time they have been
held, in accordance with the investment policies described earlier. Fund
changes will be affected whenever the Fund's Investment Adviser believes
they will benefit the performance of the portfolio. The Fund does expect
to engage in a substantial number of portfolio transactions. It is
anticipated that, under normal market conditions, the Fund's portfolio
turnover rate will not exceed 100% in any one year. The Fund will incur
brokerage costs commensurate with its portfolio turnover rate; thus a
higher level (over 100%) of portfolio transactions will increase the
Fund's overall brokerage expenses. Short term gains and losses may result
from such portfolio transactions. See "Dividends, Distributions and
Taxes" for a discussion of the tax implication of the Fund's trading
policy.
MANAGEMENT AND ADMINISTRATION OF THE FUND
-----------------------------------------
The overall management of the business and affairs of the Fund is
vested in the Board of Directors of Titan Investment Fund, Inc. The Board
of Directors must approve all significant agreements between the Fund and
persons or companies furnishing services to it, including the Fund's
agreements with its investment adviser, administrator, custodian and
transfer agent. The day-to-day operations of the Fund are delegated to
its officers, to the Investment Adviser, and to the Administrator subject
- 9 -
<PAGE>
always to the investment objectives and policies of the Fund and to
general supervision by the Board of Directors.
Investment Adviser
Pursuant to an investment advisory contract with the Fund, effective
_______ __, 1996, Titan Investment Advisers, LLC actively manages the
Fund's portfolio with a view to achieving the Fund's investment
objectives. In determining which securities to purchase for the Fund or
hold in the Fund's portfolio, the Investment Adviser will rely on
information from various sources, including research, analysis and
appraisals of brokers and dealers, as well as investment factors it deems
relevant. The Fund's Board of Directors is responsible for generally
overseeing the conduct of the Fund's business. Subject to such policies
as the Directors may determine, Titan Investment Advisers, LLC furnishes a
continuing investment program for the Fund and makes investment decisions
on its behalf. The Investment Adviser also manages the Fund's other
affairs and businesses. As compensation for its services, the Investment
Adviser will receive from the Fund a fee accrued daily and paid monthly at
an annual rate of .75% of the Fund's average net assets. The contract may
be terminated by either party without penalty on 60 days' written notice
to the other party and will terminate automatically upon its assignment.
Gilbert R. Giordano, President of Titan Investment Advisers, LLC, will
have primary responsibility for the day-to-day management of the Fund's
portfolio. Mr. Giordano has been employed by Titan Investment Advisers,
LLC since its inception. It should be noted that Titan Investment
Advisers, LLC has no prior experience in managing investment companies.
Titan Investment Advisers, LLC has its principal executive offices at 9672
Pennsylvania Avenue, Upper Marlboro, Maryland 20772.
The Fund pays all expenses not assumed by Titan Investment Advisers,
LLC, including Directors' fees, auditing, legal, custodial, transfer
agency, investor servicing and shareholder reporting expenses, advisory
fees, administration fees, federal and state registration fees, and
payments under its distribution plan.
Administrator
[insert proper disclosure with respect to administrator]
PURCHASE OF FUND SHARES
-----------------------
The Fund offers its shares for sale to the public on a continuous
basis. Pursuant to a distribution Agreement between the Fund and
____________________, shares of the Fund are distributed by the
Distributor and by dealers who have entered into selected dealer
agreements with the Distributor ("Selected Dealers"). The principal
executive office of the Distributor is _________________.
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<PAGE>
Sales personnel are compensated for selling shares of the Fund at the
time of their sale by the Distributor and/or Selected Broker-Dealer. From
time to time, dealers may be paid the entire sales charge on a purchase.
In addition, some sales personnel of the Selected Broker-Dealer may
receive various types of non-cash compensation as special sales
incentives, including trips, education and/or business seminars and
merchandise. The Fund and the Distributor reserve the right to reject any
purchase orders.
The offering price during the first thirty (30) days after the Fund
commences the offer of its shares for sale will be the net asset value per
share next determined following receipt of an order by the Transfer Agent.
Thereafter the sales prices shall be as noted below:
Purchase Price Sales Charge
--------------
(as a (as a
percentage percentage
of public of net Concession
offering asset to Selling
price) basis) Dealer
------------ ----------- ---------
Under $25,000 . . . . . . . 3.0% 3.09% 2.75%
$25,000-49,999 . . . . . . 2.0% 2.06% 1.75%
$50,000-74,999 . . . . . . 1.0% 1.01% 0.75%
$75,000 and above . . . . . None None None
The shares of the Fund purchased at net asset value without a sales
charge which are held for less than two years after purchase will,
however, be subject to a sales charge on redemption. This charge will be
a percentage assessed on an amount equal to the lesser of the current net
asset value or the cost of the shares being redeemed. The percentage will
depend upon how long the shares have been held and the amount held in the
investor's account, as set forth below:
- 11 -
<PAGE>
Contingent Deferred Sales Charge as a Percentage
Year Since Purchase of Amount Redeemed (only where there was no
Payment Made initial sales charge)
Accounts less Accounts between Accounts
than $100,000 $100,000 and greater
$1,000,000 than
$1,000,000
First . . . . . . . 2.0% 1.0% 1.0%
Second . . . . . . 1.0% 0.5% 0%
The minimum initial purchase is $5,000. Minimum subsequent purchases
are $100. In the case of investments pursuant to Systematic Payroll
Deduction Plans (including Individual Retirement Plans), or automatic
checking or savings withdrawal, the Fund, in its discretion, may accept
investments without regard to any minimum amounts which would otherwise be
required if the Fund believes that additional investments will increase
the investment by the purchaser in all accounts under the Plan to at least
$5,000. Certificates for shares purchased will not be issued unless a
request is made by the shareholder in writing to the Transfer Agent.
[Purchases may be made by sending a check, payable to Titan Financial
Services Fund, to the Distributor, a Selected Broker-Dealer, or the
Transfer Agent.] Shares of the Fund are sold through the Distributor and
Dealers on a normal three business day settlement basis; that is, payment
is due on the third business day (settlement date) after the order is
placed with the Distributor. Shares of the Fund purchased through the
Distributor are entitled to any dividends declared beginning on the next
business day following settlement date. Since the Distributor and other
Selected Broker-Dealers will forward investors' funds on the settlement
date, they will benefit from the temporary use of the funds until
settlement date. Shares purchased through the Transfer Agent are entitled
to any dividends declared beginning on the next business day following the
receipt of an order. All orders placed directly with the Transfer Agent
must be accompanied by payment.
PLAN OF DISTRIBUTION
--------------------
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1
under the Act (the "Plan'), under which the Fund pays ______ (the
"Distributor") a fee, which is accrued daily and payable monthly, at the
annual rate of .75% the Fund's average daily net assets. The fee is
treated by the Fund as an expense in the year it is accrued. A portion of
the fee payable pursuant to the Plan, equal to 0.25% of the Fund's average
daily net assets, is characterized as a service fee within the meaning of
NASD guidelines. The service fee is a payment made for personal service
and/or the maintenance of shareholder accounts.
- 12 -
<PAGE>
Amounts paid under the Plan are paid to the Distributor for services
provided and the expenses borne by the Distributor and others in the
distribution of the Fund's shares, including the payment of commissions
for sales of the Fund's shares and incentive compensation to and expenses
of Distributor account executives and others who engage in or support
distribution of shares or who service stock accounts, including overhead
and telephone expenses; printing and distribution of prospectuses and
reports used in connection with the offering of the Fund's shares to
other than current shareholders; and preparation, printing and
distribution of sales literature and advertising materials.
DETERMINATION OF NET ASSET VALUE
--------------------------------
The net asset value per share of the Fund is determined once daily at
4:00 p.m., Eastern time (or on days when the New York Stock Exchange
("NYSE") closes prior to 4:00 p.m., at such earlier time), by taking the
value of all assets of the Fund, subtracting all its liabilities, dividing
by the number of shares outstanding and adjusting to the nearest cent.
The net asset value per share will not be determined on such federal and
non-federal holidays as are observed by the NYSE.
The Fund values its assets based on their current market value when
market quotations are readily available. If such value cannot be
established, assets are valued at fair value as determined in good faith
by or under the direction of the Fund's Board of Directors. The amortized
cost method of valuation generally is used to value debt obligations with
60 days or less remaining to maturity unless the Board of Directors
determines that this does not represent fair value.
REDEMPTIONS AND REPURCHASES
---------------------------
Shares of the Fund can be redeemed for cash at any time at the net
asset value per share next determined after receipt in good order by the
Fund; however, such redemption proceeds may be reduced by the amount of
any applicable contingent deferred sales charges (see "Purchase of Fund
Shares" above). For shares held in a shareholder's account without a
share certificate, a written request for redemption sent to the Fund's
Transfer Agent at ___________ is required. If certificates are held by
the shareholder, the shares may be redeemed by surrendering the
certificates with a written notice for redemption, along with any
additional documentation required by the Transfer Agent.
The Fund reserves the right to redeem, upon sixty days' notice and at
net asset value, the shares of any shareholder whose shares have a value
of less than $5,000 as a result of redemptions or repurchases, or any
shareholder who suspends their systematic payroll deduction plan or
automatic checking or savings withdrawal plan before reaching shares that
have a value of $5,000, or such lesser amount as may be fixed by the Board
of Directors. However, before the Fund redeems such shares and send the
proceeds to the shareholder, it will notify the shareholder that the value
of the shares is less than $5,000 and allow the shareholder sixty days to
- 13 -
<PAGE>
make an additional investment in an amount which will increase the value
to $5,000 or more before the redemption is processed. No CDSC will be
imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
----------------------------------
The Fund intends to pay dividends at least annually and to distribute
substantially all of the Fund's net investment income and net short-term
capital gains, if any. The Fund intends to distribute dividends from net
long-term capital gains, if any, once each year. The Fund may, however,
determine to distribute all or part of any long-term capital gains in any
year for reinvestment. All dividends and any capital gains distributions
will be paid in additional Fund shares and automatically credited to the
shareholder's account without issuance of a share certificate unless the
shareholder requests in writing that all dividends be paid in cash. Any
shareholder who receives a cash payment representing a dividend or
capital gains distribution may invest such dividend or distribution at the
net asset value next determined after receipt by the Transfer Agent, by
returning the check or the proceeds to the Transfer Agent within thirty
days after the payment date. Shares acquired from the reinvestment of
dividends or capital gains distributions are not subject to the imposition
of a contingent deferred sales charge upon their redemption.
Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise
qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code, it is not expected that the Fund will be required
to pay any federal income tax. Shareholders who are required to pay taxes
on their income will normally have to pay federal income taxes, and any
state income taxes, on the dividends and distributions they receive from
the Fund. Such dividends and distributions, to the extent that they are
derived from net investment income or short-term capital gains, are
taxable to the shareholder as ordinary dividend income regardless of
whether the shareholder receives such distributions in additional shares
or in cash. One of the requirements for the Fund to remain qualified as a
regulated investment company is that less than 30% of the Fund's gross
income be derived from gains from the sale or other disposition of
securities held for less than three months. Accordingly, the Fund may be
restricted in the writing of options on securities held for less than
three months, in the writing of options which expire in less than three
months, and in effecting closing transactions with respect to call or put
options which have been written or purchased less than three months prior
to such transactions. The Fund may also be restricted in its ability to
engage in transactions involving futures contracts.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a
shareholder has held the Fund's shares and regardless of whether the
distribution is received in additional shares or in cash. Capital gains
distributions are not eligible for the dividends-received deduction
available to certain corporations.
- 14 -
<PAGE>
At the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax
purposes, including information as to the portion taxable as ordinary
income, the portion taxable as long-term capital gains, and the amount of
dividends qualifying for the corporate dividends-received deduction. To
avoid being subject to a 31% federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, shareholders must furnish their taxpayer identification
numbers and certify the accuracy of the numbers. Shareholders should
consult their tax advisers as to the applicability of the foregoing to
their current situation.
PERFORMANCE INFORMATION
-----------------------
From time to time the Fund may quote its "total return" in
advertisements and sales literature. The total return of the Fund is
based on historical earnings and is not intended to indicate future
performance. The "average annual total return" of the Fund refers to a
figure reflecting the average annualized percentage increase (or decrease)
in the value of an initial investment in the Fund of $5,000 over a period
of one year as well as over the life of the Fund, if less than any of the
foregoing. Average annual total return reflects all income earned by the
Fund, any appreciation or depreciation of the Fund's assets, all expenses
incurred by the Fund and all sales charges which would be incurred by
redeeming shareholders, for the stated periods. It also assumes
reinvestment of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return
over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. The Fund may also
advertise the growth of a hypothetical investment of $10,000 in shares of
the Fund. Such calculations may or may not reflect the deduction of the
contingent deferred sales charge which, if reflected, would reduce the
performance quoted. The Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled
by independent organizations (such as mutual fund performance ratings and
indexes compiled by independent organizations such as Lipper Analytical
Services, Inc., Morningstar, the S&P Mid-Cap Index, NASDAQ Composite,
Russell Mid Cap Index, S&P 100 Index and the Wilshire Mid Cap Index).
GENERAL INFORMATION
-------------------
Organization. Titan Investment Fund, Inc., is registered with the
Securities and Exchange Commission as an open-end management investment
company and was organized as a Maryland corporation under the laws of the
State of Maryland by Articles of Incorporation dated _______ __, 1996.
Titan Financial Services Fund, a professionally managed portfolio, is a
series of the corporation.
All shares of common stock of the Fund ($0.001 par value) are equal as
to earnings, assets and voting privileges. There are no conversion,
preemptive or other subscription rights. In the event of a liquidation,
- 15 -
<PAGE>
each share of the Fund is entitled to its portion of all the Fund's assets
after all debts and expenses have been paid. The shares do not have
cumulative voting rights.
Titan Investment Fund, Inc. is not required to hold Annual Meetings of
Shareholders and, in ordinary circumstances, it does not intend to hold
such meetings. The Directors may call Special Meetings of Shareholders to
elect directors when fewer than a majority of the directors holding office
have been elected by shareholders. Shareholders of record may remove a
Director by the affirmative vote, in person or by proxy, of a majority of
all votes cast at a meeting called for that person. The directors are
required to call a meeting of shareholders for the purpose of voting upon
the question of removal of any director when so requested in writing by
the shareholders of record holding at least 10% of the Fund's outstanding
shares.
Custodian and Transfer Agent. [insert name and address of custodian
and transfer agent]
Confirmation and Statements. Shareholders will receive confirmation
of purchases and redemptions of Fund shares. The Transfer Agent will
provide shareholders with statement on a quarterly basis. Shareholders
will also receive audited and unaudited semi-annual financial statements
of the Fund.
- 16 -
<PAGE>
Titan Investment Fund, Inc.
9672 Pennsylvania Avenue
Upper Marlboro, Maryland 20772
STATEMENT OF ADDITIONAL INFORMATION
Titan Financial Services Fund (the "Fund"), a diversified,
professionally managed portfolio, is a separate series of Titan Investment
Fund, Inc., an open-end management investment company. This Statement of
Additional Information ("SAI") is not a prospectus and should be read only
in conjunction with the Funds' current Prospectus, dated _______ __, 1996.
A copy of the Prospectus may be obtained by calling toll-free at 1-800-
___-____. This SAI is dated _______ __, 1996.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Funds' investment policies and limitations.
Yield Factors and Ratings. Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's ("S&P") and other nationally recognized
statistical rating organization ("NRSROs") are private services that
provide rating of the credit quality of debt obligations. A description
of the ratings assigned to corporate debt obligations by Moody's and S&P
is included in the Appendix to this SAI. The Fund may use these ratings
in determining whether to purchase, sell or hold a security. It should be
emphasized, however, that ratings are general and are not absolute
standards of quality. Consequently, securities with the same maturity,
interest rate and rating may have different market prices.
Special Considerations Concerning the Banking Industry and the Savings
and Loan Industry.
-- The Banking Industry. In the United States, the deposits of
commercial banks are insured by the Federal Deposit Insurance Corporation
(the "FDIC"). Many of these banks are subsidiaries of bank holding
companies. Commercial banks accept deposits, make commercial and other
loans, and engage in a variety of other investments. The Fund normally
intends to invest in the securities of those bank holding companies which
receive a substantial portion of their income from one or more commercial
bank subsidiaries, as well as in the securities of banking institutions.
Despite some measure of deregulation, commercial banks and their
holding companies are also subject to extensive government regulation that
significantly affects their activities, earnings, and competitive
environment. The Office of the Comptroller of the Currency is the primary
federal regulator of national banks. The FDIC is the primary federal
regulatory of most state-chartered commercial banks with FDIC-insured
deposits. State-chartered commercial banks are also subject to primary
supervision and regulation by state banking authorities. The Board of
Governors of the Federal Reserve System ("FRB") is the primary federal
regulator of bank holding companies and also has regulatory authority over
state-chartered banks which are members of the Federal Reserve System.
<PAGE>
Federal regulators receive comprehensive reports on and conduct
examinations of a number of aspects of a federally regulated commercial
bank's operations and financial condition, including capital adequacy,
liquidity, earnings, dividends, investments, management practice and loan
loss reserves. Federal regulators also require that commercial banks
maintain minimum levels of capital and liquidity, require the
establishment of loan loss reserves, and may limit the bank's ability to
pay dividends in certain circumstances.
Bank holding companies must file regular reports with the FRB and are
subject to examinations of certain aspects of their own and their
subsidiaries' operations. The activities of a bank holding company are
restricted by federal regulations which, among other things, generally
prohibit a bank holding company from controlling banks in more than one
state, except where specifically permitted by state law, and restrict the
types of non-banking activities in which the holding company directly or
indirectly may engage.
Certain economic factors are of particular importance to commercial
banks. The availability and cost of funds to commercial banks and other
finance companies is important to their profitability. This factor has
increased in importance with the deregulation of interest rates. The
quality of a bank's portfolio of loans can be adversely affected by
depressed market conditions in certain industries. Recent examples of
such industries that have affected the loan portfolios of some banks
include commercial real estate, international sovereign credits, energy
and agriculture. Smaller banks can be particularly affected by such
conditions if the economic base of the area in which they are located is
closely tied to a depressed industry, such as agriculture.
-- The Savings and Loan Industry. The principal business of
savings and loan institutions traditionally has consisted of attracting
deposits from the general public and originating or purchasing mortgage
loans secured by liens on residential real estate. In addition to long-
term, fixed-rate residential mortgage loans, savings institutions recently
have begun to extend a greater number of loans with shorter terms and/or
adjustable interest rates, including consumer and commercial loans, and
construction loans on both residential and commercial real estate
developments. These types of loans may involve greater risks of default
than residential mortgage loans.
Historically, many savings institutions were organized primarily as
mutual companies and as such were owned by their depositors and did not
issue common stock. However, in recent years, the need for equity capital
and deregulation of the industry have encouraged conversion to stock
ownership. Securities of newly converted savings institutions may not be
readily marketable, due to the lack of a public trading market or certain
restrictions on transfer. Some savings institutions are controlled by
holding companies. The Fund normally intends to invest in the securities
of those savings institution holding companies, the savings institution
subsidiaries of which comprise a significant percentage of their total
assets and provide a significant percentage of their income.
2
<PAGE>
Savings institutions and their holding companies are subject to
extensive government regulation. Savings institutions with FDIC-insured
deposits are subject to periodic FDIC examination and to FDIC regulation
and supervision of their operations. A state-chartered savings
institution is also regulated by the laws and bank regulatory authority of
the state in which it has its principal office. Savings institutions with
federally insured deposits are subject to certain minimum net worth or
capital requirements and to other requirements limiting the types of
investments they may make. In addition, holding companies of savings
institutions which are federally chartered may be subject in certain cases
to restrictions on the activities in which they may engage.
The results of operations of savings institutions may be materially
affected by general economic conditions, the monetary and fiscal policies
of the federal government and the regulatory policies of governmental
authorities. Although in recent years savings institutions have derived
an increased portion of their income from receipt of fees, the results of
operations of savings institutions continue to depend to a large extent on
the level of their "net interest income" (the difference between the
interest earned on loans and investments and the interest paid on deposits
and borrowings). During the period between the late 1970s and mid-1982,
general market interest rates rose to, and remained at, historically high
levels as a result of inflationary pressures and governmental policies.
During the same period, savings institutions generally experienced a shift
in the composition of their deposits form relatively long-term, low-rate
certificate accounts or low-rate passbook accounts to certificates of
deposit and accounts bearing rates determined by market conditions, often
with short maturities. Competition from alternative investments such as
money market mutual funds affected savings flows, causing reduced inflows
to (or actual net outflows from) savings institutions, thus limiting their
ability to make new loans or investments. As a result, the average cost
of funds of most savings institutions increased faster than the average
yield earned on their assets, which consisted principally of long-term
real estate loans at fixed rates of interest. These factors had a severe
adverse impact on the earnings of most of the savings industry, with the
large majority of savings institutions reporting operating losses for 1991
and 1992. Although interest rates have since declined, there can be no
assurance that interest rates will remain at current levels.
Beginning in the early 1980s a substantial number of savings
institutions significantly expanded the amount of their investments in
construction lending, real estate development projects, and secured and
unsecured commercial and consumer loans. These investments generally
entail more risk than mortgage loans secured by residential real estate
and may result in losses for certain institutions. Many institutions have
also initiated asset and liability management programs designed to
minimize vulnerability to interest rate changes. These programs have
included such activities as increasing use of adjustable rate mortgages,
origination of a higher proportion of shorter-term commercial and consumer
loans, and the lengthening of maturities for deposits and borrowings. By
including such investments, the assets of savings institutions have begun
to match the maturities of their liabilities more closely. In addition,
3
<PAGE>
some savings institutions are conducting hedging transactions to reduce
their exposure to interest rate risk. The Fund's investments in savings
institutions will be affected by changes in the levels of interest rates,
national and local cycles in real estate and other economic factors.
Federal and state regulations do not insure the solvency or
profitability of savings and banking institutions or their holding
companies, nor do they insure against risk any investments in securities
issued by such institutions. The FDIC insure the deposits of member
institutions but in no way protect or insure investments in the securities
of these institutions.
--Legislative Concerns. Legislation has been enacted which has
altered the regulatory structure and capital requirements of the banking
and savings and loan institution industries. This legislation was enacted
as a response to financial problems experienced by a number of banks and
savings and loan institutions relating to inadequate capital, adverse
economic conditions and alleged fraud and mismanagement. This legislation
also strengthened the civil sanctions and criminal penalties for
defrauding or otherwise damaging depository institutions and their
depositors and curtailed the authority of savings and loan institutions to
engage in real estate investment and certain other activities. In
addition, the legislation has given federal regulators substantial
authority to use all of the assets of a bank or savings and loan
institution holding company to satisfy federal claims against an insolvent
savings and loan institution or bank owned by the holding company and
mandated regulatory action against institutions with inadequate capital
levels. Legislative and regulatory actions have also increased the
capital requirements applicable to commercial banks and savings and loan
institutions. These changes have extended the risk to holding company
shareholders in the event of the insolvency of any depository institution
owned by the holding company.
There are currently pending legislative proposals that could expose
bank holding companies to well-established competitors, such as securities
firms and insurance companies, as well as companies engaged in other areas
of business. Increased competition may also result from the broadening of
interstate banking powers, which has already lead to a reduction in the
number of publicly traded regional banks. Although the costs of insurance
premiums have been reduced, these rates can be increased in the future
which may adversely affect the Fund.
Special Considerations Concerning Other Financial Services Industries.
Many of the investment considerations discussed in connection which banks
and savings associations also apply to financial services companies.
These companies are all subject to extensive regulation, rapid business
changes, value fluctuations due to the concentration of loans in
particular industries significantly affected by economic conditions,
volatile performance dependent upon the availability and cost of capital
and prevailing interest rates, and significant competition. General
economic conditions significantly affect these companies. Credit and
other losses resulting from the financial difficulty of borrowers or other
4
<PAGE>
third parties have a potentially adverse effect on companies in this
industry. Investment banking, securities brokerage and investment
advisory companies are particularly subject to government regulation and
rate setting, potential anti-trust and tax law changes, and industry-wide
pricing and competition cycles. Property and casualty insurance companies
may be affected by weather and other catastrophes. Life and health
insurance companies may be affected by mortality and morbidity rates,
including the effects of epidemics, and by possible future changes in the
health care industries. Individual insurance companies may be exposed to
reserve inadequacies, problems in investment portfolios (for example, due
to real estate or "junk" bond holdings) and failures of reinsurance
carriers. Proposed or potential antitrust or tax law changes also may
affect adversely insurance companies' policy sales, tax obligations and
profitability. In addition, several significant insurance companies have
recently reported liquidity or solvency difficulties and credit rating
downgrades.
The financial services industries currently are changing relatively
rapidly as existing distinctions between various financial services
industries become less clear. For example, recent business combinations
have included different financial services industries such as insurance,
finance and securities brokerage under single ownership. In addition,
changes in governmental regulation have permitted companies traditionally
active in one area to expand into other areas. The effect of these
changes on particular segments of the financial services industries is
difficult to predict.
Repurchase Agreements. Repurchase agreements are transactions in
which the Fund purchases securities from a bank or recognized securities
dealer and simultaneously commits to resell the securities to the bank or
dealer at an agreed-upon date and price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased
securities. The Fund maintains custody of the underlying securities prior
to their repurchase; thus, the obligation of the bank or dealer to pay the
repurchase price on the date agreed to is, in effect, secured by such
securities. If the value of such securities is less than the repurchase
price, plus any agreed-upon additional amount, the other party to the
agreement must provide additional collateral so that at all times the
collateral is at least equal to the repurchase price, plus any agreed-upon
additional amount. The difference between the total amount to be received
upon repurchase of the securities and the price that was paid by the Fund
upon their acquisition is accrued as interest and included in the Fund's
net investment income.
Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market value
of the underlying securities and delays and costs to the Fund if the other
party to a repurchase agreement becomes bankrupt. The Fund intends to
enter into repurchase agreements only with banks and dealers in
transactions believed by Titan Investment Advisers, LLC (the "Investment
Adviser") to present minimal credit risks in accordance with guidelines
established by the Fund's Board of Directors. The Investment Adviser will
5
<PAGE>
review and monitor the creditworthiness of those institutions under the
Board's general supervision.
Lending of Fund Securities. The Fund may lend up to 33 % of the total
value of its portfolio securities to broker-dealers or institutional
investors that the Investment Adviser deems qualified, but only when the
borrower maintains with the Fund's custodian collateral either in cash or
money market instruments in an amount at least equal to the market value
of the securities loaned, plus accrued interest and dividends, determined
on a daily basis and adjusted accordingly. In determining whether to lend
securities to a particular broker-dealer or institutional investor, the
Investment Adviser will consider, and during the period of the loan will
monitor, all relevant facts and circumstances, including the
creditworthiness of the borrower. The Fund will retain authority to
terminate any loans at any time. The Fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The
Fund will receive reasonable interest on the loan or a flat fee from the
borrower and amounts equivalent to any dividends, interest or other
distributions on the securities loaned. The Fund will retain record
ownership of loaned securities to exercise beneficial rights, such as
voting and subscription rights and rights to dividends, interest or other
distributions, when retaining such rights is considered to be in the
Fund's interest.
Reverse Repurchase Agreements. Although it has no intention of doing
so during the coming year, the Fund may enter into reverse repurchase
agreements with banks up to an aggregate value of not more than 5% of its
total assets. Such agreements involve the sale of securities held by the
Fund subject to the Fund's agreement to repurchase the securities at an
agreed-upon date and price reflecting a market rate of interest. Such
agreements are considered to be borrowings and may be entered into only
for temporary or emergency purposes. While a reverse repurchase agreement
is outstanding, the Fund will maintain with its custodian, in a segregated
account, cash, U.S. government securities or other liquid, high-grade debt
obligations, marked to market daily, in an amount at least equal to the
Fund's obligations under the reverse repurchase agreement.
Illiquid Securities. As indicated in the Prospectus, the Fund may
invest up to 15% of its net assets in illiquid securities. The term
"illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and
includes, among other things, purchased over-the-counter ("OTC") options,
repurchase agreements maturing in more than seven days and restricted
securities other than those the Investment Adviser has determined are
liquid pursuant to guidelines established by the Funds's board of
Directors. The assets used as cover for OTC options written by the Fund
will be considered illiquid unless the OTC options are sold to qualified
dealers who agree that the Fund may repurchase any OTC option it writes at
a maximum price to be calculated by a formula set forth in the option
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agreement. The cover for an OTC option written subject to this procedure
would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the
option. Illiquid restricted securities may be sold only in privately
negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the Securities Act of 1933
("1933 Act"). Where registration is required, the Fund may be obligated
to pay all or part of the registration expenses and a considerable period
may elapse between the time of the decision to sell and the time the Fund
may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to
develop, the Fund might obtain a less favorable price than prevailed when
it decided to sell.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the 1933 Act, including private placements, repurchase
agreements, commercial paper, foreign securities and corporate bonds and
notes. These instruments are often restricted securities because the
securities are sold in transactions not requiring registration.
Institutional investors generally will not seek to sell these instruments
to the general public, but instead will often depend either on an
efficient institutional market in which such unregistered securities can
be readily resold or on an issuer's ability to honor a demand for
repayment. Therefore, the fact that there are contractual or restrictions
on resale to the general public or certain institutions is not dispositive
of the liquidity of such investments.
Rule 144A under the 1933 Act established a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain
securities to qualified institutional buyers. Institutional markets for
restricted securities that might develop as a result of Rule 144A could
provide both readily ascertainable values for restricted securities and
the ability to liquidate an investment to satisfy share redemption orders.
Such markets might include automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers,
such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. ("NASD"). An insufficient number of qualified
buyers interested in purchasing Rule 144A-eligible restricted securities
held by the Fund, however, could affect adversely the marketability of
such portfolio and the Fund might be unable to dispose of such securities
promptly or at favorable prices.
The Board of Directors has delegated the function of making day-to-day
determinations of liquidity to the Investment Adviser, pursuant to
guidelines approved by the Board. The Investment Adviser takes into
account a number of factors in reaching liquidity decisions, including (1)
the frequency of trades for the security, (2) the number of dealers that
make quotes for the security, (3) the number of dealers that have
undertaken to make a market in the security, (4) the number of other
potential purchasers and (5) the nature of the security and how trading is
effected (e.g., the time needed to sell the security, how offers are
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<PAGE>
solicited and the mechanics of transfer). The Investment Adviser will
monitor the liquidity of restricted securities in the Fund's portfolio and
report periodically on such decisions to the Board of Directors.
When-Issued and Delayed Delivery Securities. A security purchased on
a when-issued or delayed delivery basis is recorded as an asset on the
commitment date and is subject to changes in market value, generally based
upon changes in the level of interest rates. Thus, fluctuation in the
value of the security from the time of the commitment date will affect the
Fund's net asset value. When the Fund commits to purchase securities on a
when-issued or delayed delivery basis, its custodian will set aside in a
segregated account cash, U.S. government securities, or other liquid high-
grade debt securities with a market value equal to the amount of the
commitment. If necessary, additional assets will be placed in the account
daily so that the value of the account will equal or exceed the amount of
the Fund's purchase commitment. The Fund purchases when-issued securities
only with the intention of taking delivery, but may sell the right to
acquire the security prior to delivery if the Investment Adviser deems it
advantageous to do so, which may result in capital gain or loss to the
Fund.
Short Sales "Against the Box." The Fund may engage in short sales of
securities it owns or has the right to acquire at no added cost through
conversion or exchange of other securities it owns (short sales "against
the box") to defer realization of gains or losses for tax or other
purposes. To make delivery to the purchaser in a short sales, the
executing broker borrows the securities being sold short on behalf of the
Fund, and the Fund is obligated to replace the securities borrowed at a
date in the future. When the Fund sells short, it will establish a margin
account with the broker effecting the short sales and will deposit
collateral with the broker. In addition, the Fund will maintain with its
custodian, in a segregated account, the securities that could be used to
cover the short sale. The Fund will incur transaction costs, including
interest expenses, in connection with opening, maintaining and closing
short sales against the box. The Fund currently does not intend to have
obligations under short sales that at any time during the coming year
exceed 5% of the Fund's net assets.
The Fund might make a short sale "against the box" in order to hedge
against market risks when the Investment Adviser believes that the price
of a security may decline, thereby causing a decline in the value of a
security owned by the Fund or a security convertible into or exchangeable
for a security owned by the Fund, or when the Investment Adviser wants to
sell a security that the Fund owns at a current price, but also wishes to
defer recognition of gain or loss for federal income tax purposes. In
such case, any loss in the Fund's long position after the short sales
should be reduced by a gain in the short position. Conversely, any gain
in the long position should be reduced by a loss in the short position.
The extent to which gains or losses in the long position are reduced will
depend upon amount of the securities sold short relative to the amount of
the securities the Fund owns, either directly or indirectly, and in the
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<PAGE>
case where the Fund owns convertible securities, changes in the investment
values or conversion premiums of such securities.
Special Considerations Relating to Foreign Securities. To the extent
that the Fund invests in U.S. dollar-denominated securities of foreign
issuers, theses securities may not be registered with the SEC, nor may the
issuers thereof by subject to its reporting requirements. Accordingly,
there may be less publicly available information concerning foreign
issuers of securities held by the Funds than is available concerning U.S.
companies. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards or other regulatory
requirements comparable to those applicable to U.S. companies.
The Funds may invest in foreign securities by purchasing American
Depository Receipts ("ADRs"), which are securities convertible into
securities of corporations based in foreign countries. These securities
may not necessarily be denominated in the same currency as the securities
into which they may be converted. Generally, ADRs, in registered form,
are denominated in U.S. dollars and are designed for use in the U.S.
securities markets. ADRs are receipts typically issued by a U.S. bank or
Fund company evidencing ownership of the underlying securities. For
purposes of the Fund's investment policies, ADRs are deemed to have the
same classification as the underlying securities they represent. Thus, an
ADR representing ownership of common stock will be treated as common
stock.
The Fund anticipates that their brokerage transactions involving
securities of companies headquartered in countries other than the United
States will be conducted primarily on the principal exchanges of such
countries. Foreign security trading practices, including those involving
securities settlement where assets of the Fund may be released prior to
receipt of payment, may expose the Fund to increased risk in the event of
a failed trade or the insolvency of a foreign broker-dealer. Transactions
on foreign exchanges are usually subject to fixed commissions that are
generally higher than negotiated commissions on U.S. transactions,
although the Fund will endeavor to achieve the best net results in
effecting its portfolio transactions. There is generally less government
supervision and regulation of exchanges and brokers in foreign countries
than in the United States.
The values of foreign investments are affected by changes in currency
rates or exchange control regulations, restrictions or prohibitions on the
repatriation of foreign currencies, application of foreign tax laws,
including withholding taxes, changes in governmental administration or
economic or monetary policy (in the United States or abroad) or changed in
dealings between nations. Costs are also incurred in connection with
conversions between various currencies. In addition, foreign brokerage
commissions are generally higher than those charged in the United States,
and foreign securities markets may be less liquid, more volatile and
subject to lessen governmental supervision than in the United States.
Investments in foreign countries could be affected by other factors not
present in the United States, including expropriation, confiscatory
9
<PAGE>
taxation, lack of uniform accounting and auditing standards and potential
difficulties in enforcing contractual obligations, and could be subject to
extended clearance and settlement periods.
Investment income on certain foreign securities in which the Fund may
invest may be subject to foreign withholding or other taxes that could
reduce the return on these securities. Tax treaties between the United
States and foreign countries, however, may reduce or eliminate the amount
of foreign taxes to which the Fund would be subject.
Segregated Accounts. When the Fund enters into certain transactions
that involve obligations to make future payments to third parties,
including the purchase of securities on a when-issued or delayed delivery
basis or reverse repurchase agreements, the Fund will maintain with an
approved custodian in a segregated account cash, U.S. government
securities or other liquid high-grade debt securities, marked to market
daily, in an amount at least equal to the Fund's obligation or commitment
under such transactions. As described below under "Special Risks of
Hedging Strategies," segregated accounts may also be required in
connection with certain transactions involving options.
Special Risks of Hedging Strategies. The use of options involves
special considerations and risks, as described below. Risks pertaining to
particular instruments are described in the sections that follow.
(1) Successful use of options depends upon the Investment Adviser's
ability to predict movements of the overall securities, currency and
interest rate markets, which require different skills than predicting
changes in the prices of individual securities.
(2) There might be imperfect correlation, or even no correlation,
between price movements of an instrument and price movements of the
investments being hedged. For example, if the value of a an instrument
used in a short hedge increased by less than the decline in value of the
hedged investment, the hedge would not be fully successful. Such a lack
of correlation might occur due to factors unrelated to the value of the
investments being hedged, such as speculative or other pressures on the
markets in which instruments are traded. The effectiveness of hedges
using instruments on indices will depend on the degree of correlation
between price movements in the index and price movements in the securities
being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies
can also reduce opportunity for gain by offsetting the positive effect of
favorable price movements in the hedged investments. For example, if the
Fund entered in a short hedge because the Investment Adviser projected a
decline in the price of a security in the Fund's portfolio, and the price
of that security increased instead, the gain from that increase might be
wholly or partially offset by a decline in the price of the instrument.
Moreover, if the price of the instrument declined by more than the
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<PAGE>
increase in the price of the security, the Fund could suffer a loss. In
either such case, the Fund would have been in a better position had it not
hedged at all.
(4) As described below, the Fund might be required to maintain assets
as "cover," maintain segregated accounts or make margin payments when it
takes positions in an instruments involving obligations to third parties
(i.e., instruments other than purchased options). If the Fund were unable
to close out its positions in such instruments, it might be required to
continue to maintain such assets or accounts or make such payments until
the position expired or matured. These requirements might impair the
Fund's ability to sell a portfolio security or make an investment at a
time when it would otherwise be favorable to do so, or require that the
Fund sell a portfolio security at a disadvantageous time. The Fund's
ability to close out a position in an instrument prior to expiration or
maturity depends on the existence of a liquid secondary market or, in the
absence of such a market, the ability and willingness of a contra party to
enter into a transaction closing out the position. Therefore, there is no
assurance that any hedging position can be closed out at a time and price
that is favorable to the Fund.
Writing Call Options. The Fund may write (sell) call options on
securities and indices. Call options generally will be written on
securities that, in the opinion of the Investment Adviser, are not
expected to make any major price moves in the near future but that, over
the long term, are deemed to be attractive investments for the Fund.
A call option gives the holder (buyer) the right to purchase a
security at a specified price (the exercise price) at any time until a
certain date (the expiration date). So long as the obligation of the
writer of a call option continues, he or she may be assigned an exercise
notice, requiring him or her to deliver the underlying security against
payment of the exercise price. This obligation terminates upon the
expiration of the call option, or such earlier time at which the writer
effects a closing purchase transaction by purchasing an option identical
to that previously sold.
Portfolio securities on which call options may be written will be
purchase solely on the basis of investment considerations consistent with
the Fund's investment objective. When writing a call option, the Fund, in
return for the premium, gives up the opportunity for profit from a price
increase in the underlying security above the exercise price, and retains
the risk of loss should the price of the security decline. Unlike one who
owns securities not subject to an option, the Fund has no control over
when it may be required to sell the underlying securities, since most
options may be exercised at any time prior to the option's expiration. If
a call option that the Fund has written expires, the Fund will realize a
gain in the amount of the premium; however, such gain may be offset by a
decline in the market value of the underlying security during the option
period. If the call option is exercised, the Fund will realize a gain or
loss from the sale of underlying security, which will be increased or
offset by the premium received. The Fund does not consider a security
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<PAGE>
covered by a call option to be "pledged" as that term is used in the
Fund's policy that limits the pledging or mortgaging of its assets.
Writing call options can serve as a limited short hedge because
declines in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the
security appreciates to a price higher than the exercise price of the call
option, it can be expected that the option will be exercised and the Fund
will be obligated to sell the security at less than its market value.
The premium that the Fund receives for writing a call option is deemed
to constitute the market value of an option. The premium the Fund will
receive from writing a call option will reflect, among other things, the
current market price of the underlying investment, the relationship of the
exercise price to such market price, the historical price volatility of
the underlying investment, and the length of the option period. In
determining whether a particular call option should be written, the
Investment Adviser will consider the reasonableness of the anticipated
premium and the likelihood that a liquid secondary market will exist for
those options.
Closing transactions will be effected in order to realize a profit on
an outstanding call option, to prevent an underlying security from being
called, or to permit the sale of the underlying security. Furthermore,
effecting a closing transaction will permit the Fund to write another call
option on the underlying security with either a different exercise price
or expiration date or both.
The Fund will pay transaction costs in connection with the writing of
options and in entering into closing purchase contracts. Transaction
costs relating to options activity normally are higher than those
applicable to purchases and sales of portfolio securities.
The exercise price of the options may be below, equal to or above the
current market values of the underlying securities at the time the options
are written. From time to time, the Fund may purchase an underlying
security for delivery in accordance with the exercise of an option, rather
than delivering such security from its portfolio. In such cases,
additional costs will be incurred.
The Fund will realize a profit os loss from a closing purchase
transaction is less or more, respectively, than the premium received from
writing the option. Because increases in the market price of a call
option generally will reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call
option is likely to be offset in whole or in part by appreciation of the
underlying security owned by the Fund.
Writing Put Options. The Fund may write put options on securities and
indices. A put option gives the purchases of the option the right to
sell, and the writer (seller) the obligation to buy, the underlying
security at the exercise price at any time until the expiration date. The
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<PAGE>
operation of put options in other respects, including their related risks
and rewards, is substantially identical to that of call options.
The Fund generally would write put options in circumstances where
Investment Adviser wishes to purchase the underlying security for the
Fund's portfolio at a price lower than the current market price of the
security. In such event, the Fund would write a put option at an exercise
price that, reduced by the premium received on the option, reflects the
lower price it is willing to pay. Since the Fund also would receive
interest on debt securities maintained to cover the exercise price of the
option, this technique could be used to enhance current return during
periods of market uncertainty. The risk in such a transaction would be
that the market price of the underlying security would decline below the
exercise price, less the premium received.
Writing put options can serve as a limited long hedge because
increases in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the
security depreciates to a price lower than the exercise price of the put
option, it can be expected that the put option will be exercised and the
Fund will be obligated to purchase the security at more than its market
value.
Purchasing Put Options. The Fund may purchase put options on
securities and indices. As the holder of a put option, the Fund would
have the right to sell the underlying security at the exercise price at
any time until the expiration date. The Fund may enter into closing sale
transactions with respect to such options, exercise such options or permit
such options to expire.
The Fund may purchase a put option on an underlying security
("protective put") owned by the Fund in order to protect against an
anticipated decline in the value of the security. Such hedge protection
is provided only during the life of the put option when the Fund, as the
holder of the put option, is able to sell the underlying security at the
put exercise price regardless of any decline in the underlying security's
market price. For example, a put option may be purchased in order to
protect unrealized appreciation of a security when the Investment Adviser
deems it desirable to continue to hold the security because of tax
considerations. The premium paid for the put option and any transaction
costs would reduce any profit otherwise available for distribution when
the security eventually is sold.
The Fund also may purchase put options at a time when the Fund does
not own the underlying security. By purchasing put options on a security
it does not own, the Fund seeks to benefit from a decline in the market
price of the underlying security. If the put option is not sold when it
has remaining value, and if the market price of the underlying security
remains equal to or greater than the exercise price during the life of the
put option, the Fund will lose its entire investment in the put option.
In order for the purchase of a put option to be profitable, the market
price of the underlying security must declines sufficiently below the
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<PAGE>
exercise price to cover the premium and transaction costs, unless the put
option is sold in a closing sale transaction.
Purchasing Call Options. The Fund may purchase call options on
securities and indices. As the holder of a call option, the Fund would
have the right to purchase the underlying security at the exercise price
at any time until the expiration date. The Fund may enter into closing
sale transactions with respect to such options, exercise such options or
permit such options to expire.
The Fund also may purchase call options on underlying securities it
owns in order to protect unrealized gains on call options previously
written by it. A call option could be purchased for this purpose where
tax considerations make it inadvisable to realize such gains through a
closing purchase transaction. Call options also may be purchased at times
to avoid realizing losses that would result in a reduction of the Fund's
current return. For example, where the Fund has written a call option on
an underlying security having a current market value below the price at
which such security was purchased by the Fund, an increase in the market
price could result in the exercise of the call option written by the Fund
and the realization of a loss on the underlying security. Accordingly,
the Fund could purchase a call option on the same underlying security,
which could be exercised to fulfill the Fund's delivery obligations under
its written call (if it is exercised). This strategy could allow the Fund
to avoid selling the Fund security at a time when it has an unrealized
loss; however, the Fund would have to pay a premium to purchase the call
option plus transaction costs.
Aggregate premiums paid for put and call options will not exceed 5% of
such Fund's total assets at the time of purchase.
Options may be either listed on an exchange or traded over-the-counter
("OTC"). Listed options are third-party contracts (i.e., performance of
the obligations of the purchase and seller is guaranteed by the exchange
or clearing corporation), and have standardized strike prices and
expiration dates. OTC options are two-party contracts with negotiated
strike prices and expiration dates. OTC options differ from exchange-
traded options in that OTC options are transacted with dealers directly
and not through a corporation (which guarantees performance).
Consequently, there is a risk of non-performance by the dealer. Since no
exchange is involved, OTC options are valued on the basis of a quote
provided by the dealer. In the case of OTC options, there can be no
assurance that a liquid secondary market will exist for any particular
option at any specific time.
The staff of the SEC considers purchased OTC options to be illiquid
securities. A Fund may also sell OTC options and, in connection
therewith, segregate assets or cover its obligations with respect to OTC
options written by the Fund. The assets used as cover for OTC options
written by the Fund will be considered illiquid unless the OTC options are
sold to qualified dealers who agree that the Fund may repurchase any OTC
option its writes at a maximum price to be calculated by a formula set
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<PAGE>
forth in the option agreement. The cover for an OTC option written
subject to this procedure would be considered illiquid only to the extent
that the maximum repurchase price under the formula exceeds the intrinsic
value of the option.
The Fund's ability to establish and close out positions in exchange-
listed options depends on the existence of a liquid market. The Fund
intends to purchase or write only those exchange-traded options for which
there appears to be liquid secondary market. However, there can be no
assurance that such a market will exist at any particular time. Closing
transactions can be made for OTC options only be negotiating directly with
the contra party, or by a transaction in the secondary market if any such
market exists. Although the Fund will enter into OTC options only with
contra parties that are expected to be capable of entering into closing
transactions with the Fund, there is no assurance that the Fund will in
fact be able to close out an OTC option position at a favorable price
prior to expiration. In the event of insolvency of the contra party, the
Fund might be unable to close out an OTC option position at any time prior
to its expiration.
Investment Restrictions
The following investment restrictions are fundamental policies of the
Fund. Under the 1940 Act, a fundamental policy may not be changed without
the vote of a majority of the outstanding voting securities of a Fund,
which is defined in the 1940 Act as the lesser of (1) 67% or more of the
shares present at a Fund meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy or (2)
more than 50% of the outstanding shares of the Fund.
Under the investment restrictions adopted by the Fund:
1. The Fund may not purchase securities of any one issuer, if as a
result, more than 5% of the Fund's total assets would be invested in
securities of that issuer or the Fund would own or hold more than 10%
of the outstanding voting securities of that issuer, except that up to
25% of the Fund's total assets may be invested without regard to this
limitation, and except that this limitation does not apply to
securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities or to securities issued by other investment
companies.
2. The Fund may not issue senior securities or borrow money, except
as permitted under the Investment Company Act of 1940 (the "1940 Act")
and then not in excess of 33-1/3% of the Fund's total assets
(including the amount of the senior securities issued but reduced by
any liabilities not constituting senior securities) at the time of the
issuance or borrowing, except that the Fund may borrow up to an
additional 5% of its total assets (not including the amount borrowed)
for temporary or emergency purposes.
15
<PAGE>
3. The Fund may not purchase or sell physical commodities unless
acquired as a result of owning securities or other instruments, except
that the Fund may purchase, sell or enter into financial options.
4. The Fund may not purchase or sell real estate, except that
investments in securities of issuers that invest in real estate and
[investments in mortgage-backed securities, mortgage participations or
other instruments supported by interests in real estate] are not
subject to this limitation, and except that the Fund may exercise
rights under agreements relating to such securities, including the
right to enforce security interests and to hold real estate acquired
by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
5. The Fund may not engage in the business of underwriting
securities of other issuers, except to the extent that the Fund might
be considered an underwriter under the federal securities laws in
connection with its disposition of portfolio securities.
The following investment restrictions may be changed by the Board of
Directors without shareholder approval:
1. The Fund may not purchase any securities of other investment
companies, except to the extent permitted by the 1940 Act and except
that this limitation does not apply to securities received or acquired
as dividends, through offers or exchange, or as a result of
reorganization, consolidation, or merger.
2. The Fund may not purchase any security if as a result the Fund
would then have more than 5% of its total assets invested in
securities of companies (including predecessors) that have been in
continuous operation for fewer than three years.
3. The Fund may not purchase or retain securities of any company if,
to the knowledge of the Fund, any of the Fund's Officers or Directors
or any officer or director of the Investment Adviser for the Fund
individually owns more than 1/2 of 1% of the outstanding securities of
the company and together they own beneficially more than 5% of the
securities.
4. The Fund may not make loans, except through loans of portfolio
securities or through repurchase agreements, provided that for
purposes of this restriction, the acquisition of bonds, debentures or
other debt securities and investments in government obligations,
commercial paper, certificates of deposit, bankers' acceptances or
similar instruments will not be considered the making of a loan.
5. The Fund may not invest in warrants, valued at the lower of cost
or market, in excess of 5% of the value of its net assets, which
amount may include warrants that not listed on the New York or
American Stock Exchange, provided that those unlisted warrants, valued
at the lower or cost or market, do not exceed 2% of the Fund's net
16
<PAGE>
assets, and further provided that this restriction does not apply to
warrants attached to, or sold as a unit with, other securities.
6. The Fund may not purchase securities on margin, except for short-
term credit necessary for clearance of portfolio transactions and
except that the Fund may make margin deposits in connection with its
use of financial options.
7. The Fund may not make short sales of securities or maintain a
short position, except that a Fund may (a) sell short "against the
box" and (b) maintain short positions in connections with its use of
financial options.
8. The Fund may not invest in oil, gas or other mineral exploration
or development programs or leases, except that investments in
securities of issuers that invest in such programs or leases and
investments in asset-backed securities supported by receivables
generated from such programs or leases are not subject to this
prohibition.
9. The Fund may not mortgage, pledge, or hypothecate any assets
except in connection with permitted borrowings or the issuance or
senior securities.
DIRECTORS AND OFFICERS
The Directors and Executive Officers of the Fund, their business
addresses and principal occupations during the past five years are:
Business Experience;
Name and Address* Position with Fund Other Directorships
----------------- ------------------ --------------------
Lawrence A. Appleman Director
Mervin H. Zimmerman President
[Other directors and
officers to be named]
---------------
* Unless otherwise indicated, the business address of each listed person
is _____________________________________________________________.
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** are "interested persons" of the Fund as defined in the
1940 Act by virtue of their positions Titan Investment Advisers, LLC.
The Fund pays Directors who are not "interested persons" of the Fund
$_____ annually and $____ per meeting of the Board or any committee
thereof. Directors are reimbursed for any expenses incurred in attending
meetings.
Directors and Officers of the Fund own in the aggregate less than __%
of the shares of the Fund.
INVESTMENT MANAGEMENT, ADMINISTRATION AND DISTRIBUTION
ARRANGEMENTS
Investment Advisory Arrangements. Titan Investment Advisers, LLC acts
as the investment adviser to the Fund pursuant to a an investment advisory
agreement with the Fund ("Advisory Agreement") dated __________________,
1996.
For its services, the Investment Adviser receives, pursuant to the
Advisory Agreement, a fee at an annual rate of 0.75% of the Fund's average
daily net assets. The fee is computed daily and payable monthly.
As required by state regulation, the Investment Adviser will reimburse
the Fund if and to the extent that the aggregate operating expenses of the
Fund exceed applicable limits in any fiscal year. Currently, the most
restrictive such limit applicable to the Fund is 2.5% of the first $30
million of the Fund's average daily net assets, 2.0% of the next $70
million of its average daily net assets and 1.5% of its average daily net
assets in excess of $100 million. Certain expenses, such as brokerage
commissions, taxes, interest, distribution fees, certain expenses
attributable to investing outside the United States and extraordinary
items, are excluded from this limitation.
Under the terms of the Advisory Agreement, the Fund bears all expenses
incurred in its operation that are not specifically assumed by the Fund's
Adviser. General expenses of the Fund not readily identifiable as
belonging to the Fund are allocated among series by or under the direction
of the board of directors in such manner as the board deems to be fair and
equitable. Expenses borne by the Fund include the following (or the
Fund's share of the following): (1) the cost (including brokerage
commissions) of securities purchased or sold by the Fund and any losses
incurred in connection therewith, (2) fees payable to and expenses
incurred on behalf of the Fund by the Investment Adviser, (3)
organizational expenses, (4) filing fees and expenses relating to the
registration and qualification of the Fund's shares under federal and
state securities laws and maintenance of such registrations and
qualifications, (5) fees and salaries payable to directors who are not
interested persons (as defined in the 1940 Act) of the Fund, Investment
Adviser, (6) all expenses incurred in connection with directors' services,
including travel expenses, (7) taxes (including any income or franchise
taxes) and governmental fees, (8) costs of any liability, uncollectible
18
<PAGE>
items of deposit and other insurance or fidelity bonds, (9) any costs,
expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Fund for violation of any law, (10)
legal, accounting and auditing expenses, including legal fees of special
counsel for the independent directors, (11) charges of custodians,
transfer agents and other agents, (12) costs of preparing share
certificates, (13) expenses of setting in type and printing prospectuses
and supplements thereto, statements of additional information and
supplements thereto, reports and proxy materials for existing
shareholders, and costs of mailing such materials to existing
shareholders, (14) any extraordinary expenses (including fees and
disbursements of counsel) incurred by the Fund, (15) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations, (16) costs of mailing and tabulating
proxies and costs of meetings of shareholders, the board and any
committees thereof, (17) the cost of investment company literature and
other publications provided to directors and officers and (18) costs of
mailing, stationery and communications equipment.
Under the Advisory Agreement, the Investment Adviser will not be
liable for any error or judgment or mistake of law or for any loss
suffered by the Fund in connection with the performance of the contract,
except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the performance of its
duties or from reckless disregard of its duties and obligations
thereunder. The Advisory Agreement terminates automatically upon its
assignment and is terminable at any time without penalty by the Fund's
board of directors or by vote of the holders of a majority of a Fund's
outstanding voting securities, on 60 days' written notice to the
Investment Adviser or by the Investment Adviser on 60 days' written notice
to the Fund.
Administration Arrangements. Pursuant to an Administration Agreement
dated _______ __, 1996, _________ will serve as the Fund's Administrator.
The duties of the Administrator include, but are not limited to,
overseeing maintenance of books and records of the Fund required by Rule
31a-1(b)(4) under the 1940 Act; preparation of the Fund's federal, state
and local tax returns, preparation of financial information for the Fund's
proxy statements and quarterly and annual reports to shareholder;
preparation of the Fund's periodic financial reports to the SEC; and
responding to shareholder inquiries relating to the Fund. As compensation
for its services, the Administrator will receive from the Fund a quarterly
fee at the annual rate of ___% of the Fund's average net assets, based
upon the net assets on the last business day of each month. The
Administrator's offices are located at _________________________________.
The Administrator shall not be liable for any error of judgement or
for any loss suffered by the Fund in connection with performance of its
obligations under the Administration Agreement except a loss resulting
from willful misfeasance, bad faith, or gross negligence on its part in
the performance of, or from reckless disregard by it of its duties under
the Administration Agreement. The services of the Administrator to the
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<PAGE>
Fund are not deemed to be exclusive, and nothing in the Administration
Agreement prevents the Administrator, or any affiliates thereof, from
providing similar 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.
Distribution Arrangements. __________ acts as the distributor of the
shares of each Fund under a distribution contract with the Fund dated
_____________, 1996 ("Distribution Contract") that requires __________ to
use its best efforts, consistent with its other businesses, to sell shares
of the Fund. Shares of the Funds are offered continuously.
Among other things, the Plan provides that (1) the Investment Adviser
will submit to the Fund's Board of Directors at least quarterly, and the
Directors will review, reports regarding all amounts expended under the
Plan and the purposes for which such expenditures were made, (2) the Plan
will continue in effect only so long as it is approved at least annually,
and any material amendment thereto is approved, by the Fund's Board of
Directors, including those who are not "interested persons" of the Fund
and who have no direct or indirect financial interest in operation of the
plan or any agreement related to the Plan, acting in person at a meeting
called for that purpose, (3) payments by the Fund under the Plan shall not
be materially increased without the affirmative vote of the holders of a
majority of the outstanding shares of the Fund and (4) while the Plans
remains in effect, the selection and nomination of Directors who are not
"interested persons" of the Fund shall be committed to the discretion of
the Directors who are not interested persons of the Fund.
PORTFOLIO TRANSACTIONS
Subject to policy established by the Board of Directors of the Fund,
the Investment Adviser will arrange for the execution of the Fund's
portfolio transactions and the allocation of brokerage. In executing
portfolio transactions the Investment Adviser will seek to obtain the best
net results for the Fund, taking into account such factors as price
(including the applicable brokerage commission or dealer spread), size of
order, difficulty of execution and operational facilities of the firm
involved. The Fund may invest in securities traded in the over-the-
counter markets and deal directly with the dealers who make markets in the
securities involved, unless a better price or execution could be obtained
by using a broker. While the Investment Adviser generally will sell
reasonably competitive commission rates, payment of the lowest commission
or spread is not necessarily consistent with best results in particular
transactions.
In placing orders with brokers and dealers, the Investment Adviser
will attempt to obtain the best net price and the most favorable execution
for orders; however, the Investment Adviser may, in its discretion,
purchase and sell portfolio securities through brokers and dealers who
provide the Investment Adviser or the Fund with research, analysis, advice
and similar services. The Investment Adviser may, in return for research
and analysis, pay brokers a higher commission than may be charged by other
20
<PAGE>
brokers, provided that the Investment Adviser determines in good faith
that such commission is reasonable in terms either of that particular
transaction or of the overall responsibility of the Investment Adviser to
the Fund and its other clients and that the total commission paid by the
Fund will be reasonable in relation to the benefits to the Fund over the
long term. Information and research received from such brokers and
dealers will be in addition to, and not in lieu of, the services required
to be performed by the Investment Adviser under its Advisory Agreement
with the Fund. The Fund has no obligation to deal with any broker or
group of brokers in the execution of transactions.
Investment decisions for the Fund and for other investment accounts
managed by the Investment Adviser are made independently of each other in
the light off differing considerations for the various accounts. However,
the same investment decision may occasionally be made for two or more such
accounts. In such cases, simultaneous transactions are inevitable.
Purchases or sales are then averaged as to price and allocated to accounts
according to a formula deemed equitable to each account. While in some
cases this practice could have a detrimental effect upon the price or
value of the security as far as the Fund is concerned, in other cases it
is believed to be beneficial to the Fund.
Portfolio Turnover
Because the Fund's primary objective is long-term capital appreciation
by maintaining investments in the securities of various savings and
banking institutions and their holding companies, the Fund anticipates
that its annual portfolio turnover rate generally will not exceed 100%.
The turnover rate will not be a limiting factor if the Investment Adviser
deems portfolio changes appropriate. The turnover rate may vary greatly
form year to year. Portfolio turnover rate is calculated by dividing the
lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of all securities the maturities of which
at the time of acquisition were one year or less) by the monthly average
value of securities in the portfolio during the year (exclusive of
portfolio securities the maturities of which at the time of acquisition
were one year or less).
VALUATION OF SHARES
The Fund determines its net asset value per share as of the close of
regular trading (currently 4:00 p.m., eastern time) on the NYSE on each
Monday through Friday when the NYSE is open. Currently, the NYSE is
closed on the observance of the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Each security will be valued on the basis of the last sales price on
the valuation date on the principal exchange on which the security is
traded. Where securities are traded on one or more exchanges and also
over-the-counter, the securities will generally be valued using the
21
<PAGE>
quotations the Board of Directors or its delegate believes reflect most
closely the value of such securities. With respect to those securities
for which no trades have taken place that day and unlisted securities for
which market quotations are readily available, the value shall be
determined by taking the latest "bid" prices. Short-term securities which
mature in more than 60 days will be valued at current market quotations.
Short-term securities which mature in 60 days or less will be valued at
amortized cost, if their term to maturity from date of purchase is 60 days
or less, or by amortizing their value on the 61st day prior to maturity,
if their term to maturity from date of purchase exceeds 60 days.
Securities for which market quotations are not readily available,
including restricted securities, and other assets will be valued at fair
value as determined in good faith according to a pricing procedure
developed by the Investment Adviser and approved by the Board of
Directors.
In the calculation of the Fund's net asset value; (1) an equity
portfolio security listed or traded on the New York or American Stock
Exchange or other domestic or foreign stock exchange or quoted by NASDAQ
is valued at its latest sale price on that exchange or quotation service
prior to the time assets are valued; if there were no sales that day, the
security is valued at the latest bid price (in cases where a security is
traded on more than one exchange, the security is valued on the exchange
designated as the primary market by the Fund's Board of Directors); (2) an
option is valued at the mean between the latest bid and asked prices; (3)
a futures contract is valued at the latest sales price on the commodities
exchange on which it trades unless the Board determines that such price
does not reflect its market value, in which case it will be valued at its
fair value as determined by the Board of Directors; (4) all other
portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest bid price; (5) when market
quotations are not readily available, including circumstances under which
it is determined by the Investment Adviser that sale or bid prices are not
reflective of a security's market value, portfolio securities are valued
at their fair value as determined in good faith under procedures
established by and under the general supervision of the Fund's Board of
Directors (valuation of debt securities for which market quotations are
not readily available may be used upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate
matrix utilizing similar factors); (6) the value of short-term debt
securities which mature at a date less than sixty days subsequent to
valuation date will be determined on an amortized cost or amortized value
basis; and (7) the value of other assets will be determined in good faith
at fair value under procedures established by and under the general
supervision of the Fund's Board. For valuation purposes, quotations of
foreign portfolio securities, other assets and liabilities and forward
contracts stated in foreign currency are translated into U.S. dollar
equivalents at the prevailing market ratings prior to the close of the New
York Stock Exchange. Dividends receivable are accrued as the ex-dividend
date or as of the time that the relevant ex-dividend date and amounts
become known. Interest income is accrued daily except when collection is
uncertain. Certain securities in the Fund's portfolio may be valued by an
22
<PAGE>
outside pricing service approved by the Fund's Board of Directors. The
pricing service may utilize a matrix system incorporating security
quality, maturity and coupon as the evaluation model parameters, and/or
research evaluations by its staff, including review of broker-dealer
market price quotations, in determining what it believes is the fair
valuation of the portfolio securities valued by such pricing service.
PERFORMANCE INFORMATION
The Fund's performance data quoted in advertising and other
promotional materials ("Performance Advertisements") represent past
performance and are not intended to indicate future performance. The
investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
Total Return Calculations. Average annual total return quotes
("Standardized Return") used in the Fund's Performance Advertisements are
calculated according to the following formula:
n
P(1 + T) = ERV
where: P = a hypothetical initial payment of $1,000 to
purchase shares of a Fund
T = average annual total return of shares of that Fund
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of that period.
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the
last day of the most recent quarter prior to submission of the Performance
Advertisements for publication. Total return, or "T" in the formula
above, is computed by finding the average annual change in the value of an
initial $1,000 investment over the period. All dividends and other
distributions are assumed to have been reinvested at net asset value.
The Fund also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set
forth above ("Non-Standardized Return"). A Fund calculates Non-
Standardized Return for specified periods of time by assuming an
investment of $1,000 in Fund shares and assuming the reinvestment of all
dividends and other distributions. The rate of return is determined by
subtracting the initial value of the investment from the ending value and
by dividing the remainder by the initial value.
Yield. Yields used in the Fund's Performance Advertisements are
calculated by dividing the Fund's interest income attributable to the
Fund's shares for a 30-day period ("Period"), net of expenses attributable
to the Fund, by the average number of shares of such Fund entitled to
receive dividends during the Period and expressing the result as an
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<PAGE>
annualized percentage (assuming semi-annual compounding) of the net asset
value per share at the end of the Period. Yield quotations are calculated
according to the following formula:
YIELD = 2 [ (a - b + 1)6 - 1 ]
-----
cd
where: a = interest earned during the period attributable to
the Fund
b = expenses accrued for the Period attributable to
the Fund (net of reimbursements)
c = the average daily number of shares of the Fund
outstanding during the period that were entitled
to receive dividends
d = the net asset value per share on the last day of
the Period
Except as noted below, in determining interest income earned during
the Period (variable in the above formula), the Fund calculates interest
earned on each debt obligation held by it during the Period by (1)
computing the obligation's yield to maturity, based on the market value of
the obligation (including actual accrued interest) on the last Business
Day of the Period or, if the obligation was purchased during the Period,
the purchase price plus accrued interest and (2) dividing the yield to
maturity by 360, and multiplying the resulting quotient by the market
value of the obligation (including actual accrued interest) to determine
the interest income on the obligation for each day of the period that the
obligation is in the portfolio. Once interest earned is calculated in
this fashion for each debt obligation held by the Fund, interest earned
during the Period is then determined by totalling the interest earned on
all debt obligations. For purposes of these calculations, the maturity of
an obligation with one or more call provisions is assumed to be the next
date on which the obligation reasonably can be expected to be called or,
if none, the maturity date.
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yield of the Fund fluctuates, it cannot be
compared with yields on savings accounts or other investment alternatives
that provide an agreed-to or guaranteed fixed yield for a stated period of
time. However, yield information may be useful to an investor considering
temporary investments in money market instruments. In comparing the yield
of one money market fund to another, consideration should be given to each
Fund's investment policies, including the types of investments made, the
average maturity of the portfolio securities and whether there are any
special account charges that may reduce the yield.
Other Information. In Performance Advertisements, the Fund may
compare its Standardized Return and/or their Non-Standardized Return with
data published by Lipper Analytical Services, Inc. ("Lipper"), CDA
Investment Technologies, Inc. ("CDA"), Wiesenberger Investment Companies
Services ("Wiesenberger"), Investment Company Data, Inc. ("ICD"),
24
<PAGE>
or Morningstar Mutual Funds ("Morningstar") or with the performance of
recognized stock and other indices, including (but not limited to)
the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones
Industrial Average and the Wilshire 5000 Index. The Fund also may refer
in such materials to mutual fund performance rankings and other data,
such as comparative asset, expense and fee levels, published by Lipper,
CDA, Wiesenberger, ICD, Bloomberg Financial Markets Service or
Morningstar. Performance Advertisements also may refer to discussions of
the Fund and comparative mutual fund data and ratings reported in
independent periodicals, including (but not limited to) THE WALL STREET
JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S,
FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST and
THE KIPLINGER LETTERS. Ratings may include criteria relating to portfolio
characteristics in addition to performance information. In connection
with a ranking, a Fund may also provide additional information with
respect to the ranking, such as the particular category to which it
relates, the number of funds in the category, the criteria on which the
ranking is based, and the effect of sales charges, fee waivers and/or
expense reimbursements.
The Fund may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the
fact that, if dividends or other distributions on the Fund investment are
reinvested by being paid in additional Fund shares, any future income or
capital appreciation of the Fund would increase the value, not only of the
original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been
paid in cash.
The Fund may also compare its performance with the performance of bank
certificates of deposit (CDs) as measured by the CDA Investment
Technologies, Inc. Certificate of Deposit Index, the Bank Rate Monitor
National Index and the averages of yields of CDs of major banks published
by Banxquote(TRADEMARK) Money Markets. In comparing the Fund's
performance to CD performance, investors should keep in mind that bank CDs
are insured in whole or in part by an agency of the U.S. government and
offer fixed principal and fixed or variable rates of interest, and that
bank CD yields may vary depending on the financial institution offering
the CD and prevailing interest rates. Shares of the Fund are not insured
or guaranteed by the U.S. government and returns thereon and net asset
value will fluctuate. The securities held by the Fund generally have
longer maturities than most CDs and may reflect interest rate fluctuations
for longer term securities.
TAXES
In order to qualify for treatment as a regulated investment company
("RIC") under the Internal Revenue Code, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of taxable net investment income and
net short-term capital gain and must meet several additional requirements.
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<PAGE>
With respect to the Fund, these requirements include the following: (1)
the Fund must derive at least 90% of its gross income each taxable year
from dividends, interest, payments with respect to securities loans, and
gains from the sale or other disposition of securities or foreign
currencies, or other income (including gains from options, futures, or
forward currency contracts) derived with respect to its business of
investing securities or those currencies ("Income Requirement"); (2) the
Fund must derive less than 30% of its gross income each taxable year from
the sale or other disposition of securities, or any of the following, that
were held for less than three months -- options, or futures (other than
those on foreign currencies), or foreign currencies (or options, futures,
or forward contracts thereon) that are not directly related to the Fund's
principal business of investing in securities (or options and futures with
respect to securities) ("Short-Short Limitation"); (3) at the close of
each quarter of the Fund's taxable year, at least 50% of the value of its
total assets must be represented by cash and cash items, U.S. government
securities, securities of other RICs and other securities, with these
other securities limited, in respect of any one issuer, to an amount that
does not exceed 5% of the value of the Fund's total assets and that does
not represent more than 10% of the issuer's outstanding voting securities;
and (4) at the close of each quarter of the Fund's taxable year, not more
than 25% of the value of its total assets may be invested in securities
(other than U.S. government securities or the securities of other RICs) of
any one issuer.
Dividends and other distributions declared by the Fund in October,
November or December of any year and payable to shareholders of record on
a date in any of those months will be deemed to have been paid by the Fund
and received by the shareholders on December 31 of that year if the
distributions are paid by the Fund during the following January.
Accordingly, those distributions will be taxed to shareholders for the
year in which that December 31 falls.
A portion of the dividends from the Fund's investment company taxable
income (whether paid in cash or reinvested in additional Fund shares) may
be eligible for the dividends-received deduction allowed to corporations.
The eligible portion may not exceed the aggregate dividends received by
the Fund from U.S. corporations. However, dividends received by a
corporate shareholder and deducted by it pursuant to the dividends-
received deduction are subject indirectly to the alternative minimum tax.
If shares of the Fund are sold at a loss after being held for six
months or less, the loss will be treated as long-term, instead of short-
term, capital loss to the extent of any capital gain distributions
received on those shares. Investors also should be aware that if shares
are purchased shortly before the record date for any distribution, the
shareholder will pay full price for the shares and receive some portion of
the price back as a taxable dividend or capital gain distribution.
The Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain
26
<PAGE>
net income for the one-year period ending on December 31 of that year,
plus certain other amounts.
The use of certain option strategies, such as writing (selling) and
purchasing options, involves complex rules that will determine for income
tax purposes the character and timing of recognition of the gains and
losses the Fund realizes in connection therewith. Income from the
disposition of foreign currencies (except certain gains therefrom that may
be excluded by future regulations), and income from transactions in
options, futures, and forward contracts derived by the Fund with respect
to its business of investing in securities or foreign currencies, will
qualify as permissible income under the Income Requirement. However,
income from the disposition of options and futures (other than those on
foreign currencies) will be subject to the Short-Short Limitation if they
are held for less than three months. Income from the disposition of
foreign currencies, and options, futures, and forward contracts on foreign
currencies, that are not directly related to a Fund's principal business
of investing in securities (or options and futures with respect to
securities) also will be subject to the Short-Short Limitation if they are
held for less than three months.
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by an
decrease in value (whether realized or not) of the offsetting hedging
position during the period of the hedge for purposes of determining
whether the Fund satisfies the Short-Short Limitation. Thus, only the net
gain (if any) from the designated hedge will be concluded in gross income
for purposes of that limitation. Each Fund will consider whether it
should seek to qualify for this treatment for its hedging transactions.
To the extent the Fund does not qualify for this treatment, it may be
forced to defer the closing out of certain options, futures, and forward
currency contracts beyond the time when it otherwise would be advantageous
to do so, in order for the Fund to continue to qualify as a RIC.
OTHER INFORMATION
Counsel. The law firm of Kirkpatrick & Lockhart LLP, 1800 M Street,
N.W., Washington, D.C. 20036-5891, counsel to the Fund, has passed upon
the legality of the shares offered by the Prospectus.
Independent Accountants. Ernest & Young, LLP, 187 Seventh Avenue, New
York, New York serves as the Fund's independent accountants.
27
<PAGE>
REPORT OF , INDEPENDENT ACCOUNTANTS
[TO BE COMPLETED]
28
<PAGE>
TITAN FINANCIAL SERVICES FUND
Statement of Assets and Liabilities
, 1996
[TO BE COMPLETED]
29
<PAGE>
APPENDIX
Description of Moody's Long-Term Debt Ratings
Aaa. Bonds which are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by
a large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues; Aa. Bonds which are rated "Aa" are judged to be
of high quality by all standards. Together with the "Aaa" group they
comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protection may not be as
large as in "Aaa" securities or fluctuation of protective elements may be
of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat greater than the "Aaa" securities; A.
Bonds which are rated "A" possess many favorable investment attributes and
are considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the
future; Baa. Bonds which are rated "Baa" are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present,
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well; Ba. Bonds which are rated "Ba" are judged to have
speculative elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be very
moderate, and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this
class; B. Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic
rating classification from "Aa" through "B" in its corporate bond rating
system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
Description of S&P Corporate Debt Ratings
AAA. Debt rated "AAA" has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong; AA. Debt
rated "AA" has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree; A. Debt
rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
30
<PAGE>
in circumstances and economic conditions than debt in higher rated
categories; BBB. Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for debt in this category than in higher
rated categories; BB, B. Debt rated "BB" and "B" is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation. While such debt will likely
have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions; BB.
Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal
payments. The "BB" rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied "BBB--" rating; B. Debt
rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category
is also used for debt subordinated to senior debt that is assigned an
actual or implied "BB" or "BB--" rating.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within
the major categories.
NR indicates that no public rating has been requested, that there is
insufficient information in which to base a rating or that S&P does not
rate a particular type of obligation as matter of policy.
Description of Moody's Preferred Stock Ratings
"aaa". An issue which is rated "aaa" is considered to be a top-
quality preferred stock. This rating indicates good asset protection and
the least risk of dividend impairment within the universe of preferred
stocks; "aa". An issue which is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is reasonable assurance
that earnings and asset protection will remain relatively well maintained
in the foreseeable future; "a". An issue which is rated "a" is considered
to be an upper-medium grade preferred stock. While risks are judged to be
somewhat greater than in the "aaa" and "aa" classification, earnings and
asset protection are nevertheless expected to be maintained at adequate
levels; "baa". An issue which is rated "baa" is considered to be medium
grade preferred stock, neither highly protected nor poorly secured.
Earnings and asset protection appear adequate at present but may be
questionable over any great length of time; "ba". An issue which is rated
"ba" is considered to have speculative elements and its future cannot be
considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
31
<PAGE>
position characterizes preferred stocks in this class; "b". An issue
which is rated "b" generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms
of the issue over any long period of time may be small; "caa". An issue
which is rated "caa" is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments; "ca". An issue which is rated "ca" is speculative in a high
degree and is likely to be in arrears on dividends with little likelihood
of eventual payments; "c". This is the lowest rated class of preferred or
preference stock. Issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-
range ranking and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
Description of S&P Preferred Stock Ratings
"AAA". This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong capacity to pay
the preferred stock obligations. "AA". A preferred stock issue rated "AA"
also qualifies as a high-quality fixed income security. The capacity to
pay preferred stock obligations is very strong, although not as
overwhelming as for issues rated "AAA"; "A". An issue rated "A" is backed
by a sound capacity to pay the preferred stock obligations, although it is
somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions; "BBB". An issue rated "BBB" is
regarded as backed by an adequate capacity to pay the preferred stock
obligations. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity to make payments for a preferred stock in this
category than for issues in the "A" category; "BB", "B", "CCC". Preferred
stocks rated "BB", "B" and "CCC" are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
preferred stock obligations. "BB" indicates the lowest degree of
speculation and "CCC" the highest degree of speculation. While such
issues will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Plus (+) or Minus (-): To provide more detailed indications of
preferred stock quality, the ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
Description of Moody's Short-Term Debt Ratings
Prime-1. Issuers (or supporting institutions) rated Prime-1 (P-1)
have a superior capacity for repayment of short-term promissory
obligations. P-1 repayment capacity will normally be evidenced by many of
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<PAGE>
the following characteristics: Leading market positions in well-
established industries; high rates of return on funds employed;
conservative capitalization structure with moderate reliance on debt and
ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established
access to a range of financial markets and assured sources of alternate
liquidity. Prime-2. Issuers (or supporting institutions) rated Prime-2
(P-2) have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the
characteristics cited above, but to a lesser degree. Earnings trends and
coverage ratios, while sound will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Description of S&P Commercial Paper Ratings
A. Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative degree of
safety. A-1. This designation indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are
denoted with a plus (+) sign designation. A-2. Capacity for timely
payment on issues with this designation is strong. However, the relative
degree of safety is not as high as for issues designated "A-1". A-3.
Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations. B. Issues rated "B" are regarded as having only an adequate
capacity for timely payment. However, such capacity may be damaged by
changing conditions or short-term adversities.
Description of S&P Ratings of State and Municipal Notes and Other Short-
Term Loans
S&P tax exempt note ratings are generally given to such notes that
mature in three years or less. The two higher rating categories are as
follows:
SP-1. Very strong or strong capacity to pay principal and
interest. These issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2. Satisfactory capacity to pay principal and interest.
33
<PAGE>
TABLE OF CONTENTS
INVESTMENT POLICIES AND RESTRICTIONS . . . . . . . . . . . . . . 16
DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . . 18
INVESTMENT MANAGEMENT, ADMINISTRATION AND DISTRIBUTION ARRANGEMENTS 18
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . 20
VALUATION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . 22
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . 23
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 27
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
34
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<PAGE>
ARTICLES OF INCORPORATION
OF
TITAN INVESTMENT FUND, INC.
FIRST: (1) The name and address of the incorporator of the
Corporation is as follows:
Daphne D. Tippens
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W. - Suite 200
Washington D.C. 20036-1800
(2) Said incorporator is over eighteen years of age.
(3) Said incorporator is forming a corporation under
the general laws of the State of Maryland.
SECOND: The name of the Corporation is:
TITAN INVESTMENT FUND, INC.
THIRD: (1) The Corporation is formed for the following purpose
or purposes:
(a) To conduct, operate and carry on the
business of an open-end management investment company registered as such
with the Securities and Exchange Commission pursuant to the Investment
Company Act of 1940, as amended; and
(b) To exercise and enjoy all powers,
rights and privileges granted to and conferred upon corporations by the
Maryland General Corporation Law, now or hereafter in force.
(2) The foregoing clauses shall be construed as
powers as well as objects and purposes.
FOURTH: The address of the principal office of the Corporation
within the State of Maryland is Giordano, Villareale & Vaughan, P.A., 9672
Pennsylvania Avenue, Upper Marlboro, Maryland, and the resident agent of
the Corporation in the State of Maryland at this address is Gilbert R.
Giordano.
FIFTH: (1) The total number of shares of capital stock which the
Corporation has authority to issue is one hundred million (100,000,000),
($.001) par value per share ("Shares"), having an aggregate par value of
$100,000.
The Board of Directors of the Corporation shall have full power
and authority, in its sole discretion and without obtaining any prior
authorization or vote of the stockholders, to create and establish and to
classify or to reclassify, as the case may be, any Shares of the
Corporation in separate and distinct series ("Series") and classes of
<PAGE>
Series ("Classes"). The Shares of said Series or Classes of stock shall
have such preferences, rights, voting powers, restrictions, limitations as
to dividends, qualifications, and terms and conditions of redemption as
shall be fixed and determined from time to time by the Board of Directors.
The establishment of any Series or Class not established herein shall be
effective upon the adoption of a resolution by the Board of Directors
setting forth such establishment and designation and the relative rights
and preferences of the Shares of such Series or Class. At any time that
there are no Shares outstanding of any particular Series or Class
previously established and designated, the Directors may abolish that
Series or Class and the establishment and designation thereof.
The Board of Directors is hereby expressly granted authority to
increase or decrease the number of Shares of any Series or Class, but the
number of Shares of any Series or Class shall not be decreased by the
Board of Directors below the number of Shares thereof then outstanding,
and, from time to time to designate or redesignate the name of any Class
or Series whether or not Shares of such Class or Series are outstanding.
The Corporation may hold as treasury shares, reissue for such
consideration and on such terms as the Board of Directors may determine,
or cancel, at their discretion from time to time, any Shares reacquired by
the Corporation. No holder of any of the Shares shall be entitled as of
right to subscribe for, purchase, or otherwise acquire any Shares of the
Corporation which the Corporation proposes to issue or reissue.
Without limiting the authority of the Board of Directors set
forth herein to establish and designate any further Series, and to
classify and reclassify any unissued Shares, there is hereby established
and classified, one Series of stock, comprising twenty-five million
(25,000,000) Shares, to be known as Titan Financial Services Fund.
The Corporation shall have authority to issue any additional
Shares hereafter authorized by resolution of the Board of Directors and
any Shares redeemed or repurchased by the Corporation. All Shares of any
Series or Class when properly issued in accordance with these Articles of
Incorporation shall be fully paid and nonassessable.
(2) The Board of Directors is hereby authorized
to issue and sell from time to time Shares of the Corporation for cash or
securities or other property as the Board of Directors may deem advisable
in the manner and to the extent now or hereafter permitted by the laws of
the State of Maryland; provided, however, that the consideration per share
(exclusive of any selling commission) to be received by the Corporation
upon the issuance or sale of any Shares of its capital stock shall not be
less than the par value per share and shall not be less than the net asset
value per share of such Series or Classes of capital stock determined as
hereinafter provided. No such Shares, whether now or hereafter
authorized, shall be required to be first offered to the then existing
stockholders and no stockholder shall have any preemptive right to
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<PAGE>
purchase or subscribe to any unissued shares of the Corporation's capital
stock or for any additional shares whether now or hereafter authorized.
(3) At all meetings of stockholders, each holder
of Shares shall be entitled to one vote for each Share standing in the
holder's name on the books of the Corporation on the date fixed in
accordance with the By-Laws for determination of stockholders entitled to
vote thereat; provided, however, that when required by the Investment
Company Act of 1940 or rules thereunder or when the Board of Directors has
determined that the matter affects only the interest of one Series or
Class, matters may be submitted to a vote of the holders of Shares of a
particular Series or Class, and each holder of Shares thereof shall be
entitled to votes equal to the Shares of the Series or Class standing in
the holder's name on the books of the Corporation. The presence in person
or by proxy of the holders of one-third (1/3) of the Shares outstanding
and entitled to vote shall constitute a quorum at any meeting of the
stockholders except where a matter is to be voted on by a Series or Class,
one-third of the Shares of that Series or Class outstanding and entitled
to vote shall constitute a quorum for the transaction of business by that
Series or Class.
(4) Each holder of Shares shall be entitled at
such times as may be permitted by the Corporation to require the
Corporation to redeem any or all of the holder's Shares at a redemption
price per share equal to the net asset value per share less such charges
as are determined by the Board of Directors, at such time as the Board of
Directors shall have prescribed by resolution. The Board of Directors may
specify conditions, prices, places and manner and form of payment of
redemption, and may specify requirements for the proper form or forms of
requests for redemption. The Board of Directors may postpone payment of
the redemption price and may suspend the right of the holders of Shares to
require the Corporation to redeem Shares during any period or at any time
when and to the extent permissible under the Investment Company Act of
1940.
(5) The Board of Directors may cause the
Corporation to redeem at current net asset value all Shares owned or held
by any one stockholder having an aggregate current net asset value of any
amount. Such redemptions shall be effected in accordance with such
procedures as the Board of Directors may adopt. Upon redemption of Shares
pursuant to this Section, the Corporation shall promptly cause payment of
the full redemption price to be made to the holder of Shares so redeemed.
(6) Dividends and distributions on Shares may be
declared, calculated and paid with such frequency and in such form, manner
and amount as the Board of Directors may from time to time determine.
(7) Net asset value, as used herein, shall be
determined on such days and at such times and by such methods as the Board
of Directors shall determine, subject to the Investment Company Act of
- 3 -
<PAGE>
1940 and the applicable rules and regulations promulgated thereunder.
Such determination may be made on a Series-by-Series basis or made or
adjusted on a Class-by-Class basis, as appropriate.
SIXTH: Notwithstanding any provision of law requiring a greater
proportion than a majority of the votes of all Shares of the Corporation
to take or authorize any action, any action (including any amendment of
these Articles of Incorporation for which shareholder approval is required
under Maryland law) may be taken or authorized by the Corporation upon the
affirmative vote of a majority of the Shares entitled to vote thereon.
SEVENTH: (1) To the maximum extent permitted by
applicable law (including Maryland law and the Investment Company Act of
1940) as currently in effect or as may hereafter be amended:
(a) No director or officer of the
Corporation shall be liable to the Corporation or its stockholders for
monetary damages; and
(b) The Corporation shall indemnify and
advance expenses as provided in the By-Laws to its present and past
directors, officers, employees and agents, and persons who are serving or
have served at the request of the Corporation as a director, officer,
employee or agent in similar capacities for other entities.
(2) The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him or her and incurred by him or her in
any such capacity or arising out of his or her status as such, whether or
not the Corporation would have the power to indemnify him or her against
such liability.
(3) Any repeal or modification of this Article
SEVENTH, by the stockholders of the Corporation, or adoption or
modification of any other provision of the Articles of Incorporation or
By-Laws inconsistent with this Section, shall be prospective only, to the
extent that such repeal or modification would, if applied retrospectively,
adversely affect any limitation on the liability of any director or
officer of the Corporation or indemnification available to any person
covered by these provisions with respect to any act or omission which
occurred prior to such repeal, modification or adoption.
EIGHTH: (1) All corporate powers and authority of the Corporation
shall be vested in and exercised by the Board of Directors except as
otherwise provided by statute, these Articles, or the By-Laws of the
Corporation. The Corporation shall have at least three directors;
provided that if there is no stock outstanding, the number of directors
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<PAGE>
may be less than three but not less than one. The number of directors
shall never be less than the number prescribed by the General Corporation
Law of the State of Maryland.
(2) Lawrence A. Appleman shall act as the
director of the Corporation until the first annual meeting or until his
successor is duly chosen and qualified.
(3) Subject to the provisions of these Articles
of Incorporation and the provisions of the Investment Company Act of 1940,
any director, officer or employee, individually, or any partnership of
which any director, officer or employee may be a member, or any
corporation or association of which any director, officer or employee of
this Corporation may be an officer, director, trustee, employee or
stockholder may be a party to or may be pecuniarily interested in any
contract or transaction of the Corporation, and in the absence of fraud,
no contract or other transaction shall be thereby affected or invalidated,
provided that the facts shall be disclosed or shall have been known to the
Board of Directors or a majority thereof and any director of the
Corporation who is so interested or who is also a director, officer,
trustee, employee or stockholder of such corporation or association or a
member of such partnership which is so interested may be counted in
determining the existence of a quorum at any meeting of the Directors of
the Corporation which shall authorize any such contract or transaction and
may vote thereat on any such contract or transaction with like force and
effect as if he were not such director, officer, trustee, employee or
stockholder of such corporation or association so interested or not a
member of a partnership so interested, or so interested individually.
IN WITNESS WHEREOF, the undersigned has adopted and signed these
Articles of Incorporation on this 26th day of January, 1996 and hereby
acknowledges the same to be his act and that to the best of his knowledge,
information and belief, all matters and facts stated herein are true in
all material respects and that he is making this statement under the
penalties of perjury.
/s/ Daphne D. Tippens
Daphne D. Tippens
- 5 -
<PAGE>
<PAGE>
BY-LAWS
of
TITAN INVESTMENT FUND, INC.
A Maryland Corporation
January 26, 1996
<PAGE>
BY-LAWS
TABLE OF CONTENTS
Page
ARTICLE I - NAME OF CORPORATION, LOCATION OF OFFICES AND SEAL . . . . 1
Section 1.01. Name . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Principal Offices . . . . . . . . . . . . . 1
Section 1.03. Seal . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.01. Annual Meetings . . . . . . . . . . . . . . 1
Section 2.02. Special Meetings . . . . . . . . . . . . . 1
Section 2.03. Notice of Meetings . . . . . . . . . . . . 1
Section 2.04. Quorum and Adjournment of Meetings . . . . 1
Section 2.05. Voting and Inspectors . . . . . . . . . . . 1
Section 2.06. Validity of Proxies . . . . . . . . . . . . 2
Section 2.07. Stock Ledger and List of Stockholders . . . 2
Section 2.08. Action Without Meeting . . . . . . . . . . 2
ARTICLE III - BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . 2
Section 3.01. General Powers . . . . . . . . . . . . . . 2
Section 3.02. Power to Issue and Sell Stock . . . . . . . 2
Section 3.03. Power to Declare Dividends . . . . . . . . 2
Section 3.04. Number and Term of Directors . . . . . . . 3
Section 3.05. Vacancies and Newly Created
Directorships . . . . . . . . . . . . . . . 3
Section 3.06. Removal . . . . . . . . . . . . . . . . . . 3
Section 3.07. Regular Meetings . . . . . . . . . . . . . 3
Section 3.08. Special Meetings . . . . . . . . . . . . . 3
Section 3.09. Waiver of Notice . . . . . . . . . . . . . 3
Section 3.10. Quorum and Voting . . . . . . . . . . . . . 3
Section 3.11. Action Without a Meeting . . . . . . . . . 4
Section 3.12. Compensation of Directors . . . . . . . . . 4
ARTICLE IV - COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . 4
Section 4.01. Organization . . . . . . . . . . . . . . . 4
Section 4.02. Powers of the Executive Committee . . . . . 4
Section 4.03. Powers of Other Committees of the Board
of Directors . . . . . . . . . . . . . . . 4
Section 4.04. Proceedings and Quorum . . . . . . . . . . 4
Section 4.05. Other Committees . . . . . . . . . . . . . 4
ARTICLE V - OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 5.01. Officers . . . . . . . . . . . . . . . . . 4
Section 5.02. Election, Tenure and Qualifications . . . . 4
Section 5.03. Vacancies and Newly Created Offices . . . . 4
Section 5.04. Removal and Resignation . . . . . . . . . . 5
Section 5.05. Chairman of the Board . . . . . . . . . . . 5
Section 5.06. Vice Chairman of the Board . . . . . . . . 5
Section 5.07. President . . . . . . . . . . . . . . . . . 5
Section 5.08. Vice President . . . . . . . . . . . . . . 5
Section 5.09. Treasurer and Assistant Treasurers . . . . 5
i
<PAGE>
Section 5.10. Secretary and Assistant Secretaries . . . . 5
Section 5.11. Subordinate Officers . . . . . . . . . . . 5
Section 5.12. Remuneration . . . . . . . . . . . . . . . 5
Section 5.13. Surety Bonds . . . . . . . . . . . . . . . 6
ARTICLE VI - EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES . . . . . 6
Section 6.01. General . . . . . . . . . . . . . . . . . . 6
Section 6.02. Checks, Notes, Drafts, Etc. . . . . . . . . 6
Section 6.03. Voting of Securities . . . . . . . . . . . 6
ARTICLE VII - CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . 6
Section 7.01. Certificates of Stock . . . . . . . . . . . 6
Section 7.02. Transfer of Shares . . . . . . . . . . . . 6
Section 7.03. Transfer Agents and Registrars . . . . . . 6
Section 7.04. Fixing of Record Date . . . . . . . . . . . 7
Section 7.05. Lost, Stolen or Destroyed Certificates . . 7
ARTICLE VIII - CONFLICT OF INTEREST TRANSACTIONS . . . . . . . . . . 7
Section 8.01. Validity of Contract or Transactions . . . 7
Section 8.02. Dealings . . . . . . . . . . . . . . . . . 7
ARTICLE IX - FISCAL YEAR AND ACCOUNTANT . . . . . . . . . . . . . . . 7
Section 9.01. Fiscal Year . . . . . . . . . . . . . . . . 7
Section 9.02. Accountant . . . . . . . . . . . . . . . . 7
ARTICLE X - CUSTODY OF SECURITIES . . . . . . . . . . . . . . . . . . 8
Section 10.01. Employment of a Custodian . . . . . . . . . 8
Section 10.02. Termination of Custodian Agreement . . . . 8
Section 10.03. Provisions of Custodian Contract . . . . . 8
Section 10.04. Other Arrangements . . . . . . . . . . . . 8
ARTICLE XI - INDEMNIFICATION AND INSURANCE . . . . . . . . . . . . . 8
Section 11.01. Indemnification of Officers, Directors,
Employees and Agents. . . . . . . . . . . . 8
Section 11.02. Insurance of Officers, Directors,
Employees and Agents . . . . . . . . . . . 9
Section 11.03. Non-exclusivity . . . . . . . . . . . . . . 9
Section 11.04. Amendment . . . . . . . . . . . . . . . . . 9
ARTICLE XII - AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . 9
Section 12.01. General . . . . . . . . . . . . . . . . . . 9
Section 12.02. By Stockholders Only . . . . . . . . . . . 9
ii
<PAGE>
BY-LAWS
OF
TITAN INVESTMENT FUND, INC.
(A MARYLAND CORPORATION)
ARTICLE I
NAME OF CORPORATION, LOCATION OF
OFFICES AND SEAL
Section 1.01. Name. The name of the Corporation is Titan Investment
Fund, Inc.
Section 1.02. Principal Offices. The principal office of the Corporation
in the State of Maryland shall be located in Upper Marlboro, Maryland.
The Corporation may, in addition, establish and maintain such other
offices and places of business as the board of directors may, from time to
time, determine.
Section 1.03. Seal. The corporate seal of the Corporation shall consist
of two (2) concentric circles, between which shall be the name of the
Corporation, and in the center shall be inscribed the year of its incorpo-
ration, and the words "Corporate Seal." The form of the seal shall be
subject to alteration by the board of directors and the seal may be used
by causing it or a facsimile to be impressed or affixed or printed or
otherwise reproduced. Any officer or director of the Corporation shall
have authority to affix the corporate seal of the Corporation to any
document requiring the same.
ARTICLE II
STOCKHOLDERS
Section 2.01. Annual Meetings. There shall be no stockholders' meetings
for the election of directors and the transaction of other proper business
except as required by law or as hereinafter provided.
Section 2.02. Special Meetings. Special meetings of stockholders may be
called at any time by the chairman of the board or the president and shall
be held at such time and place as may be stated in the notice of the
meeting.
Unless otherwise required by law, special meetings of the stockholders
shall be called by the secretary upon the written request of the holders
of shares entitled to not less than 10 percent of all the votes entitled
to be cast at such meeting, provided that (a) such request shall state the
purposes of such meeting and the matters proposed to be acted on, and (b)
the stockholders requesting such meeting shall have paid to the Corpora-
tion the reasonably estimated cost of preparing and mailing the notice
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<PAGE>
thereof, which the secretary shall determine and specify to such stock-
holders. No special meeting need be called upon the request of stockhold-
ers to consider any matter which is substantially the same as a matter
voted upon at any special meeting of the stockholders held during the
preceding twelve months, unless requested by the holders of a majority of
all shares entitled to be voted at such meeting.
Section 2.03. Notice of Meetings. The secretary shall cause notice of
the place, date and hour and, in the case of a special meeting or as
otherwise required by law, the purpose or purposes for which the meeting
is called, to be served personally or to be mailed, postage prepaid, not
less than 10 nor more than 90 days before the date of the meeting, to each
stockholder entitled to vote at such meeting at his address as it appears
on the records of the Corporation at the time of such mailing. Notice
shall be deemed to be given when deposited in the United States mail
addressed to the stockholders as aforesaid.
Notice of any stockholders' meeting need not be given to any stockholder
who shall sign a written waiver of such notice whether before or after the
time of such meeting, which waiver shall be filed with the records of such
meeting, or to any stockholder who is present at such meeting in person or
by proxy. Notice of adjournment of a stockholders' meeting to another
time or place need not be given if such time and place are announced at
the meeting.
Irregularities in the notice of any meeting to, or the nonreceipt of any
such notice by, any of the stockholders shall not invalidate any action
otherwise properly taken by or at any such meeting.
Section 2.04. Quorum and Adjournment of Meetings. The presence at any
stockholders' meeting, in person or by proxy, of stockholders entitled to
cast one-third of all votes entitled to be cast thereat shall be necessary
and sufficient to constitute a quorum for the transaction of business,
provided that with respect to any matter to be voted upon separately by
any Series (as defined in the Articles of Incorporation) or class of
shares, a quorum shall consist of the holders of one-third of the shares
of that Series or class outstanding and entitled to vote on the matter.
In the absence of a quorum, the stockholders present in person or by proxy
or, if no stockholder entitled to vote is present in person or by proxy,
any officer present entitled to preside or act as secretary of such
meeting may adjourn the meeting without determining the date of the new
meeting or from time to time without further notice to a date not more
than 120 days after the original record date. Any business that might
have been transacted at the meeting originally called may be transacted at
any such adjourned meeting at which a quorum is present.
Section 2.05. Voting and Inspectors. At every stockholders' meeting,
each stockholder shall be entitled to one vote for each share and a
fractional vote for each fraction of a share of stock of the Corporation
validly issued and outstanding and standing in his name on the books of
the Corporation on the record date fixed in accordance with Section 7.04
hereof, either in person or by proxy appointed by instrument in writing
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subscribed by such stockholder or his duly authorized attorney, except
that no shares held by the Corporation shall be entitled to a vote;
provided, however, that (a) as to any matter with respect to which a
separate vote of any series is required by the Investment Company Act of
1940, as amended, or by the Maryland General Corporation Law, such re-
quirement as to a separate vote by that series shall apply; (b) in the
event that the separate vote requirements referred to in (a) above apply
with respect to one or more series, then, subject to (c) below, the shares
of all other such one or more series shall vote as a single series; and
(c) as to any matter which affects the interest of only a particular
series, only the holders of shares of the one or more affected series
shall be entitled to vote.
If no record date has been fixed, the record date for the determination of
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be the later of the close of business on the day on which notice of
the meeting is mailed or the 30th day before the meeting, or, if notice is
waived by all stockholders, at the close of business on the 11th day
preceding the day on which the meeting is held.
Except as otherwise specifically provided in the Articles of Incorporation
or these By-laws or as required by provisions of the Investment Company
Act of 1940, as amended, all matters shall be decided by a vote of the
majority of the votes validly cast at a meeting at which a quorum is
present. The vote upon any question shall be by ballot whenever requested
by any person entitled to vote, but, unless such a request is made, voting
may be conducted in any way approved by the meeting.
At any meeting at which there is an election of directors, the chairman of
the meeting may appoint two inspectors of election who shall first sub-
scribe an oath or affirmation to execute faithfully the duties of inspec-
tors at such election with strict impartiality and according to the best
of their ability, and shall, after the election, make a certificate of the
result of the vote taken. No candidate for the office of director shall
be appointed as an inspector.
Section 2.06. Validity of Proxies. The right to vote by proxy shall
exist only if the instrument authorizing such proxy to act shall have been
signed by the stockholder or by his duly authorized attorney. Unless a
proxy provides otherwise, it shall not be valid more than 11 months after
its date. All proxies shall be delivered to the secretary of the Corpora-
tion or to the person acting as secretary of the meeting before being
voted, who shall decide all questions concerning qualification of voters,
the validity of proxies, and the acceptance or rejection of votes. If
inspectors of election have been appointed by the chairman of the meeting,
such inspectors shall decide all such questions. A proxy with respect to
stock held in the name of two or more persons shall be valid if executed
by one of them unless at or prior to exercise of such proxy the Corpora-
tion receives from any one of them a specific written notice to the
contrary and a copy of the instrument or order which so provides. A proxy
purporting to be executed by or on behalf of a stockholder shall be deemed
valid unless challenged at or prior to its exercise.
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Section 2.07. Stock Ledger and List of Stockholders. It shall be the
duty of the secretary or assistant secretary of the Corporation to cause
an original or duplicate stock ledger containing the names and addresses
of all the stockholders and the number of shares held by them, respective-
ly, to be maintained at the office of the Corporation's transfer agent.
Such stock ledger may be in written form or any other form capable of
being converted into written form within a reasonable time for visual
inspection. Any one or more persons, each of whom has been a stockholder
of record of the Corporation for more than six months next preceding such
request, who owns in the aggregate five percent or more of the outstanding
capital stock of the Corporation, may submit (unless the Corporation at
the time of the request maintains a duplicate stock ledger at its princi-
pal office in Maryland) a written request to any officer of the Corpora-
tion or its resident agent in Maryland for a list of the stockholders of
the Corporation. Within 20 days after such a request, there shall be
prepared and filed at the Corporation's principal office in Maryland a
list containing the names and addresses of all stockholders of the Corpo-
ration and the number of shares of each class held by each stockholder,
certified as correct by an officer of the Corporation, by its stock
transfer agent, or by its registrar.
Section 2.08. Action Without Meeting. Any action required or permitted
to be taken by stockholders at a meeting of stockholders may be taken
without a meeting if (a) all stockholders entitled to vote on the matter
consent to the action in writing, (b) all stockholders entitled to notice
of the meeting but not entitled to vote at it sign a written waiver of any
right to dissent, and (c) the consents and waivers are filed with the
records of the meetings of stockholders. Such consent shall be treated
for all purposes as a vote at the meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01. General Powers. Except as otherwise provided by operation
of law, by the Articles of Incorporation, or by these By-laws, the proper-
ty, business and affairs of the Corporation shall be managed under the
direction of and all the powers of the Corporation shall be exercised by
or under authority of its board of directors.
Section 3.02. Power to Issue and Sell Stock. The board of directors may
from time to time issue and sell or cause to be issued and sold any of the
Corporation's authorized shares to such persons and for such consideration
as the board of directors shall deem advisable, subject to the provisions
of the Articles of Incorporation.
Section 3.03. Power to Declare Dividends. The board of directors, from
time to time as they may deem advisable, may declare and pay dividends in
stock, cash or other property of the Corporation, out of any source
available for dividends, to the stockholders according to their respective
rights and interests in accordance with the provisions of the Articles of
Incorporation. The board of directors may prescribe from time to time
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that dividends declared may be payable at the election of any of the
stockholders (exercisable before or after the declaration of the divi-
dend), either in cash or in shares of the Corporation, provided that the
sum of the cash dividend actually paid to any stockholder and the asset
value of the shares received (determined as of such time as the board of
directors shall have prescribed, pursuant to the Articles of Incorpora-
tion, with respect to shares sold on the date of such election) shall not
exceed the full amount of cash to which the stockholder would be entitled
if he elected to receive only cash. The board of directors shall cause to
be accompanied by a written statement any dividend payment wholly or
partly from any source other than:
(a) the Corporation's accumulated undistributed net income
(determined in accordance with good accounting practice and the
rules and regulations of the Securities and Exchange Commission
then in effect) and not including profits or losses realized upon
the sale of securities or other properties; or
(b) the Corporation's net income so determined for the current
or preceding fiscal year.
Such statement shall adequately disclose the source or sources of such
payment and the basis of calculation, and shall be in such form as the
Securities and Exchange Commission may prescribe.
Section 3.04. Number and Term of Directors. Except for the initial board
of directors, the board of directors shall consist of not fewer than three
nor more than fifteen directors, as specified by a resolution of a majori-
ty of the entire board of directors and at least one member of the board
of directors shall be a person who is not an "interested person" of the
Corporation, as that term is defined in the Investment Company Act of
1940, as amended. All other directors may be interested persons of the
Corporation if the requirements of Section 10(d) of the Investment Company
Act of 1940, as amended, are met by the Corporation and its investment
adviser. Each director shall hold office until his successor is elected
and qualified or until his earlier death, resignation or removal.
All acts done at any meeting of the directors or by any person acting as a
director, so long as his successor shall not have been duly elected or
appointed, shall, notwithstanding that it be afterwards discovered that
there was some defect in the election of the directors or of such person
acting as a director or that they or any of them were disqualified, be as
valid as if the directors or such other person, as the case may be, had
been duly elected and were or was qualified to be directors or a director
of the Corporation.
Directors need not be stockholders of the Corporation.
Section 3.05. Vacancies and Newly Created Directorships. If any vacan-
cies shall occur in the board of directors by reason of death, resigna-
tion, removal or otherwise, or if the authorized number of directors shall
be increased, the directors then in office shall continue to act, and such
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vacancies (if not previously filled by the stockholders) may be filled by
a majority of the directors then in office, although less than a quorum,
except that a newly created directorship may be filled only by a majority
vote of the entire board of directors; provided, however, that immediately
after filling such vacancy, at least two-thirds (2/3) of the directors
then holding office shall have been elected to such office by the stock-
holders of the Corporation. In the event that at any time, other than the
time preceding the first annual stockholders' meeting, less than a majori-
ty of the directors of the Corporation holding office at that time were
elected by the stockholders, a meeting of the stockholders shall be held
promptly and in any event within 60 days for the purpose of electing
directors to fill any existing vacancies in the board of directors, unless
the Securities and Exchange Commission shall by order extend such period.
Section 3.06. Removal. At any stockholders' meeting duly called, provid-
ed a quorum is present, the stockholders may remove any director from
office (either with or without cause) by the affirmative vote of a majori-
ty of all votes represented at the meeting, and at the same meeting a duly
qualified successor or successors may be elected to fill any resulting
vacancies by a plurality of the votes validly cast.
Section 3.07. Regular Meetings. The meeting of the board of directors
for choosing officers and transacting other proper business, and all other
meetings, shall be held at such time and place, within or outside the
state of Maryland, as the board may determine and as provided by resolu-
tion. Except as otherwise provided in the Investment Company Act of 1940,
as amended, notice of such meetings need not be given, following the
annual meeting of stockholders, if any, provided that notice of any change
in the time or place of such meetings shall be sent promptly to each
director not present at the meeting at which such change was made, in the
manner provided for notice of special meetings. Except as otherwise
provided under the Investment Company Act of 1940, as amended, members of
the board of directors or any committee designated thereby may participate
in a meeting of such board or committee by means of a conference telephone
or similar communications equipment that allows all persons participating
in the meeting to hear each other at the same time; and participation by
such means shall constitute presence in person at a meeting.
Section 3.08. Special Meetings. Special meetings of the board of direc-
tors shall be held whenever called by the chairman of the board or the
president (or, in the absence or disability of the chairman of the board
or the president, by any officer or director, as they so designate) at the
time and place (within or outside of the State of Maryland) specified in
the respective notice or waivers of notice of such meetings. At least
three days before the day on which a special meeting is to be held, notice
of special meetings, stating the time and place, shall be (a) mailed to
each director at his residence or regular place of business or (b) deliv-
ered to him personally or transmitted to him by telegraph, telefax, telex,
cable or wireless.
Section 3.09. Waiver of Notice. No notice of any meeting need be given
to any director who is present at the meeting or who waives notice of such
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meeting in writing (which waiver shall be filed with the records of such
meeting), either before or after the time of the meeting.
Section 3.10. Quorum and Voting. At all meetings of the board of direc-
tors, the presence of one-half of the number of directors then in office
shall constitute a quorum for the transaction of business, provided that
there shall be present at least two directors. In the absence of a
quorum, a majority of the directors present may adjourn the meeting, from
time to time, until a quorum shall be present. The action of a majority
of the directors present at a meeting at which a quorum is present shall
be the action of the board of directors, unless concurrence of a greater
proportion is required for such action by law, by the Articles of Incorpo-
ration or by these By-laws.
Section 3.11. Action Without a Meeting. Except as otherwise provided in
the Investment Company Act of 1940, as amended, any action required or
permitted to be taken at any meeting of the board of directors or of any
committee thereof may be taken without a meeting if a written consent to
such action is signed by all members of the board or of such committee, as
the case may be, and such written consent is filed with the minutes of
proceedings of the board or committee.
Section 3.12. Compensation of Directors. Directors may receive such
compensation for their services as may from time to time be determined by
resolution of the board of directors.
ARTICLE IV
COMMITTEES
Section 4.01. Organization. By resolution adopted by the board of
directors, the board may designate one or more committees of the board of
directors, including an Executive Committee, each consisting of at least
two directors. Each member of a committee shall be a director and shall
hold committee membership at the pleasure of the board. The chairman of
the board, if any, shall be a member of the Executive Committee. The
board of directors shall have the power at any time to change the members
of such committees and to fill vacancies in the committees.
Section 4.02. Powers of the Executive Committee. Unless otherwise
provided by resolution of the board of directors, when the board of
directors is not in session the Executive Committee shall have and may
exercise all powers of the board of directors in the management of the
business and affairs of the Corporation that may lawfully be exercised by
an Executive Committee except the power to declare a dividend or distribu-
tion on stock, authorize the issuance of stock, recommend to stockholders
any action requiring stockholders' approval, amend these By-laws, approve
any merger or share exchange which does not require stockholder approval
or approve or terminate any contract with an "investment adviser" or
"principal underwriter," as those terms are defined in the Investment
Company Act of 1940, as amended, or to take any other action required by
the Investment Company Act of 1940, as amended, to be taken by the board
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of directors. Notwithstanding the above, such Executive Committee may
make such dividend calculations and payments as are consistent with
applicable law, including Maryland corporate law.
Section 4.03. Powers of Other Committees of the Board of Directors. To
the extent provided by resolution of the board, other committees of the
board of directors shall have and may exercise any of the powers that may
lawfully be granted to the Executive Committee.
Section 4.04. Proceedings and Quorum. In the absence of an appropriate
resolution of the board of directors, each committee may adopt such rules
and regulations governing its proceedings, quorum and manner of acting as
it shall deem proper and desirable, provided that a quorum shall not be
less than two directors. In the event any member of any committee is
absent from any meeting, the members thereof present at the meeting,
whether or not they constitute a quorum, may appoint a member of the board
of directors to act in the place of such absent member.
Section 4.05. Other Committees. The board of directors may appoint other
committees, each consisting of one or more persons, who need not be
directors. Each such committee shall have such powers and perform such
duties as may be assigned to it from time to time by the board of direc-
tors, but shall not exercise any power which may lawfully be exercised
only by the board of directors or a committee thereof.
ARTICLE V
OFFICERS
Section 5.01. Officers. The officers of the Corporation shall be a
president, a secretary, and a treasurer, and may include one or more vice
presidents (including executive and senior vice presidents), assistant
secretaries or assistant treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 5.11 hereof. The
board of directors may, but shall not be required to, elect a chairman and
vice chairman of the board.
Section 5.02. Election, Tenure and Qualifications. The officers of the
Corporation (except those appointed pursuant to Section 5.11 hereof) shall
be elected by the board of directors at its first meeting or such subse-
quent meetings as shall be held prior to its first annual meeting, and
thereafter at regular board meetings, as required by applicable law. If
any officers are not elected at any annual meeting, such officers may be
elected at any subsequent meetings of the board. Except as otherwise
provided in this Article V, each officer elected by the board of directors
shall hold office until his or her successor shall have been elected and
qualified. Any person may hold one or more offices of the Corporation
except that no one person may serve concurrently as both the president and
vice president. A person who holds more than one office in the Corpora-
tion may not act in more than one capacity to execute, acknowledge, or
verify an instrument required by law to be executed, acknowledged, or
verified by more than one officer. The chairman of the board shall be
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chosen from among the directors of the Corporation and may hold such
office only so long as he continues to be a director. No other officer
need be a director.
Section 5.03. Vacancies and Newly Created Offices. If any vacancy shall
occur in any office by reason of death, resignation, removal, disqualifi-
cation or other cause, or if any new office shall be created, such vacan-
cies or newly created offices may be filled by the chairman of the board
at any meeting or, in the case of any office created pursuant to Section
5.11 hereof, by any officer upon whom such power shall have been conferred
by the board of directors.
Section 5.04. Removal and Resignation. At any meeting called for such
purpose, the Executive Committee may remove any officer from office
(either with or without cause) by the affirmative vote, given at the
meeting, of a majority of the members of the Committee. Any officer may
resign from office at any time by delivering a written resignation to the
board of directors, the president, the secretary, or any assistant secre-
tary. Unless otherwise specified therein, such resignation shall take
effect upon delivery.
Section 5.05. Chairman of the Board. The chairman of the board, if there
be such an officer, shall be the senior officer of the Corporation, shall
preside at all stockholders' meetings and at all meetings of the board of
directors and shall be ex officio a member of all committees of the board
of directors. He shall have such other powers and perform such other
duties as may be assigned to him from time to time by the board of direc-
tors.
Section 5.06. Vice Chairman of the Board. The board of directors may
from time to time elect a vice chairman who shall have such powers and
perform such duties as from time to time may be assigned to him by the
board of directors, chairman of the board or the presidency. At the
request of, or in the absence or in the event of the disability of the
chairman of the board, the vice chairman may perform all the duties of the
chairman of the board or the president and, when so acting, shall have all
the powers of and be subject to all the restrictions upon such respective
officers.
Section 5.07. President. The president shall be the chief executive
officer of the Corporation and, in the absence of the chairman of the
board or vice chairman or if no chairman of the board or vice chairman has
been chosen, shall preside at all stockholders' meetings and at all
meetings of the board of directors and shall in general exercise the
powers and perform the duties of the chairman of the board. Subject to
the supervision of the board of directors, the president shall have
general charge of the business, affairs and property of the Corporation
and general supervision over its officers, employees and agents. Except
as the board of directors may otherwise order, the president may sign in
the name and on behalf of the Corporation all deeds, bonds, contracts, or
agreements. The president shall exercise such other powers and perform
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such other duties as from time to time may be assigned by the board of
directors.
Section 5.08. Vice President. The board of directors may from time to
time elect one or more vice presidents (including executive and senior
vice presidents) who shall have such powers and perform such duties as
from time to time may be assigned to them by the board of directors or the
president. At the request of, or in the absence or in the event of the
disability of, the president or both, the vice president (or, if there are
two or more vice presidents, then the senior of the vice presidents
present and able to act) may perform all the duties of the president and,
when so acting, shall have all the powers of and be subject to all the
restrictions upon the president.
Section 5.09. Treasurer and Assistant Treasurers. The treasurer shall be
the chief accounting officer of the Corporation and shall have general
charge of the finances and books of account of the Corporation. The
treasurer shall render to the board of directors, whenever directed by the
board, an account of the financial condition of the Corporation and of all
transactions as treasurer; and as soon as possible after the close of each
financial year he shall make and submit to the board of directors a like
report for such financial year. The treasurer shall cause to be prepared
annually a full and complete statement of the affairs of the Corporation,
including a balance sheet and a financial statement of operations for the
preceding fiscal year, which shall be submitted at the annual meeting of
stockholders (when, and if, such meeting is held) and filed within 20 days
thereafter at the principal office of the Corporation in the state of
Maryland, except that for any year when an annual meeting of stockholders
is not held, such statement of affairs shall be filed at the Corporation's
principal office within 120 days after the end of the fiscal year. The
treasurer shall perform all acts incidental to the office of treasurer,
subject to the control of the board of directors.
Any assistant treasurer may perform such duties of the treasurer as the
treasurer or the board of directors may assign, and, in the absence of the
treasurer, may perform all the duties of the treasurer.
Section 5.10. Secretary and Assistant Secretaries. The secretary shall
attend to the giving and serving of all notices of the Corporation and
shall record all proceedings of the meetings of the stockholders and
directors in books to be kept for that purpose. The secretary shall keep
in safe custody the seal of the Corporation, and shall have responsibility
for the records of the Corporation, including the stock books and such
other books and papers as the board of directors may direct and such
books, reports, certificates and other documents required by law to be
kept, all of which shall at all reasonable times be open to inspection by
any director. The secretary shall perform such other duties which apper-
tain to this office or as may be required by the board of directors.
Any assistant secretary may perform such duties of the secretary as the
secretary or the board of directors may assign, and, in the absence of the
secretary, may perform all the duties of the secretary.
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Section 5.11. Subordinate Officers. The chairman of the board from time
to time may appoint such other officers or agents as he may deem advis-
able, each of whom shall have such title, hold office for such period,
have such authority and perform such duties as the board of directors may
determine. The chairman of the board from time to time may delegate to
one or more officers or agents the power to appoint any such subordinate
officers or agents and to prescribe their respective rights, terms of
office, authorities and duties. Any officer or agent appointed in accor-
dance with the provisions of this Section 5.11 may be removed, either with
or without cause, by any officer upon whom such power of removal shall
have been conferred by the board of directors.
Section 5.12. Remuneration. The salaries or other compensation of the
officers of the Corporation shall be fixed from time to time by resolution
of the board of directors, except that the board of directors may by
resolution delegate to any person or group of persons the power to fix the
salaries or other compensation of any subordinate officers or agents
appointed in accordance with the provisions of Section 5.11 hereof.
Section 5.13. Surety Bonds. The board of directors may require any
officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940, as
amended, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder) to the Corporation in such sum and with
such surety or sureties as the board of directors may determine, condi-
tioned upon the faithful performance of his or her duties to the Corpora-
tion, including responsibility for negligence and for the accounting of
any of the Corporation's property, funds or securities that may come into
his hands.
ARTICLE VI
EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
Section 6.01. General. Subject to the provisions of Sections 5.07, 6.02,
and 7.03 hereof, all deeds, documents, transfers, contracts, agreements
and other instruments requiring execution by the Corporation shall be
signed by the president, a vice president (including executive and senior
vice presidents), chairman or vice chairman and by the treasurer or
secretary or an assistant treasurer or an assistant secretary, or as the
board of directors may otherwise, from time to time, authorize. Any such
authorization may be general or confined to specific instances.
Section 6.02. Checks, Notes, Drafts, Etc. So long as the Corporation
shall employ a custodian to keep custody of the cash and securities of the
Corporation, all checks and drafts for the payment of money by the Corpo-
ration may be signed in the name of the Corporation by the custodian.
Except as otherwise authorized by the board of directors, all requisitions
or orders for the assignment of securities standing in the name of the
custodian or its nominee, or for the execution of powers to transfer the
same, shall be signed in the name of the Corporation by any two of the
following: the president, vice president (including executive and senior
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vice presidents), treasurer or an assistant treasurer, provided that no
one person may sign in the capacity of two such officers. Promissory
notes, checks or drafts payable to the Corporation may be endorsed only to
the order of the custodian or its nominee and only by any two of the
following: the treasurer, the president, a vice president (including
executive and senior vice presidents) or by such other person or persons
as shall be authorized by the board of directors, provided that no one
person may sign in the capacity of two such officers.
Section 6.03. Voting of Securities. Unless otherwise ordered by the
board of directors, the president, or any vice president (including
executive and senior vice presidents) shall have full power and authority
on behalf of the Corporation to attend and to act and to vote, or in the
name of the Corporation to execute proxies to vote, at any meeting of
stockholders of any company in which the Corporation may hold stock. At
any such meeting such officer shall possess and may exercise (in person or
by proxy) any and all rights, powers and privileges incident to the
ownership of such stock. The board of directors may by resolution from
time to time confer like powers upon any other person or persons in
accordance with the laws of the State of Maryland.
ARTICLE VII
CAPITAL STOCK
Section 7.01. Certificates of Stock. The interest of each stockholder of
the Corporation may be, but shall not be required to be, evidenced by
certificates for shares of stock in such form not inconsistent with the
Articles of Incorporation as the board of directors may from time to time
authorize. No certificate shall be valid unless it is signed in the name
of the Corporation by a president or a vice president and countersigned by
the secretary or an assistant secretary or the treasurer or an assistant
treasurer of the Corporation and sealed with the seal of the Corporation,
or bears the facsimile signatures of such officers and a facsimile of such
seal. In case any officer who shall have signed any such certificate, or
whose facsimile signature has been placed thereon, shall cease to be such
an officer (because of death, resignation or otherwise) before such
certificate is issued, such certificate may be issued and delivered by the
Corporation with the same effect as if he were such officer at the date of
issue.
The number of each certificate issued, the name and address of the person
owning the shares represented thereby, the number of such shares and the
date of issuance shall be entered upon the stock ledger of the Corporation
at the time of issuance.
Every certificate exchanged, surrendered for redemption or otherwise
returned to the Corporation shall be marked "canceled" with the date of
cancellation.
Section 7.02. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder of record
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thereof (in person or by his duly authorized attorney or legal representa-
tive) (a) if a certificate or certificates have been issued, upon surren-
der duly endorsed or accompanied by proper instruments of assignment and
transfer, with such proof of the authenticity of the signature as the
Corporation or its agents may reasonably require, or (b) as otherwise
prescribed by the board of directors. Except as otherwise provided in the
Articles of Incorporation, the shares of stock of the Corporation may be
freely transferred, subject to the charging of customary transfer fees,
and the board of directors may, from time to time, adopt rules and regula-
tions with reference to the method of transfer of the shares of stock of
the Corporation. The Corporation shall be entitled to treat the holder of
record of any share of stock as the absolute owner thereof for all purpos-
es, and accordingly shall not be bound to recognize any legal, equitable
or other claim or interest in such share on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by law or the statutes of the State of
Maryland.
Section 7.03. Transfer Agents and Registrars. The board of directors may
from time to time appoint or remove transfer agents or registrars of
transfers for shares of stock of the Corporation, and it may appoint the
same person as both transfer agent and registrar. Upon any such appoint-
ment being made all certificates representing shares of capital stock
thereafter issued shall be countersigned by one of such transfer agents or
by one of such registrars of transfers or by both and shall not be valid
unless so countersigned. If the same person shall be both transfer agent
and registrar, only one countersignature by such person shall be required.
Section 7.04. Fixing of Record Date. The board of directors may fix in
advance a date as a record date for the determination of the stockholders
entitled to notice of or to vote at any stockholders' meeting or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend or other distri-
bution or allotment of any rights, or to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any
other lawful action, provided that (a) such record date shall be within 90
days prior to the date on which the particular action requiring such
determination will be taken, except that a meeting of stockholders con-
vened on the date for which it was called may be adjourned from time to
time without further notice to a date not more than 120 days after the
original record date; (b) the transfer books shall not be closed for a
period longer than 20 days; and (c) in the case of a meeting of stockhold-
ers, the record date shall be at least 10 days before the date of the
meeting.
Section 7.05. Lost, Stolen or Destroyed Certificates. Before issuing a
new certificate for stock of the Corporation alleged to have been lost,
stolen or destroyed, the board of directors or any officer authorized by
the board may, in its discretion, require the owner of the lost, stolen or
destroyed certificate (or his legal representative) to give the Corpora-
tion a bond or other indemnity, in such form and in such amount as the
board or any such officer may direct and with such surety or sureties as
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may be satisfactory to the board or any such officer, sufficient to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate
or the issuance of such new certificate.
ARTICLE VIII
CONFLICT OF INTEREST TRANSACTIONS
Section 8.01. Validity of Contract or Transactions. In the event that
any officer or director of the Corporation shall have any interest, direct
or indirect, in any other firm, association or corporation as officer,
employee, director or stockholder, no transaction or contract made by the
Corporation with any such other firm, association or corporation shall be
valid unless such interest shall have been disclosed or made known to all
of the directors or to a majority of the directors and such transaction or
contract shall have been approved by a majority of a quorum of directors,
which majority shall consist of directors not having any such interest or
a majority of the directors in office, including directors having such an
interest.
Section 8.02. Dealings. No officer, director or employee of the Corpora-
tion shall deal for or on behalf of the Corporation with himself, as
principal or agent, or with any corporation or partnership in which he has
a financial interest, except that:
(a) Such prohibition shall not prevent officers, directors or
employees of the Corporation from having a financial interest in
the Corporation, or the sponsor, or a distributor of the shares
of the Corporation, or the investment adviser or counsel of the
Corporation;
(b) Such prohibition shall not prevent the purchase of secu-
rities for the portfolio of the Corporation or the sale of secu-
rities owned by the Corporation through a securities broker, one
or more of whose partners, officers or directors is an officer,
director or employee of the Corporation, provided such transac-
tions are handled in the capacity of broker, only, and provided
they are performed in accordance with applicable law;
(c) Such prohibition shall not prevent the employment of
legal counsel, registrar, transfer agent, dividend disbursing
agent, or custodian or trustee having a partner, officer or
director who is an officer, director or employee of the Corpora-
tion, provided only customary fees are charged for services
rendered for the benefit of the Corporation;
(d) Such prohibition shall not prevent the purchase for the
portfolio of the Corporation of securities issued by an issuer
having an officer, director or security holder who is an officer,
director or employee of the Corporation or of the investment
adviser or investment counsel of the Corporation, unless at the
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time of such purchase one or more of such officers, directors or
employees owns beneficially more than one-half of one per cent
(1/2%) of the shares or securities, or both, of such issuer and
such officers, directors and employees owning more than one-half
of one per cent (1/2%) of such shares or securities together own
beneficially more than five per cent (5%) of such shares or
securities.
ARTICLE IX
FISCAL YEAR AND ACCOUNTANT
Section 9.01. Fiscal Year. The fiscal year of the Corporation shall,
unless otherwise ordered by the board of directors, be twelve calendar
months ending on the 31st day of March.
Section 9.02. Accountant. The Corporation shall employ an independent
public accountant or a firm of independent public accountants as its
accountant to examine the accounts of the Corporation and to sign and
certify financial statements filed by the Corporation. The accountant's
certificates and reports shall be addressed both to the board of directors
and to the stockholders. The employment of the accountant shall be
conditioned upon the right of the Corporation to terminate the employment
forthwith without any penalty by vote of a majority of the outstanding
voting securities at any stockholders' meeting called for that purpose.
A majority of the members of the board of directors who are not "interest-
ed persons" (as defined in the Investment Company Act of 1940, as amended)
of the Corporation shall select the accountant at any meeting held within
90 days before or after the beginning of the fiscal year of the Corpora-
tion or before the annual stockholders' meeting (if any) in that year.
The selection shall be submitted for ratification or rejection at the next
succeeding annual stockholders' meeting, if any, when and if such meeting
is held. If the selection is rejected at that meeting, the accountant
shall be selected by majority vote of the Corporation's outstanding voting
securities, either at the meeting at which the rejection occurred or at a
subsequent meeting of stockholders called for the purpose of selecting an
accountant.
Any vacancy occurring between annual meetings, if any, due to the death or
resignation of the accountant may be filled by the vote of a majority of
the members of the board of directors who are not interested persons.
ARTICLE X
CUSTODY OF SECURITIES
Section 10.01. Employment of a Custodian. Unless otherwise required by
law or the Articles of Incorporation, all securities and cash owned by the
Corporation from time to time shall be deposited with and held by a
custodian or subcustodian qualified to act as such in accordance with the
requirements of the Investment Company Act of 1940, as amended.
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Section 10.02. Termination of Custodian Agreement. Upon termination of
the agreement for services with the custodian or inability of the custodi-
an to continue to serve, the board of directors shall promptly appoint a
successor custodian, but in the event that no successor custodian can be
found who has the required qualifications and is willing to serve, the
board of directors shall call as promptly as possible a special meeting of
the stockholders to determine whether the Corporation shall function
without a custodian or shall be liquidated. If so directed by resolution
of the board of directors or by vote of the holders of a majority of the
outstanding shares of stock of the Corporation, the custodian shall
deliver and pay over all property of the Corporation held by it as speci-
fied in such vote.
Section 10.03. Provisions of Custodian Contract. The board of directors
shall cause to be delivered to the custodian all securities owned by the
Corporation or to which it may become entitled, and shall order the same
to be delivered by the custodian only in completion of a sale, exchange,
transfer, pledge, or other disposition thereof, all as the board of
directors may generally or from time to time require to approve or to a
successor custodian; and the board of directors shall cause all funds
owned by the Corporation or to which it may become entitled to be paid to
the custodian, and shall order the same disbursed only for investment
against delivery of the securities acquired, or in payment of expenses,
including management compensation, and liabilities of the Corporation,
including distributions to shareholders, or to a successor custodian.
Section 10.04. Other Arrangements. The Corporation may make such other
arrangements for the custody of its assets (including deposit arrange-
ments) as may be required by any applicable law, rule or regulation.
ARTICLE XI
INDEMNIFICATION AND INSURANCE
Section 11.01. Indemnification of Officers, Directors, Employees and
Agents. In accordance with applicable law, including the Investment
Company Act of 1940, as amended, and Maryland Corporate law, the Corpora-
tion shall indemnify each person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
("Proceeding"), by reason of the fact that he or she is or was a director,
officer, employee, or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee, partner,
trustee or agent of another corporation, partnership, joint venture,
trust, or other enterprise, against all reasonable expenses (including
attorneys' fees) actually incurred, and judgments, fines, penalties and
amounts paid in settlement in connection with such Proceeding to the
maximum extent permitted by law, now existing or hereafter adopted.
Notwithstanding the foregoing, the following provisions shall apply with
respect to indemnification of the Corporation's directors, officers, and
investment adviser (as defined in the Investment Company Act of 1940, as
amended):
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(a) Whether or not there is an adjudication of liability in
such Proceeding, the Corporation shall not indemnify any such
person for any liability arising by reason of such person's
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her
office or under any contract or agreement with the Corporation
("disabling conduct").
(b) The Corporation shall not indemnify any such person
unless:
(1) the court or other body before which the Proceeding
was brought (a) dismisses the Proceeding for insufficien-
cy of evidence of any disabling conduct, or (b) reaches a
final decision on the merits that such person was not
liable by reason of disabling conduct; or
(2) absent such a decision, a reasonable determination
is made, based upon a review of the facts, by (a) the
vote of a majority of a quorum of the directors of the
Corporation who are neither interested persons of the
Corporation as defined in the Investment Company Act of
1940, as amended, nor parties to the Proceeding, or (b)
if such quorum is not obtainable, or even if obtainable,
if a majority of a quorum of directors described above so
directs, based upon a written opinion by independent
legal counsel, that such person was not liable by reason
of disabling conduct.
(c) Reasonable expenses (including attorneys' fees) incurred
in defending a Proceeding involving any such person will be paid
by the Corporation in advance of the final disposition thereof
upon an undertaking by such person to repay such expenses unless
it is ultimately determined that he or she is entitled to indem-
nification, if:
(1) such person shall provide adequate security for his
or her undertaking;
(2) the Corporation shall be insured against losses
arising by reason of such advance; or
(3) a majority of a quorum of the directors of the
Corporation who are neither interested persons of the
Corporation as defined in the Investment Company Act of
1940, as amended, nor parties to the Proceeding, or
independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts,
that there is reason to believe that such person will be
found to be entitled to indemnification.
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Section 11.02. Insurance of Officers, Directors, Employees and Agents.
The Corporation may purchase and maintain insurance or other sources of
reimbursement to the extent permitted by law on behalf of any person who
is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee, partner, trustee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him or her and incurred by him or her in or arising out of his
position.
Section 11.03. Non-exclusivity. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article XI shall not be
deemed exclusive of any other rights to which those seeking indemnifica-
tion or advancement of expenses may be entitled under the Articles of
Incorporation, these By-Laws, agreement, vote of stockholders or direc-
tors, or otherwise, both as to action in his or her official capacity and
as to action in another capacity while holding such office.
Section 11.04. Amendment. No amendment, alteration or repeal of this
Article or the adoption, alteration or amendment of any other provisions
to the Articles of Incorporation or By-laws inconsistent with this Article
shall adversely affect any right or protection of any person under this
Article with respect to any act or failure to act which occurred prior to
such amendment, alteration, repeal or adoption.
ARTICLE XII
AMENDMENTS
Section 12.01. General. Except as provided in Section 12.02 of this
Article XII and subject to the provisions concerning stockholder voting in
Article II hereof, all By-laws of the Corporation, whether adopted by the
board of directors or the stockholders, shall be subject to amendment,
alteration or repeal, and new By-laws may be made by the affirmative vote
of either: (a) the holders of record of a majority of the outstanding
shares of stock of the Corporation entitled to vote, at any meeting, the
notice or waiver of notice of which shall have specified or summarized the
proposed amendment, alteration, repeal or new By-law; or (b) a majority of
directors, at any meeting the notice or waiver of notice of which shall
have specified or summarized the proposed amendment, alteration, repeal or
new By-law.
Section 12.02. By Stockholders Only. No amendment of any section of these
By-laws shall be made except by the stockholders of the Corporation if the
By-laws provide that such section may not be amended, altered or repealed
except by the stockholders. From and after the issuance of any shares of
the capital stock of the Corporation no amendment, alteration or repeal of
this Article XII shall be made except by the stockholders of the Corpora-
tion.
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