As filed with the Securities and Exchange Commission on May 14, 1996
Registration No. ____
ICA 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. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [ ]
(Check appropriate box or boxes)
THE DARUMA FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
237 Park Avenue, Suite 801
New York, New York 10017
Registrant's Telephone Number, including Area Code: (212) 808-7407
Mariko O. Gordon
CastleRock Capital Management, Inc.
237 Park Avenue, Suite 801
New York, New York 10017
(Name and Address of Agent for Service)
Copy to: THOMAS R. WESTLE, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
It is proposed that this filing will become effective: (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
The Registrant declares that an indefinite amount of its shares of beneficial
interest is being registered by this Registration Statement pursuant to Section
24(f) under the Investment Company Act of 1940, as amended, and Rule 24f-2
thereunder.
The 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 declare.
C/M: 12014.0001 352686.1
<PAGE>
THE DARUMA FUNDS, INC.
Registration Statement on Form N-1A
-----------------------
CROSS REFERENCE SHEET -
Pursuant to Rule 404(c)
-----------------------
Part A
Item No. Prospectus Heading
- -------- ------------------
1. Cover Page........................ Cover Page
2. Synopsis.......................... Fund Facts and Fund Expenses
3. Condensed Financial
Information....................... Not Applicable
4. General Description of
Registrant........................ Cover Page; Investment Objective;
Additional Investment Policies;
Investment Restrictions
5. Management of the Fund............ Management of the Fund; Custodian,
Transfer and Dividend Agent
5a. Management's Discussion
of the Fund...................... Management of the Fund; Dividends
and Distributions and Net Asset
Value
6. Capital Stock and Other
Securities........................ Purchase of Shares; Redemption of
Shares; description of Common Stock
7. Purchase of Securities Being
Offered........................... Purchase of Shares; Description of
Common Stock
8. Redemption or Repurchase.......... Redemption of Shares
9. Legal Proceedings................. Not Applicable
-ii-
C/M: 12014.0001 352686.1
<PAGE>
Part B
Item No. Caption in Statement of Additional
- -------- Information
----------------------------------
10. Cover Page........................ Cover Page
11. Table of Contents................. Table of Contents
12. General Information and
History........................... The Fund; Management of the Fund;
Description of the Fund
13. Investment Objectives and
Policies.......................... Investment Objective, Policies and
Restrictions; Risk Factors and other
Considerations
14. Management of the Fund............ Management of the Fund and
Investment Adviser
15. Control Persons and
Principal Holders of
Securities........................ Management of the Fund and
Investment Adviser
16. Investment Advisory and
Other Services.................... Management of the Fund; Pricing of
Shares; Redemptions In Kind and
Exchange; Counsel and Independent
Auditors
17. Brokerage Allocation.............. Portfolio Transactions
18. Capital Stock and Other
Securities........................ Description of the Fund
19. Purchase, Redemption and
Pricing of Securities
Being Offered..................... Pricing of Shares; Redemptions In
Kind
20. Tax Status........................ Taxation
21. Underwriters...................... Not Applicable
22. Calculations of Yield............. Performance Data
23. Financial Statements.............. Not Applicable
-iii-
C/M: 12014.0001 352686.1
<PAGE>
DARUMA MID-CAP VALUE FUND
237 Park Avenue
Suite 801
New York, NY 10017
(800) 435-5076
May , 1996
The Daruma Mid-Cap Value Fund (the "Fund") is a series of The Daruma Funds,
Inc., a no-load diversified, open-end management investment company incorporated
in the State of Maryland. The Fund's objective is to seek long-term capital
appreciation by investing primarily (at least 65% of its net assets) in the
common stocks of medium capitalization companies. Current income is incidental
to the Fund's investment objective. The Fund seeks to provide investors an
opportunity to participate in the long-term growth of the economy through the
investment returns offered by the common stocks of companies which are
undervalued and whose earnings growth prospects are improving. The Fund is
designed for long-term investors who can accept stock market risk as well as the
more volatile returns of mid-cap stocks vs. "blue chip" stocks. There can be no
assurance that the Fund's investment objective will be met.
Investment Adviser - CastleRock Capital Management, Inc.
The Fund is offered on a no-load basis and there are no sales commissions,
exchange, redemption or 12b-1 fees. The Fund's minimum initial investment is
$1,000 and the minimum subsequent investment is $100. The minimum initial
purchase requirement for retirement and UGMA (Uniform Gifts to Minors Act)
accounts as well as accounts established with automatic investment plans is
$500.
This Prospectus concisely sets forth information about the Fund a prospective
investor should know before investing. It should be read and retained for future
reference. The Statement of Additional Information, dated xxxxxxxxxxxx, 1996,
has been filed with the Securities and Exchange Commission and is incorporated
herein by reference. For a free copy of the Statement of Additional Information,
write or call the Fund at the address or telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
C/M 12014.0001 366002.1
<PAGE>
FUND FACTS
Investment Objective
To provide long-term capital appreciation by investing primarily (at least 65%
of its net assets) in medium capitalization (mid-cap) companies.
Investment Strategy
The Fund invests in undervalued mid-cap companies whose anticipated earnings
growth will accelerate. The Fund believes that buying the common stock of
companies that are cheap and changing provides the best combination of risk and
reward.
The Fund will invest in a portfolio normally composed of approximately 35 common
stocks representing the CastleRock's best ideas, diversified among a broad range
of industries.
Why Focus on Mid-Cap Stocks?
The cumulative performance of mid-cap stocks since 1926 falls slightly below
that of small-cap stocks, but well ahead of large-cap stocks. At the same time,
mid-cap stocks are subject to less volatility than small-cap stocks. By focusing
on the mid-cap sector, the Fund hopes to capture most of the long-term
outperformance smaller companies generate versus larger companies, while
experiencing less volatility and risk.
Secondly, the mid-cap universe is not well followed on Wall Street, allowing
CastleRock's emphasis on primary research to add value.
Thirdly, medium-sized companies historically undergo evolutionary changes in
their businesses at a faster rate than large companies do, allowing for more
frequent investment opportunities.
Who Should Invest in Daruma?
Investors who have a long-term time horizon and are willing to take on the
additional risk of investing in mid-cap stocks. This is an appropriate vehicle
for individuals, educational funding accounts, trusts, foundations, endowments,
as well as IRAs and other tax-deferred accounts.
Fees & Sales Charges
The Daruma Mid-Cap Value Fund is 100% no-load. There are no sales charges, no
12b-1 fees, no redemption fees and no fees associated with the reinvestment of
dividends.
Minimum Investment
The Fund's minimum initial investment is $1,000 and subsequent investments are
$100. For retirement and UGMA (Uniform Gifts to Minors Act) accounts and
accounts established with automatic investment plans, the minimum initial
requirement is $500.
-1-
C/M 12014.0001 366002.1
<PAGE>
FUND TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
<S> <C> <C> <C>
Fund Expenses SHAREHOLDER GUIDE
Investment Objective Opening an Account & Purchasing
Investment Policies Shares
Investment Risks Choosing a Distribution option
Investment Restrictions Redeeming Your Shares
Management of the Fund Transferring Ownership
Dividends and Distributions
Taxes
Net Asset Value
</TABLE>
- -------------------------------------------------------------------------------
FUND EXPENSES
The following table illustrates all expenses and fees that you would incur as a
shareholder of the Fund.
<TABLE>
<S> <C>
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases..............................................................None
Sales Load Imposed on Reinvested Dividends...................................................None
Deferred Sales Load..........................................................................None
12b-1 Fee....................................................................................None
Redemption Fee...............................................................................None
Estimated Fund Annual Operating Expenses (as a percentage of average net assets)
Management Fees..............................................................................1.00%
Other Expenses (after expense reimbursement).................................................0.50
Total Estimated Fund Operating Expenses (after expense reimbursements).......................1.50%
</TABLE>
The above table is designed to assist you in understanding the various costs and
expenses that a shareholder would bear directly or indirectly as an investor in
this Fund. The management fee will decline as the Fund's assets increase. See
"Management of the Fund". The Fund's investment adviser, CastleRock Capital
Management, Inc. ('CastleRock"), is committed to keeping the total expenses of
the Fund at or below 1.50% and intends to waive all management fees and assume
other expenses, if necessary, to maintain that expense ratio. It is estimated
that the Fund's annual operating expenses would be approximately 2.5% absent
expense reimbursements.
The following example illustrates the expenses that you would incur on a $1,000
investment over various periods, assuming a 5% annual rate of return, and at a
1.50% expense ratio:
1 Year 3 Years
Daruma Mid-Cap Value Fund................. $16 $49
This example should not be considered a representation of past or future
expenses or performance. ctual expenses may be higher or lower than those shown.
-2-
C/M 12014.0001 366002.1
<PAGE>
Investment Objective
The Fund's investment objective is to seek long-term capital appreciation by
investing primarily (at least 65% of its net assets ) in the common stocks of
medium capitalization companies. Current income is incidental to the Fund's
investment objective. There can be no assurance that the Fund's investment
objective will be met. The Fund attempts to achieve its investment objective by
investing primarily in common stocks.
Investment Policies
CastleRock believes that original research drives performance. CastleRock, on
behalf of its clients, invests in companies that it believes are about to
undergo significant positive changes in earnings growth, and whose valuations do
not yet reflect such changes. CastleRock attempts to identify those mid-cap
companies who meet these investment criteria by conducting its own thorough and
original research.
The Fund will normally consist of a portfolio of approximately 35 securities
considered by CastleRock to be the companies with the most compelling
risk/reward profiles. Although the Fund will invest primarily (at least 65% of
its net assets) in the common stocks of medium capitalization companies, it may
also invest in other types of securities such as nonconvertible and convertible
preferred stock, bonds and warrants, foreign securities (ADRs), short-term fixed
income securities, and cash equivalents, when the investment in such securities
is considered consistent with the Fund's investment objective by CastleRock.
Additional Investment Policies
Borrowing The Fund, may from time to time , borrow money from
banks for temporary, and/or extraordinary purposes. For
purposes of this limitation, a reverse repurchase
agreement will be treated as a borrowing. Such
borrowing will not exceed an amount equal to one-third
of the value of the Fund's total assets less its
liabilities.
Illiquid Securities The Fund may invest up to 15% of its net assets
in illiquid securities, including restricted securities
(i.e., securities not readily marketable). Any illiquid
securities purchased by the Fund will have been
registered under the Securities Act of 1933. The Fund
may purchase restricted securities that may be offered
and sold only to "qualified institutional buyers" under
Rule 144A of the Securities Act of 1933, and the Fund's
Board of Directors may determine, when appropriate,
that specific Rule 144A securities are liquid and not
subject to the 15% limitation on illiquid securities.
Should the Board of Directors make this determination,
it will carefully monitor the security (focusing on
such factors, among others, as trading activity and
availability of information) to determine that the Rule
144a security continues to be liquid. It is not
possible to predict with assurance exactly how the
market for Rule 144A securities will further evolve.
This investment practice could have the effect of
increasing the level
-3-
C/M 12014.0001 366002.1
<PAGE>
of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in
purchasing Rule 144A securities.
Temporary When CastleRock believes that market conditions warrant
Investments a temporary defensive position, the Fund may invest up
to 100% of its assets in short-term instruments such as
U.S. Treasury bills, high quality commercial paper,
bank certificates of deposit, bankers' acceptances, or
repurchase agreements collateralized by U.S. Government
securities.
Repurchase The Fund may enter into repurchase agreements. In a
Agreements repurchase agreement agreement the Fund effectively
makes a loan by purchasing a U.S. Government security
and simultaneously committing to resell that security
to the seller at an agreed upon price on an agreed upon
date (usually not more than seven days) from the date
of purchase. Repurchase agreements may be entered into
with a Federal Reserve System bank or "primary dealers"
in U.S. Government securities.
Foreign The Fund will not invest more than 15% of its total
Securities assets in foreign debt and/or equity securities, or
ADRs. Foreign securities investments involve certain
risks, such as political or economic instability of the
issuer or of the country of issue, fluctuating exchange
rates and the possibility of imposition of exchange
controls. These securities may also be subject to
greater fluctuations in price than the securities of
U.S. corporations, and there may be less publicly
available information about their operations. Foreign
companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies,
and foreign markets may be less liquid or more volatile
than U.S. markets and may offer less protection to
investors such as the Fund. In addition, dividends and
interest paid by foreign issuers may be subject to
withholding and other foreign taxes, and transaction
costs such as brokerage commissions are generally
higher than in the United States.
Short Sales The Fund will only make short sales that are short
sales of securities "against the box". A short sale
"against the box" is a sale of a security that the Fund
either owns an equal amount of or has the immediate and
unconditional right to acquire at no additional cost.
The Fund will make short sales "against the box" as a
form of hedging to offset potential declines in long
positions in the same or similar securities.
Portfolio The Fund's portfolio turnover rate will be influenced
Turnover by the Fund's investment objectives, other investment
policies, and the need to meet redemptions. While the
rate of portfolio turnover will not be a limiting
factor when CastleRock deems changes appropriate, it is
anticipated that given the Fund's objective, its annual
portfolio turnover should not generally exceed 50%. (A
portfolio turnover rate of 50% would occur, for
example, if half of the stocks in the Fund were
replaced over a period of one year.)
-4-
C/M 12014.0001 366002.1
<PAGE>
Except as noted elsewhere in this prospectus, the aforementioned investment
policies and practices are not fundamental and the Board of Directors of the
Fund may change such policies without the vote of a majority of outstanding
voting securities of the Fund as defined by the Investment Company Act of 1940,
as amended. A more detailed description of the Fund's investment policies,
including a list of those restrictions on the Fund's investment activities which
cannot be changed without such a vote, appears in the Statement of Additional
Information.
Investment Risks
The Fund is designed for long-term investors who are willing to accept the risks
associated with investing in a mutual fund seeking long-term capital
appreciation. Investors should consider their investment goals, their time
horizon for achieving them and their tolerance for risk before investing in the
Fund. The Fund which will be primarily invested in common stocks of mid-cap
companies is subject to different risk profiles. Market risk is risk associated
with price declines over short or extended periods of time. As the U.S. economy
has expanded, corporate profits have grown and share prices have risen. Economic
growth has been punctuated by periodic declines where share prices of even the
best managed and most profitable companies decline. Stocks of mid-cap companies
may not be well known to the public, have lower trading volume and may be more
volatile in price than larger capitalized stocks included in the S&P 500 Stock
Index. Thus, the Fund should only be used as an investment vehicle for those
with longer time horizons, and should not be used to capture short-term swings
in the market.
Although the Fund is diversified within the meaning of the Investment Company
Act of 1940, it will normally invest in a limited number (approximately 35) of
securities. Thus this Fund may contain more risk than other funds with a similar
objective invested in a broader range of securities. To the extent that the Fund
invests in a limited number of securities, it may be more susceptible to any
single, corporate, economic, political or regulatory occurrence than a more
widely diversified fund.
INVESTMENT RESTRICTIONS
As a diversified investment company the Fund has adopted certain fundamental
restrictions which may not be changed without the approval of a majority of the
outstanding voting shares, as that term is defined in the Investment Company Act
of 1940. These restrictions are more concisely set forth in the Statement of
Additional Information and provide that the Fund will not:
(a) with respect to 75% of its total assets, invest more than 5%
of its assets in the securities of any one issuer, excluding
obligations of the U.S. Government;
(b) own more than 10% of the outstanding voting securities of any
one issuer;
(c) invest more than 25% of its total assets in any one
industry except U.S. Government obligations; or
(d) invest in companies for the purpose of exercising control of
management.
-5-
C/M 12014.0001 366002.1
<PAGE>
In addition to the aforementioned investment restrictions, and in addition to
other restrictions listed in the Statement of Additional Information, the Fund
may not (except where specified):
(i) purchase securities on margin or borrow money, except
from banks for temporary and/or extraordinary purposes;
(ii) mortgage, pledge or hypothecate any assets except that the Fund
may pledge not more than one-third of its total assets to secure
borrowings made in accordance with paragraph (I) above. However,
although not a fundamental policy of the Fund, as a matter of
operating policy in order to comply with certain state statutes,
the Fund will not pledge its assets in excess of an amount equal
to 15% of total assets; or
(iii) lend portfolio securities of value exceeding in the aggregate one
third of the market value of the Fund's total assets less
liabilities other than obligations created by these transactions.
(iv) make loans to others, except through the purchase of
portfolio investments, including repurchase agreements
MANAGEMENT OF THE FUND
Adviser
CastleRock Capital Management, Inc., a registered investment adviser, is a New
York corporation with its principal office located at 237 Park Avenue, Suite
801, New York, New York 10017. CastleRock has been retained by the Board of
Directors as the investment adviser for the Fund pursuant to an Investment
Advisory Agreement entered into with the Fund. Mariko O. Gordon, President and
Chief Investment Officer of CastleRock, is primarily responsible for supervising
the Fund's daily investment management activities. CastleRock had assets under
management of approximately $25,000,000 at April 30, 1996. CastleRock, however,
has not managed the assets of a mutual fund prior to the Fund. Ms. Gordon has
over ten years experience in the investment management business. Prior to co-
founding CastleRock in 1995, Ms. Gordon was an equity owner in and Director of
Research at Valenzuela Capital Management, Inc. ("VCM") from 1990 to 1995, a
firm specializing in small to mid-cap stocks with over $1 billion under
management. Ms. Gordon's sole responsibility at VCM was portfolio management.
Prior to joining VCM, from 1987 to 1990, she was the Director of Systematic
Research at Quest Advisory Corp., an investment firm specializing in small-cap
value stocks and adviser to several mutual funds, including Pennsylvania Mutual
Fund. Ms. Gordan started her investment career as a research analyst at Manning
& Napier Advisors, Inc., a firm managing $2 billion for ERISA and Taft-Hartley
clients. Ms. Gordon is a Chartered Financial Analyst and a graduate of Princeton
University.
The Fund's Annual Report to shareholders will contain information regarding the
Fund's performance and will be provided without charge, upon request.
-6-
C/M 12014.0001 366002.1
<PAGE>
Adviser's Fees
According to the terms of the Investment Advisory Agreement, the Fund will pay a
monthly advisory fee at an annual rate equal to 1% of the first $100 million of
the Fund's average daily net assets; 0.75% of the next $100 million of such net
assets; and 0.50% of the Fund's average daily net assets more than $200 million.
Any portion of the advisory fee received by CastleRock may be used by CastleRock
to provide investor and administrative services and for distribution of Fund
shares. CastleRock may voluntarily waive a portion of its fee or assume certain
expenses of the Fund. This would have the effect of lowering the overall expense
ratio of the Fund and of increasing total return to investors in the Fund. See
"Expense Limitation" in the Statement of Additional Information.
Other Expenses
In addition to CastleRock's management fee, the Fund bears the costs of the
following: shareholder servicing expenses; custodial, transfer agent,
accounting, legal and audit fees; costs of preparing and printing prospectuses
and reports sent to shareholders; state and federal registration fees and
expenses; proxy and annual meeting expenses (if any); and director/trustee fees
and expenses.
PURCHASE OF SHARES
Initial Investments by Mail
Subject to acceptance by the Fund, an account may be opened by completing and
signing an Account Registration Form and mailing it to the Fund at the address
noted below, together with a check (subject to the Fund's minimum investment)
payable to:
U.S. Mail: Daruma Mid-Cap Value Fund
PO Box 640994
Cincinnati, Ohio 45264-0994
Overnight: Daruma Mid-Cap Value Fund
c/o Star Bank, N.A.
Mutual Fund Custody Dept.
425 Walnut St., M.L. 6118
Cincinnati, Ohio 45202
The minimum initial investment in the Fund is $1,000. Retirement and UGMA
(Uniform Gifts to Minors Act) accounts, as well as accounts established with
automatic investment plans, however, may initially invest a minimum of $500.
Subject to acceptance by the Fund, payment for the purchase of shares received
by mail will be credited to a shareholder's account at the net asset value per
share of the Fund next determined after receipt. Your purchase of shares of the
Fund will be effected at the next share price calculated after receipt of your
investment.
-7-
C/M 12014.0001 366002.1
<PAGE>
Initial Investments by Wire
Subject to acceptance by the Fund, shares of the Fund may be purchased by
wiring immediately available federal funds (subject to the Fund's minimum
investment) to the Fund's custodian, Star Bank (the "Custodian") (see
instructions below). The minimum initial investment in the Fund is $1,000.
Retirement and UGMA (Uniform Gifts to Minors Act) accounts, as well as accounts
established with automatic investment plans, however, may initially invest a
minimum of $500. In order to wire funds, you must first call the Fund's transfer
agent, American Data Services, Inc. (the "Transfer Agent"), at 516-385-9580 to
set up your account and obtain an account number. You should be prepared to
provide the information on the application to the Transfer Agent. Then, you
should provide your bank with the following information for purposes of wiring
your investment:
Star Bank, N.A. Cinti/Trust
ABA #0420-0001-3
Ref: Daruma Mid-Cap Value Fund
Order Number or Account Number: _________________
Account Name: ___________________________________
You are required to mail a signed application to the Custodian at the above
address in order to complete your initial wire purchase. Wire orders will be
accepted only on a day which the Fund and the Custodian and Transfer Agent are
open for business. A wire purchase will not be considered made until the wired
money is received and the purchase is accepted by the Fund. Any delays which may
occur in wiring money, including delays which may occur in processing by the
banks, are not the responsibility of the Fund or the Transfer Agent. There is
presently no fee for the receipt of wired funds, but the right to charge
shareholders for this service is reserved by the Fund.
Additional Investments
Additional investments may be made at any time subject to the Fund's minimum
subsequent investment of $100, by mailing a check to the Fund at the address
noted under "Initial Investments by Mail" (payable to Daruma Mid-Cap Value Fund)
or by wiring monies to the Custodian using the instructions outlined above
(Initial Investments by Wire).
The purchase price paid for shares of the Fund is the current public offering
price, that is, the next determined net asset value of the shares after the
order is placed. See "Net Asset Value" herein. The Fund reserves the right to
reject any subscription for shares.
The Fund must receive an order and payment by the close of business for the
purchase to be effective and dividends to be earned on the same day. If funds
are received after the close of business, the purchase will become effective and
dividends will be earned on the next business day. Purchases made by check will
be invested and begin earning income on the next business day after the check is
received.
The Fund will not cancel any trade (purchase or redemption) believed to be
authentic once the trade has been received. If your check or wire does not clear
your transaction will be canceled and you
-8-
C/M 12014.0001 366002.1
<PAGE>
will be responsible for any loss the Fund incurs. If you are already a
shareholder, the Fund can redeem shares from any identically registered account
in the Fund as reimbursement for any loss incurred.
Shares of the Fund may also be sold to corporations or other institutions such
as trusts, foundations or broker-dealers purchasing for the accounts of others
("Shareholder Organizations"). Investors purchasing and redeeming shares of the
Fund through a Shareholder Organization may be charged a transaction-based fee
or other fee for the services of such organization. Each Shareholder
Organization is responsible for transmitting to its customers a schedule of any
such fees and information regarding any additional or different conditions
regarding purchases and redemptions. Customers of Shareholder Organizations
should read this Prospectus in light of the terms governing accounts with their
organization. The Fund does not pay to or receive compensation from Shareholder
Organizations for the sale of the Fund's shares.
Retirement Plans:
The Fund offers a wide range of plans for individuals and institutions,
including large and small businesses: IRAs, SEP-IRAs and Keoghs (profit sharing,
money purchase pension). For information on IRAs and all other retirement plans,
please call the Fund at (800) 435-5076.
REDEMPTION OF SHARES
The Fund allows you to redeem shares without redemption fees. You may redeem any
portion of your account at any time. Shares of the Fund may be redeemed by mail,
or, if authorized, by telephone. The value of shares redeemed may be more or
less than the purchase price, depending on the market value of the investment
securities held by the Fund.
By Mail. The Fund will redeem its shares at the net asset value next determined
after the request is received if all the required documentation is received in
"good order". The net asset value per share of the Fund is determined as of 4:15
p.m., New York time, on each day that the NYSE and the Fund are open for
business. Requests should be addressed to Daruma Mid-Cap Value Fund c/o American
Data Services, 24 West Carver Street, Huntington, NY 11743.
Requests in "good order" must include the following information and
documentation:
(1) The account number and fund name;
(2) The amount of the transaction (specified in dollars or shares);
(3) Signatures of all owners EXACTLY as they are registered on the
account;
(4) Any certificates that you hold for the account; Any required
signature guarantees (see "Signature Guarantees" below); and
(5) Other supporting legal documents, if required, in the case of
estates, trusts, guardianships, custodianships, corporations,
pension and profit sharing plans and other organizations.
-9-
C/M 12014.0001 366002.1
<PAGE>
If you are not certain of the requirements for a redemption, please call the
Fund at (800) 435- 5076. Redemptions specifying a certain date or share price
cannot be accepted and will be returned.
Signature Guarantees
To protect shareholder accounts, the Fund and its transfer agent from fraud,
signature guarantees are required to enable the Fund to verify the identity of
the person who has authorized a redemption from an account. Signature guarantees
are required for (1) redemptions where the proceeds are to be sent to someone
other than the registered shareholder(s) and the registered address, and (2)
share transfer requests. Signature guarantees may be obtained from certain
eligible financial institutions, including but not limited to, the following:
banks, trust companies, credit unions, securities brokers and dealers, savings
and loan associations and participants in the Securities Transfer Association
Medallion Program ("STAMP"), the Stock Exchange Medallion Program ("SEMP") or
the New York Stock Exchange Medallion Signature Program ("MSP").
Shareholders may contact the Fund at (800) 435-5076 for further details.
By Telephone
Shareholders, who have elected on their application form telephone redemption
privileges, may redeem by telephone provided the proceeds are mailed to their
address of record. To redeem shares by telephone, you or your preauthorized
representative may call shareholder services at (800) 435-5076. Redemption
requests received by telephone prior to the close of regular trading on the
NYSE, normally 4:00 p.m.eastern time, are processed on the day of receipt;
redemption requests received by telephone after the close of regular trading on
the Exchange are processed on the business day following receipt. TELEPHONE
REDEMPTIONS WILL NOT BE PERMITTED FOR A PERIOD OF SIXTY DAYS AFTER A CHANGE IN
THE ADDRESS OF RECORD. The Fund will employ reasonable procedures to confirm
that instructions communicated are genuine and, if it does not, it may be liable
for any losses due to unauthorized or fraudulent instructions. The procedures
employed by the Fund in connection with transactions initiated by telephone
include tape recording of telephone instructions and requiring some form of
personal identification prior to acting upon instructions received by telephone.
The Fund reserves the right to revise or terminate the telephone redemption
privilege at any time. If you have trouble making a telephone redemption during
periods of drastic economic or market changes, your redemption request may be
made by regular or express mail. It will be implemented at the net asset value
net determined after your request has been received by our transfer agent in
Good Order.
Further Redemption Information
Redemption proceeds for shares of the Fund recently purchased by check may not
be distributed until payment for the purchase has been collected, which may take
up to fifteen business days from the purchase date. Shareholders can avoid this
delay by utilizing the wire purchase option.
-10-
C/M 12014.0001 366002.1
<PAGE>
Other than as described above, payment of the redemption proceeds will be made
within five days after receipt of an order for a redemption. The Fund may
suspend the right of redemption or postpone the date at times when the NYSE or
the bond market is closed or under any emergency circumstances as determined by
the United States Securities and Exchange Commission (the "SEC").
If the Board of Directors determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make a payment wholly or
partly in cash, the Fund may pay the redemption proceeds in whole or in part by
a distribution in-kind of readily marketable securities held by the Fund in lieu
of cash in conformity with applicable rules of the SEC. Investors generally will
incur brokerage charges on the sale of portfolio securities so received in
payment of redemptions.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to pay dividends from net investment income annually in
December. The Fund also intends to distribute its net realized capital gains, if
any, in December. Dividends and distributions will be automatically reinvested
in additional shares of the Fund unless the shareholder chooses otherwise.
Dividends and distributions may be made on a more frequent basis to comply with
the distribution requirement of the Internal Revenue Code.
Choosing A Distribution Option
Distribution of dividends from the Fund may be made in accordance with several
options. A shareholder may select one of three distribution options:
1. Automatic Reinvestment Option. Both dividends and capital gains
distributions will be automatically reinvested in additional shares of the
Fund unless the investor has elected one of the other two options.
2. Cash Dividend Option. Dividends will be paid in cash, and capital gains,
if any, will be
reinvested in additional shares.
3. All Cash Option. Both dividend and capital gains distributions will be
paid in cash.
TAXES
The Fund intends to qualify under the Internal Revenue Code of 1986, as amended,
as a regulated investment company. As a regulated investment company, the Fund
will not be subject to federal income taxes on the investment company taxable
income and long-term capital gains that it distributes to its investors,
provided that at least 90% of its investment company taxable income for the
taxable year is distributed. Shareholders will receive information annually as
to the tax status of distributions made by the Fund for the calendar year.
Distributions are paid from a Fund's net investment income and short-term
capital gains are taxable to shareholders as ordinary income dividends. A
portion of
-11-
C/M 12014.0001 366002.1
<PAGE>
the Fund's dividend may qualify for the corporate dividends-received deduction,
subject to certain limitations. The portion of a Fund's dividends qualifying for
such deduction is generally limited to the aggregate taxable dividends received
by the Fund from domestic corporations.
Distributions paid from long-term capital gains of a Fund are treated by a
shareholder for Federal income tax purposes as long-term capital gains,
regardless of how long a shareholder has held Fund shares. If a shareholder
disposes of shares held for six months or less at a loss, such loss will be
treated as a long-term capital loss to the extent of any long-term capital gains
reported by the shareholder with respect to such shares.
The redemption of shares is a taxable event, and a shareholder may realize a
capital gain or capital loss. The Fund will report to redeeming shareholders the
proceeds of the redemptions. However, because the tax consequences of a
redemption will also depend on the shareholder's basis in the redeemed shares
for tax purposes, shareholders should retain their account statements for use in
determining their tax liability on a redemption.
At the time of the shareholder's purchase, the Fund's net asset value may
reflect undistributed income or capital gains. A subsequent distribution of
these amounts by the Fund will be taxable to the shareholder even though the
distribution economically is a return of part of the shareholder's investment.
Keep in mind that if you purchase shares in the Fund shortly before the record
date for a dividend or capital gains distribution, regardless of whether you are
investing your distributions or receiving them in cash, you will be assessed
taxes on the amount of the capital gain and/or dividend distribution later paid
even though you owned the Fund shares for just a short period of time. While the
total value of your investment will be the same after the distribution -- the
amount of the distribution will offset the drop in the net asset value of the
shares -- you should be aware of the tax implications the timing of your
purchase may have. Prospective investors should, therefore, inquire about
potential distributions before investing.
The Fund is required to withhold 31% of taxable dividends, capital gain
distributions and redemptions that are paid to non-corporate shareholders who
have not complied with Internal Revenue Service taxpayer identification
regulations. Shareholders may avoid the withholding requirement by certifying on
the Account Application Form their proper Social Security or Taxpayer
Identification Number and certifying that they are not subject to backup
withholding.
NET ASSET VALUE
Purchases and redemptions are made at net asset value. The Transfer Agent
determines net asset value per share as of the close of regular trading on the
New York Stock Exchange (the "NYSE"), on each day the NYSE is open for trading.
Net asset value is determined by dividing the total assets of the Fund, less all
liabilities, by the total number of shares outstanding.
-12-
C/M 12014.0001 366002.1
<PAGE>
Market values for securities listed on an exchange are based upon the latest
quoted sales prices as of 4:00 p.m. eastern time, on the valuation date.
Securities not traded on the valuation date are valued at the mean of the latest
quoted bid and asked prices. Securities not listed on an exchange are valued at
the latest quoted bid price. Temporary cash investments and debt obligations
with 60 days or less remaining to maturity are valued at cost, unless the Board
of Directors determines that this does not represent fair value. All prices of
listed securities are taken from the exchange where the security is primarily
traded. Securities may be valued on the basis of prices provided by a pricing
service when such prices are believed to reflect the fair market value of such
securities. Securities for which market quotations are not readily available or
which are restricted as to sale, and other assets are valued by such methods the
Board of Director seems in good faith to reflect fair value.
The Transfer Agent computes the Fund's net asset value once daily on Monday
through Friday, at 4:15 p.m. New York time, except on the holidays listed under
"Net Asset Value" in the Statement of Additional Information.
FUND PERFORMANCE
From time to time, the Fund may include in communications to current or
prospective shareholders figures reflecting total return over various time
periods. "Total return" is the rate of return on an amount invested in a Fund
from the beginning to the end of the stated period. "Average annual total
return" is the annual compounded percentage change in the value of an amount
invested in a Fund from the beginning until the end of the stated period. Total
returns are historical measures of past performance and are not intended to
indicate future performance. Total returns assume the reinvestment of all
dividends and capital gains distributions.
The Fund may compare its performance with performance rankings compiled by
independent organizations and publications that monitor the performance of
mutual funds (such as Lipper Analytical Services, Inc., Morningstar, Inc., or
Barron's). Performance information may be quoted numerically or may be presented
in a table, graph or other illustration. In addition, Fund performance may be
compared to well-known indices of market performance including the Standard &
Poor's ("S&P") 500 Index, S&P Mid-Cap Index and the Russell 2000.
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in the State of Maryland on May 13, 1996, and began
operations on 1996. The authorized capital stock of the Fund consists
of one billion shares of stock having a par value of one tenth of one cent
($.001) per share. The Fund's Board of Directors is authorized to divide the
unissued shares into separate series of stock, each series representing a
separate, additional investment portfolio. The Board currently has authorized
the division of the unissued shares into one series. Shares of any series or
class will have identical voting rights, except where, by law, certain issues
must be approved by a majority of the shares of the affected series or class.
-13-
C/M 12014.0001 366002.1
<PAGE>
Each share of any series or class of shares when issued will have equal
dividend, distribution, liquidation and voting rights for which it will be
issued and each fractional share will have those rights in proportion to the
percentage that the fractional share represents of a whole share. Shares will be
voted in the aggregate. All shares, when issued in accordance with the terms of
the offering, will be fully paid and non-assessable. Shares are redeemable at
net asset value, at the option of the investor. On June xx, 1996, CastleRock
purchased 10,000 shares of the Fund at an initial purchase price of $10.00 per
share.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so, and,
in that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors. Unless specifically requested by an
investor who is an investor of record, the Fund does not issue certificates
evidencing Fund shares.
Annual meetings of shareholders will not be held except as required by the
Investment Company Act of 1940 and other applicable law . An annual meeting will
be held to vote on the removal of a Director or Directors of the Fund if
requested in writing by the holders of shares entitled to cast not less than 25%
of all the votes entitled to be cast at such meeting. Special meetings may be
called for purposes such as electing and removing Directors, changing
fundamental investment policies or approving an investment management contract.
If a meeting is held and you cannot attend, you can vote by proxy. Before the
meeting, the Fund will send you proxy materials that explain the issues to be
decided and include a voting card for you to mail back.
SHAREHOLDER INFORMATION
General information about the Fund may be requested in writing to the
shareholder servicing department of the Fund, 237 Park Avenue, Suite 801, New
York, New York 10017 or by calling the Fund at (212) 808-2424 or (800) 435-5076.
CUSTODIAN, TRANSFER AND DIVIDEND AGENT
Star Bank, N.A. of Cincinnati, Ohio, serves as custodian for the Fund's cash and
securities. The Custodian does not assist in, and is not responsible for,
investment decisions involving assets of the Fund. American Data Services, Inc.,
Huntington, New York, is the Fund's TRANSFER AGENT, and DIVIDEND AND DISBURSING
AGENT.
COUNSEL AND INDEPENDENT AUDITORS
Legal matters in connection with the issuance of shares of common stock of the
Fund are passed upon by Battle Fowler LLP, 75 East 55th Street, New York, New
York 10022. Ernst & Young LLP, independent certified public accountants, has
been selected as auditors for the Fund.
-14-
C/M 12014.0001 366002.1
<PAGE>
DARUMA MID-CAP VALUE FUND
Statement of Additional Information
This Statement of Additional Information sets forth information which
may be of interest to investors but which is not necessarily included in the
Fund's Prospectus, dated May [ ], 1996 (the "Prospectus"). This Statement of
Additional Information is not a prospectus and should be read in conjunction
with the Prospectus, a copy of which may be obtained without charge by writing
to the Fund at 237 Park Avenue, Suite 801, New York, New York 10017, or by
calling Shareholder Services at (800) 435-5076.
Investment Adviser
CastleRock Capital Management, Inc.
Custodian Transfer Agent
Star Bank, N.A. American Data Services, Inc.
May , 1996
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS.......... 2
RISK FACTORS AND SPECIAL CONSIDERATIONS.................. 4
MANAGEMENT OF THE FUND................................... 7
INVESTMENT ADVISER....................................... 9
PORTFOLIO TRANSACTIONS.................................... 11
PRICING OF SHARES......................................... 11
REDEMPTIONS IN KIND....................................... 12
TAXATION.................................................. 12
DESCRIPTION OF THE FUND................................... 14
PERFORMANCE DATA.......................................... 15
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT...... 19
COUNSEL AND INDEPENDENT AUDITORS.......................... 19
C/M: 12014.0001 366007.1
<PAGE>
THE FUND
Daruma Mid-Cap Value Fund (the "Fund"), is a no-load diversified,
open-end, investment company, and a series of The Daruma Funds, Inc. which was
incorporated under Maryland law on xxxxxxxxx, 1996. This Fund is designed for
long-term investors who understand and are willing to accept the risk of loss
involved in seeking long-term capital appreciation. The Fund should not be used
as a trading vehicle. CastleRock Capital Management Inc. ("CastleRock"), manages
the investments of the Fund from day-to-day in accordance with the Fund's
investment objective and policies.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
A detailed description of the types and quality of the securities in
which the Fund may invest is given in the Prospectus and is incorporated herein
by reference. The investment objective is fundamental and may be changed only
with the approval of a "majority of the outstanding voting securities" (as
defined in the Investment Company Act of 1940) of the Fund.
There can be no assurance that the Fund's investment objective will be
achieved.
The Fund's investment objective is to seek long-term capital
appreciation by investing primarily in the common stocks of medium
capitalization U.S. companies. Current income is incidental to the Fund's
investment objective. The Fund is designed for long-term investors who
understand and are willing to accept the risk of loss involved in investing in a
mutual fund seeking long-term capital appreciation. Investors should consider
their investment goals, their time horizon for achieving them, and their
tolerance for risks before investing in the Fund.
CastleRock believes that the Fund is suitable for investment only by
persons who can invest without concern for current income and who are in a
financial position to assume above-average investment risks in search for
long-term capital appreciation.
CastleRock believes that original research drives performance.
CastleRock invests for its clients in companies that are about to undergo
significant positive changes in earnings growth, and whose valuations do not yet
reflect those changes. CastleRock attempts to identify those mid-cap companies
who meet these investment criteria by conducting its own thorough and original
research.
The Fund will concentrate its portfolio in companies whose market cap
ranges from $750 million to $5 billion, across a wide array of industry sectors.
CastleRock's overall stock selection for the Fund is not based on the
capitalization or size of the company but rather on an assessment of the
company's fundamental prospects. The Fund will normally consist of a portfolio
normally made up of approximately 35 securities representing CastleRock's best
ideas, diversified among a broad range of industries which are considered to be
companies with the most compelling risk/reward profiles. As such, the Fund is
not an appropriate investment for individuals who are not long-term investors
and who, as their primary objective, require safety of principal or stable
income from their investments.
-1-
C/M: 12014.0001 366007.1
<PAGE>
The Fund may not, as a matter of fundamental policy:
(1) Issue any senior securities except insofar as the Fund may be
deemed to have issued a senior security in connection with any
permitted borrowing.
(2) Purchase securities on margin or write call options on its
portfolio securities; or purchase securities while borrowings
exceed 15% of its total assets.
(3) Sell securities short except to sell securities "short against
the box";
(4) Borrow money, except from banks for temporary and/or
extraordinary purposes in an amount not to exceed one-third of
the value of the Fund's total assets less its liabilities
(total net assets).
(5) Underwrite the securities of other issuers, except insofar as
the Fund may be deemed an underwriter under the Securities Act
of 1933 in disposing of a portfolio security.
(6) Invest more than an aggregate of 15% of its total assets in
repurchase agreements maturing in more than seven days,
variable rate demand instruments exercisable in more than
seven days or securities that are not readily marketable.
(7) Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or oil and gas
interests, but this shall not prevent the Fund from investing
in Government obligations secured by real estate or an
interest in real estate.
(8) Make loans to others, except through the purchase of portfolio
investments, including repurchase agreements, as described
under "Risk Factors and Special Considerations".
(9) Invest more than 25% of its assets in the securities of
"issuers" in any single industry and provided also that there
shall be no limitation on the Fund to purchase obligations
issued or guaranteed by the United States government, its
agencies or instrumentalities. When the assets and revenues of
an agency, authority, instrumentality or other political
subdivision are separate from those of the government creating
the issuing entity and a security is backed only by the assets
and revenues of the entity, the entity would be deemed to be
the sole issuer of the security. Similarly, in the case of an
industrial revenue bond, if that bond is backed only by the
assets and revenues of the non-governmental issuer, then such
non-governmental issuer would be deemed to be the sole issuer.
If, however, in either case, the creating government
guarantees a security, such a guarantee would be considered a
separate security and would be treated as an issue of such
government.
(10) Invest in securities of other investment companies, except (i)
the Fund may purchase unit investment trust securities where
such unit investment trusts meet the investment objective of
the Fund and then only up to 5% of the Fund's total
-2-
C/M: 12014.0001 366007.1
<PAGE>
assets, except as they may be acquired as part of a merger,
consolidation or acquisition of assets and (ii) as permitted
by Section 12(d) of the Act.
(11) Invest in companies for the purpose of exercising control of
management.
(12) Own more than 10% of the outstanding voting securities of any
one issuer;
(13) With respect to 75% of its assets, invest more than 5% of its
assets in the securities of any one issuer, excluding
obligations of the U.S. Government.
(14) Mortgage, pledge or hypothecate any assets except that the
Fund may pledge not more than one-third of its total assets to
secure borrowings. However, although not a fundamental policy
of the Fund, as a matter of operating policy in order to
comply with certain state statutes, the Fund will not pledge
its assets in excess of an amount equal to 15% of total
assets.
Percentage Restrictions
Any investment restrictions herein which involve a maximum percentage
of securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
or disposition of securities or assets of, or borrowings by, the Fund.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Fund's Rights as Stockholder
As noted above, the Fund may not invest in a company for the purpose of
exercising control or management. However, the Fund may exercise its rights as a
stockholder and communicate its views on important matters of policy to a
company's management, the board of directors and/or stockholders if CastleRock
or the Board of Directors determine that such matters could have a significant
effect on the value of the Fund's investment in the company. The activities that
the Fund may engage in, either individually or in conjunction with others, may
include, among others, supporting or opposing proposed changes in a company's
corporate structure or business activities; seeking changes in a company's board
of directors or management; seeking changes in a company's direction or
policies; seeking the sale or reorganization of a company or a portion of its
assets; or supporting or opposing third party takeover attempts. This area of
corporate activity is increasingly prone to litigation, and therefore it is
possible but not likely that the Fund could be involved in lawsuits related to
such activities. CastleRock will monitor such activities with a view to
mitigating, to the extent possible, the risk of litigation against the Fund and
the risk of actual liability if the Fund is involved in litigation. However, no
guarantee can be made that litigation against the Fund will not be undertaken or
liabilities incurred.
The Fund may, at its expense or in conjunction with others, pursue
litigation or otherwise exercise its rights as a security holder to seek to
protect the interests of security holders if CastleRock and the Fund's Board of
Directors determine this to be in the best interest of the Fund's shareholders.
-3-
C/M: 12014.0001 366007.1
<PAGE>
Foreign Securities
The Fund may invest up to 15% of its assets in certain foreign debt and
equity securities or ADRs. Investment in foreign equity securities, obligations
of foreign issuers and in direct obligations of foreign nations involves
somewhat different investment risks from those of United States domestic
issuers. There may be limited publicly available information with respect to
foreign issuers and foreign issuers are not generally subject to uniform
accounting, auditing and financial standards and requirements comparable to
those applicable to domestic companies. There may also be less government
supervision and regulation of foreign securities exchanges, brokers and listed
companies than in the United States. Foreign securities markets have
substantially less volume than domestic securities exchanges and securities of
some foreign companies are less liquid and more volatile than securities of
comparable domestic companies. Brokerage commissions and other transaction costs
on foreign securities exchanges are generally higher than in the United States.
Dividends and interest paid by foreign issuers may be subject to withholding and
other foreign taxes, which may decrease the net return on foreign investments as
compared to dividends and interest paid to the Fund by domestic companies.
Additional risks include future political and economic developments, the
possibility that a foreign jurisdiction might impose or change withholding taxes
on income payable with respect to foreign securities, the possible seizure,
nationalization or expropriation of foreign issuer or foreign deposits and the
possible adoption of foreign governmental restrictions such as exchange
controls.
American Depository Receipts (ADRs) are certificates held in trust by a
bank or similar financial institution evidencing ownership of shares of a
foreign-based issuer. Designed for use in U.S. securities markets, ADRs are
alternatives to the purchase of the underlying foreign securities in their
national markets and currencies.
ADR facilities may be established as either unsponsored or sponsored.
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the cost of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass through voting
rights to ADR holders in respect of the deposited securities. Sponsored ADR
facilities are created in generally the same manner as unsponsored facilities,
except that the issuer of the deposited securities enters into a deposit
agreement with the depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as deposit and withdrawal
fees). Under the terms of most sponsored arrangements, depositories agree to
distribute notices of shareholder meetings and voting instructions and to
provide shareholder communications and other information to the ADR holders at
the request of the issuer of the deposited securities.
-4-
C/M: 12014.0001 366007.1
<PAGE>
U.S. Government Obligations
U.S. Government obligations are obligations which are backed by the
full faith and credit of the United States, by the credit of the issuing or
guaranteeing agency or by the agency's right to borrow from the U.S. Treasury.
They include (i) U.S. Treasury Obligations, which differ only in their interest
rates, maturities and times of issuance as follows: U.S. Treasury bills
(maturity of one year or less), U.S. Treasury notes (maturity of one year or ten
years), U.S. Treasury bonds (generally maturities of more than ten years); and
(ii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are supported by the full faith and credit of the United
States (such as securities issued by the Government National Mortgage
Association, the Federal Housing Administration, the Department of Housing and
Urban Development, the Export- Import Bank, the General Services Administration
and the Maritime Administration and certain securities issued by the Farmers'
Home Administration and the Small Business Administration. The maturities of
U.S. Government obligations usually range from three months to thirty years.
Repurchase Agreements
When the Fund purchases securities, it may enter into a repurchase
agreement with the seller wherein the seller agrees, at the time of sale, to
repurchase the security at a mutually agreed upon time and price. The Fund may
enter into repurchase agreements with member banks of the Federal Reserve System
and with broker-dealers who are recognized as primary dealers in the United
States government securities by the Federal Reserve Bank of New York. Although
the securities subject to the repurchase agreement might bear maturities
exceeding one year, settlement for the repurchase would never be more that 397
days after the Fund's acquisition of the securities and normally would be within
a shorter period of time. The resale price will be in excess of the purchase
price, reflecting an agreed upon market rate effective for the period of time
the Fund's money will be invested in the security, and will not be related to
the coupon rate of the purchased security. At the time the Fund enters into a
repurchase agreement the value of the underlying security, including accrued
interest, will be equal to or exceed the value of the repurchase agreement and,
in the case of a repurchase agreement exceeding one day, the seller will agree
that the value of the underlying security, including accrued interest, will at
all times be equal to or exceed the value of the repurchase agreement. The Fund
may engage in a repurchase agreement with respect to any security in which it is
authorized to invest, even though the underlying security may mature in more
than one year. The collateral securing the seller's obligation must be of a
credit quality at least equal to the Fund's investment criteria for securities
in which it invests and will be held by the Custodian or in the Federal Reserve
Book Entry System.
For purposes of the Investment Company Act of 1940, a repurchase
agreement is deemed to be a loan from the Fund to the seller subject to the
repurchase agreement and is therefore subject to the Fund's investment
restriction applicable to loans. It is not clear whether a court would consider
the securities purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the securities before repurchase of the security under
a repurchase agreement, the Fund may encounter delay and incur costs before
being able to sell the security. Delays may involve loss of interest or decline
in price of the security. If the court characterized the transactions as a loan
and the Fund has not perfected a security interest in the security, the Fund may
be required to
-5-
C/M: 12014.0001 366007.1
<PAGE>
return the security to the seller's estate and be treated as unsecured creditor
of the seller. As an unsecured creditor, the Fund would be at the risk of losing
some or all of the principal income involved in the transaction. As with any
unsecured debt obligation purchased for the Fund, CastleRock seeks to minimize
the risk of loss thorough repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller. Apart from the risk of
bankruptcy or insolvency proceedings, there is also the risk that the seller may
fail to repurchase the security, in which case the Fund may incur a loss if the
proceeds of the sale to a third party are less than the repurchase price.
However, if the market value of the securities subject to the repurchase
agreement becomes less than the repurchase price (including interest), the Fund
involved will direct the seller of the security to deliver additional securities
so that the market value of all securities subject to the repurchase agreement
will equal or exceed the repurchase price. It is possible that a Fund will be
unsuccessful in seeking to impose on the seller a contractual obligation to
deliver additional securities.
Selling Short Against the Box
The Fund may make short sales of securities "against the box". A short sale
"against the box" is a sale of a security that the Fund either owns an equal
amount of or has the immediate and unconditional right to acquire at no
additional cost. The Fund will make short sales "against the box" as a form of
hedging to offset potential declines in long positions in the same or similar
securities.
MANAGEMENT OF THE FUND
The directors and officers of the Fund and their principal occupations
during the past five years are set forth below. Their titles may have varied
during this period. Unless otherwise indicated, the address of each director and
officer is 237 Park Avenue, Suite 801, New York, NY 10017.
The following table sets forth certain information as to each director
and officer of the Fund:
Compensation Table
(Estimated for the fiscal year ended June 30, 1997)
<TABLE>
<CAPTION>
Retirement Benefits
Name of Person Aggregate Compensation Accrued as Part of
Position From Fund Fund Expenses
<S> <C> <C>
Mariko Gordon* -0- -0-
President and Director
of the Fund; & President and CEO of
CastleRock
</TABLE>
-6-
C/M: 12014.0001 366007.1
<PAGE>
<TABLE>
<S> <C> <C>
Noreen McKee* -0- -0-
Vice President, Treasurer
and Director of the Fund; &
Vice President & Treasurer
of CastleRock.
Mary B. O'Byrne* -0- -0-
Secretary of the Fund; &
Director of Operations.
</TABLE>
Mariko O. Gordon, 34, President and Director of the Fund, and President and
Chief Investment Officer of CastleRock has over ten years experience in the
investment management business. Prior to co-founding CastleRock in 1995, Ms.
Gordon was an equity owner in and Director of Research at Valenzuela Capital
Management, Inc. ("VCM") a firm specializing in small to mid- cap stocks with
over $1 billion under management. Ms. Gordon's sole responsibility at VCM was
portfolio management. Prior to joining VCM, from 1987 to 1990 she was the
Director of Systematic Research at Quest Advisory Corp., an investment firm
specializing in small-cap value stocks and adviser to several mutual funds,
including Pennsylvania Mutual Fund. Ms. Gordon started her investment career as
a research analyst at Manning & Napier Advisors, Inc., a firm managing $2
billion for ERISA and Taft-Hartley clients. Ms. Gordon is a Chartered Financial
Analyst and a graduate of Princeton University.
Noreen D. McKee, 46, Vice-President, Treasurer and Director of the Fund and of
CastleRock is a certified public accountant and has over 10 years experience in
the investment management business. For one year prior to joining CastleRock in
1995, she was the Chief Operating Officer at Valenzuela Capital Management, Inc.
At VCM she was responsible for the financial, administrative and compliance
functions of the firm. From 1985 to 1993, she worked as the Controller of Quest
Advisory Corp. ("Quest"). At Quest, her primary responsibilities included the
accounting, tax and managerial functions for six mutual funds and two limited
partnerships in compliance with the Investment Advisors Act and the Investment
Company Act of 1940. Ms. McKee has an M.S. in Accounting from Pace University
and a B.S. in Behavioral Science from York College of Pennsylvania.
Mary B. O'Byrne, 35, Secretary of the Fund and Director of Operations. Prior to
joining the Fund, from 1985 to 1996, Ms. O'Byrne worked at The Royce Funds ("the
funds"), a family of ten mutual funds with over $2 billion in assets. She was
primarily responsible for all Blue Sky registrations and assisted with SEC
filings. In addition, she handled the funds' day-to-day financial management
activities interfacing with the funds' custodian and transfer agent. Ms. O'Byrne
has extensive knowledge and experience in all aspects of mutual fund
administration. In 1980, she received a diploma of business administration from
the College of Further Studies, Cavan, Ireland.
Each Director who is not an interested person of the Fund receives a
base annual fee of $0.
*An interested person of the Fund and/or CastleRock within the meaning of
Section 2(a)(19) of the Investment Company Act of 1940 (the "1940 Act").
-7-
C/M: 12014.0001 366007.1
<PAGE>
INVESTMENT ADVISER
CastleRock Capital Management Inc., a registered investment adviser, is
a New York corporation, with its principal offices located at 237 Park Avenue,
Suite 801, New York, NY 10017. CastleRock has been employed by the Board of
Directors to serve as the investment adviser of the Fund pursuant to an
Investment Advisory Agreement entered into by the Fund. Currently, CastleRock's
only investment company client is the Fund. CastleRock supervises all aspects of
the Fund's operations and provides investment advice and portfolio management
services to the Fund. Pursuant to the Advisory Agreement and subject to the
supervision of the Fund's Board of Directors, CastleRock makes the Fund's
day-to-day investment decisions, arranges for the execution of portfolio
transactions and generally manages the Fund's investments.
Mariko O. Gordon, President and Chief Investment Officer of CastleRock,
is primarily responsible for supervising the Fund's investment management
activities. Paul P. Tanico, Vice President of CastleRock, participates in the
investment management activities. CastleRock had assets under management of
approximately $25,000,000 at April 30, 1996.
CastleRock provides persons satisfactory to the Board of Directors of
the Fund to serve as officers of the Fund. Such officers, as well as certain
other employees and directors of the Fund, may be directors, officers or
employees of CastleRock or it affiliates.
CastleRock also may provide the Fund with supervisory personnel who
will be responsible for supervising the performance of administrative services,
accounting and related services, net asset value calculation, reports to and
filings with regulatory authorities, and services relating to such functions.
The personnel rendering such supervisory services may be employees of
CastleRock, of its affiliates or of other organizations. The Advisory Agreement
was approved on XXXXXXXXXXXXXXXXXX, 1996, by the Board of Directors, including a
majority of the directors who are not interested persons (as defined in the
Investment Company Act of 1940) of the Fund or CastleRock.
The Advisory Agreement has a term which extends to XXXXXXXXXXXXXXX,
1998 and may be continued thereafter for successive twelve-month periods
beginning each XXXXXXXXXXXXXX, provided that such continuance is specifically
approved annually by a majority vote of the Fund's outstanding voting securities
or by the Board of Directors, and in either case by a majority of the directors
who are not parties to the Advisory Agreement or interested persons of any such
party, by votes cast in person at a meeting called for the purpose of voting on
such matter.
The Advisory Agreement is terminable without penalty by the Fund on
sixty days' written notice when authorized either by a majority vote of the
outstanding voting shares of the Fund or by a vote of a majority of the Fund's
Board of Directors, or by CastleRock on sixty days' written notice, and will
automatically terminate in the event of its assignment. The Advisory Agreement
provides that in the absence of willful misfeasance, bad faith or gross
negligence on the part of CastleRock, or of reckless disregard of its
obligations thereunder, CastleRock shall not be liable for any action or failure
to act in accordance with its duties thereunder.
-8-
C/M: 12014.0001 366007.1
<PAGE>
Adviser's Fees
Pursuant to the terms of the Advisory Agreement, the Fund will pay a
monthly advisory fee equal to 1% of the first $100 million of the Fund's average
daily net assets; 0.75% of the next $100 million of such net assets; and 0.50%
of the Fund's average daily net assets over $200 million. This fee is higher
than the fee paid by most other mutual funds; however, the Board of Directors
believes that this fee is reasonable in light of the advisory services performed
by CastleRock for the Fund. Any portion of the advisory fees received by
CastleRock may be used by CastleRock to provide investor and administrative
services and for distribution of Fund Shares. CastleRock may voluntarily waive a
portion or all of its fee or assume certain expenses of the Fund. This would
have the effect of lowering the overall expense ratio of the Fund and of
increasing yield to investors. See "Expense Limitations" below.
Expense Limitations
CastleRock has agreed to reimburse the Fund for its expenses (inclusive
of interest, taxes, brokerage, and extraordinary expenses) which in any year
exceed the limits on investment company expenses prescribed by any state in
which the Fund's shares are qualified for sale or 1.5%. For the purpose of this
obligation to reimburse expenses, the Fund's annual expenses are estimated and
accrued daily, and any appropriate estimated payments are made to it on a
monthly basis. From time to time, CastleRock may voluntarily assume certain
expenses of the Fund. This would have the effect of lowering the overall expense
ratio and of increasing yield to investors. Subject to the obligations of
CastleRock to reimburse the Fund for its excess expenses as described above, the
Fund has, under the Advisory Agreement, confirmed its obligation for payment of
all other expenses, including without limitation: fees payable to CastleRock,
Custodian and Transfer and Dividend Agent; brokerage and commission expenses;
federal, state or local taxes, including issuance and transfer taxes incurred by
or levied on it; commitment fees, certain insurance premiums and membership fees
and dues in investment company organizations; interest charges on borrowings;
telecommunications expenses; recurring and non-recurring legal and accounting
expenses; costs of organization and maintaining the Fund's existence as a
corporation; compensation, including directors's fees, of any directors,
officers or employees who are not also officers of CastleRock or its affiliates
and costs of other personnel providing administrative and clerical services;
costs of stockholders' services and costs of stockholders reports, proxy
solicitations and corporate meetings, fees and expenses or registering its
shares under the appropriate Federal securities laws and of qualifying its
shares under applicable state securities laws, including expenses attendant upon
the initial registration and qualification of these shares and attendant upon
renewals of, or amendments to, those registrations and qualifications; and
expenses of preparing, printing and delivering the Prospectus and financial
statements to existing shareholders and of printing shareholder application
forms for shareholder accounts.
The Fund may from time-to-time hire its own employees or contract to
have management services performed by third parties, and the management of the
Fund intends to do so whenever it appears advantageous to the Fund. The Fund's
expenses for employees and for such services are among the expenses subject to
the expense limitation described above.
-9-
C/M: 12014.0001 366007.1
<PAGE>
PORTFOLIO TRANSACTIONS
CastleRock is responsible for selecting the brokers who effect the
purchases and sales of the Fund's portfolio securities. No broker is selected to
effect a securities transaction for the Fund unless such broker is believed by
CastleRock to be capable of obtaining the best price and execution for the
security involved in the transaction. In addition to considering a broker's
execution capability, CastleRock generally considers the brokerage and research
services which the broker has provided to it, including any research relating to
the security involved in the transaction and/or to other securities. Such
services may include general economic research, market and statistical
information, industry and technical research, strategy and company research, and
may be written or oral. CastleRock determines the overall reasonableness of
brokerage commissions paid, after considering the amount another broker might
have charged for effecting the transaction and the value placed by CastleRock
upon the brokerage and/or research services provided by such broker, viewed in
terms of either that particular transaction or CastleRock's overall
responsibilities with respect to its accounts.
CastleRock is authorized, under Section 28(e) of the Securities
Exchange Act of 1934 and under its Investment Advisory Agreement with the Fund,
to pay a brokerage commission in excess of that which another broker might have
charged for effecting the same transaction, in recognition of the value of
brokerage and research services provided by the broker.
Brokerage and research services furnished by brokers through whom the
Fund effects securities transactions may be used by CastleRock in servicing all
of its accounts and not all of such services may be used by CastleRock in
connection with the Fund.
Even though investment decisions for the Fund are made independently
from those for other accounts managed by CastleRock, the same security is
frequently purchased, held or sold by the Fund and the other accounts because
such security may be suitable for all of them. When the Fund and such other
accounts are simultaneously engaged in the purchase or sale of the same
security, CastleRock seeks to average the transactions as to price and allocate
them as to amount in a manner believed to be equitable to each. In some cases,
this procedure may adversely affect the price paid or received by the Fund or
the size of the position obtainable for the Fund.
PRICING OF SHARES
The purchase and redemption price of the Fund's shares is based on its
current net asset value per share. See "Net Asset Value Per Share" in the Fund's
prospectus.
As set forth under "Net Asset Value Per Share", the Fund's custodian
determines the net asset value per share of the Fund at the close of regular
trading on the New York Stock Exchange (the "Exchange") on each day that the
Exchange is open. The Exchange is open on all weekdays which are not holidays.
Thus, it is closed on Saturdays and Sundays and on New Year's Day, Washington's
Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
and Christmas.
-10-
C/M: 12014.0001 366007.1
<PAGE>
REDEMPTIONS IN KIND
It is possible that conditions may arise in the future which would, in
the judgement of the Fund's Board of Directors or management, make it
undesirable for the Fund to pay for all redemptions in cash. In such cases,
payment may be made in portfolio securities or other property of the Fund.
However, the Fund has obligated itself under the Investment Company Act of 1940
to redeem for cash all shares presented for redemption by any one shareholder up
to $250,000 (or 1% of the Fund's net assets if that is less) in any 90-day
period. Securities delivered in payment of redemptions would be valued at the
same value assigned to them in computing the net asset value per share for
purposes of such redemption. Shareholders receiving such securities would incur
brokerage costs when securities are sold.
TAXATION
The Fund will elect to qualify under the Internal Revenue Code of 1986,
as amended ("the Code"), as a regulated investment company. As a regulated
investment company, the Fund will not be subject to federal income taxes on its
investment company taxable income and the long-term capital gains that it
distributes to its shareholders, provided that at least 90% of its investment
company taxable income for the taxable year is distributed, and numerous other
requirements concerning regulated investment companies are satisfied. The Fund's
policy is to distribute as dividends each year 100% (and in no event less than
90%) of its investment company taxable income. The Fund will be treated as a
separate corporation and generally will have to comply with the qualifications
and other requirements applicable to regulated investment companies. If for any
taxable year the Fund does not qualify as a regulated investment company, all of
its taxable income would be taxable at corporate rates and no distributions
would qualify as tax exempt.
The Fund has adopted a policy of declaring dividends annually in an
amount based on its net investment income. The amount of each dividend may
differ from actual net investment income calculated in accordance with federal
income tax purposes. Dividends paid from taxable income, if any, and
distributions of any realized short-term capital gains are taxable to
shareholders as ordinary income, whether received in cash or reinvested in
additional shares of the Fund. Distributions of new realized capital gains after
utilization of capital loss carryforwards, if any, are made annually to meet
applicable distribution and excise tax requirements.
The Fund may be subject to state or local tax in jurisdictions in which
the Fund is organized or may be deemed to be doing business. However, Maryland
taxes regulated investment companies in a manner that is generally similar to
the federal income tax rules described herein.
Distributions may be subject to state and local income taxes. In
addition, the treatment of the Fund and its shareholders in those states that
have income tax laws might differ from their treatments under the federal income
tax laws.
The Code imposes a nondeductible 4% excise tax on the Fund unless it
meets certain requirements with respect to distributions of ordinary income and
capital gain net income. The formula requires payment to shareholders during a
calendar year of distributions representing at
-11-
C/M: 12014.0001 366007.1
<PAGE>
least 98% of the Fund's ordinary income for the calendar year, plus at least 98%
of the excess of its capital gains over its capital losses realized during the
one-year period ending October 31 during such year, which shall be reduced but
not below net capital gain) by the amount of the Fund's net ordinary loss for
the year. It is anticipated that this provision will not have any material
impact on the Fund.
Dividends and interest paid by foreign issuers may be subject to
withholding and other foreign taxes, which may decrease the net return on
foreign investments as compared to dividends and interest paid by domestic
issuers. The Fund does not expect that it will qualify to elect to pass through
to its shareholders the rights to take a foreign tax credit for foreign taxes
withheld from dividends and interest payments.
For federal income tax purposes, distributions of net capital gains
(the excess of net long-term capital gains over net short-term capital loss), if
any, are taxable as net capital gains regardless of the length of time
shareholders have owned their shares. Although the Tax Reform Act of 1986
eliminated the preferential treatment previously available for net capital
gains, the preferential treatment for net capital gains was restored, to some
extent, by the Revenue Reconciliation Act of 1990, which, in limited
circumstances, places a 28% ceiling on the marginal rate applicable to net
capital gains realized by individuals. Distributions attributable to short-term
capital gains (whether from tax exempt or taxable obligations) are taxable as
ordinary income for federal income tax purposes. Generally, on the sale or
exchange of obligations held for more than one year, gain realized by the Fund
will be long-term capital gain.
Back-up Withholding/Withholding Tax
Under the Code, certain non-corporate shareholders may be subject to
31% withholding on reportable dividends, capital gains distributions and
redemption payments ("back-up withholding"). Generally, shareholders subject to
back-up withholding will be those for whom a taxpayer identification number and
certain required certifications are not on file with the Fund or who, to the
Fund's knowledge, have furnished an incorrect number. In addition, the Fund is
required to withhold from distributions to any shareholder who does not certify
to the Fund that such shareholder is not subject to back-up withholding due to
notification by the Internal Revenue Service that such shareholder has
under-reported interest or dividend income. When establishing any account, an
investor must certify under penalties of perjury that such investor's taxpayer
identification number is correct and that such investor is not subject to or is
exempt from back-up withholding.
Ordinary income distributions paid to shareholders who are non-resident
aliens or which are foreign entities will be subject to 30% United States
withholding tax unless a reduced rate of withholding or a withholding exemption
is provided under an applicable treaty. Non-U.S. shareholders are urged to
consult their own tax advisers concerning the United States tax consequences to
them of investing in the Fund.
Timing of Purchases and Distributions
At the time of an investor's purchase, the Fund's net asset value may
reflect undistributed income or capital gains or net unrealized appreciation of
securities held by the Fund. A subsequent distribution to the investor of such
amounts, although it may in effect constitute a
-12-
C/M: 12014.0001 366007.1
<PAGE>
return of her or its investment in an economic sense, would be taxable to the
shareholder as ordinary income or capital gain as described above. Investors
should carefully consider the tax consequences of purchasing Fund shares just
prior to a distribution, as they will receive a distribution that is taxable to
them.
Sale or Redemptions of Shares
Gain or loss recognized by a shareholder upon the sale, redemption or
other taxable disposition of shares in the Fund (provided that such shares are
held by the shareholder as a capital asset) will be treated as capital gain or
loss, measured by the difference between the adjusted basis of the shares and
the amount realized on the sale, redemption or other taxable disposition. Such
gain or loss will be long-term capital gain or loss if the shares disposed of
were held for more than one year. Wash sale losses will be disallowed. A wash
sale loss occurs when the shares disposed of are replaced (including by
receiving shares upon the reinvestment of distributions) within a period of 61
days, beginning 30 days before and ending 30 days after the sale of the shares.
In such a case, the basis of the shares acquired will be increased to reflect
the disallowed loss. A loss recognized upon the sale, redemption or other
taxable disposition of shares held for 6 months or less will be treated as a
long-term capital loss to the extent of any long-term capital gain distributions
received with respect to such shares.
The foregoing relates to Federal income taxation. Distributions, as
well as any gains from a sale, redemption or other taxable disposition of Fund
shares, also may be subject to state and local taxes. Under current law, so long
as the Fund qualifies for Federal income tax treatment described above, it is
believed that the Fund will not be liable for any income or franchise tax
imposed by Maryland.
Investors are urged to consult their own tax advisers regarding the
application to them of Federal, state and local tax laws.
DESCRIPTION OF THE FUND
The Fund was incorporated in the State of Maryland on May 13, 1996.
The authorized capital stock of the Fund consists of one billion shares of stock
having a par value of $.001 per share. The Fund's Board of Directors is
authorized to divide the unissued shares into separate classes and series of
stock, each series representing a separate, additional investment portfolio. The
Board currently has authorized the division of the unissued shares into one
series. Shares of any class or series will have identical voting rights, except
where, by law, certain matters must be approved by a majority of the shares of
the affected class or series. Each share of any class or series of shares when
issued has equal dividend, distribution, liquidation and voting rights within
the class or series for which it was issued, and each fractional share has those
rights in proportion to the percentage that the fractional share represents a
whole share. Shares will be voted in the aggregate. There are no conversion or
preemptive rights in connection with any shares of the Fund. All shares, when
issued in accordance with the terms of the offering, will be fully paid and
non-assessable. Shares are redeemable at net asset value, at the option of the
investor.
The shares of the Fund have non-cumulative voting rights, which means
that the holders of more than 50% of the shares outstanding voting for the
election of directors can
-13-
C/M: 12014.0001 366007.1
<PAGE>
elect 100% of the directors if the holders choose to do so, and, in that event,
the holders of the remaining shares will not be able to elect any person or
persons to the Board of Directors. Unless specifically requested by an investor
who is an investor of record, the Fund does not issue certificates evidencing
Fund shares.
As a general matter, the Fund will not hold annual or other meetings of
the Fund's shareholders. This is because the By-laws of the Fund provide for
annual meetings only (a) for the election of directors, (b) for approval of
revisions to the Fund's investment advisory agreement, and (c) upon the written
request of holders of shares entitled to cast not less than twenty-five percent
of all the votes entitled to be cast at such meeting. Annual and other meetings
may be required with respect to such additional matters relating to the Fund as
may be required by the Investment Company Act of 1940 (the "Act") including the
removal of Fund directors and communication among shareholders, any registration
of the Fund with the Securities and Exchange Commission or any state, or as the
Directors may consider necessary or desirable. Each Director serves until the
next meeting of shareholders called for the purpose of considering the election
or reelection of such Director or of a successor to such Director, and until the
election and qualification of his or her successor, elected at such meeting, or
until such Director sooner dies, resigns, retires or is removed by the vote of
the shareholders.
PERFORMANCE DATA
The Fund's performance may be compared in advertisements to the
performance of other mutual funds in general or to the performance of particular
types of mutual funds, especially those with similar investment objectives. Such
comparisons may be expressed as mutual fund rankings prepared by Lipper
Analytical Services, Inc. ("Lipper"), an independent service that monitors the
performance of registered investment companies. Money market funds and municipal
funds are not included in the Lipper survey. The Lipper performance analysis
ranks funds on the basis of total return, assuming reinvestment of
distributions, but does not take sales charges or redemption fees payable by
shareholders into consideration and is prepared without regard to tax
consequences.
The Lipper General Equity Funds Average can be used to show how the
Fund's performance compares to a broad-based set of equity funds. The Lipper
General Equity Funds Average is an average of the total returns of all equity
funds (excluding international funds and funds that specialize in particular
industries or types of investments) tracked by Lipper.
Ibbotson Associates (Ibbotson) provides historical returns of the
capital markets in the United States. The Fund's performance may be compared to
the long-term performance of the U.S. capital markets in order to demonstrate
general long-term risk versus reward investment scenarios. Performance
comparisons could also include the value of a hypothetical investment in common
stocks, long-term bonds or U.S. Treasury securities. Ibbotson calculates total
returns in the same manner as the Fund.
The capital markets tracked by Ibbotson are common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, U.S. Treasury bills and the U.S. rate of
inflation. These capital markets
-14-
C/M: 12014.0001 366007.1
<PAGE>
are based on the returns of several different indices. For common stocks, the
S&P 500 is used. For small capitalization stocks, return is based on the return
achieved by Dimensional Fund Advisors (DFA) Small Company Fund. This fund is a
market-value-weighted index of the ninth and tenth deciles of the New York Stock
Exchange (NYSE), plus stocks listed on the American Stock Exchange (AMEX) and
over-the-counter (OTC) with the same or less capitalization as the upper bound
of the NYSE ninth decile.
The S&P 500 Composite Stock Price Index is an unmanaged index of common
stocks frequently used as a general measure of stock market performance. The
Index's performance figures reflect changes of market prices and quarterly
reinvestment of all distributions.
The S&P Mid-Cap Index is an unmanaged index of 400 domestic companies
frequently used as a general measure of stock market performance. The Index's
performance figures reflect changes of market prices and quarterly reinvestment
of all distributions.
The Russell 2000, prepared by the Frank Russell Company, tracks the
return of the common stock of the 2,000 smallest out of the 3,000 largest
publicly traded U.S.-domiciled companies by market capitalization. The Russell
2000 tracks the return on these stocks based on price appreciation or
depreciation and includes dividends.
U.S. Treasury bonds are securities backed by the credit and taxing
power of the U.S. government, and, therefore, present virtually no risk of
default. Although such government securities fluctuate in price, they are highly
liquid and may be purchased and sold with relatively small transaction costs
(direct purchase of U.S. Treasury securities can be made with no transaction
costs). Returns on intermediate-term government bonds are based on a one-bond
portfolio constructed each year, containing a bond that is the shortest
non-callable bond available with a maturity of not less than five years. This
bond is held for the calendar year and returns are recorded. Returns on
long-term government bonds are based on a one- bond portfolio constructed each
year, containing a bond that meets several criteria, including having a term of
approximately 20 years. The bond is held for the calendar year and returns are
recorded. Returns on U.S. Treasury bills are based on a one-bill portfolio
constructed each month, containing the shortest term bill having not less than
one month to maturity. The total return on the bill is the month-end price
divided by the previous month-end price, minus one. Data up to 1976 is from the
U.S. Government Bond file at the University of Chicago's Center for Research in
Security Prices; the Wall Street Journal is the source thereafter.
Inflation rates are based on the Consumer Price Index.
From time to time, in reports and promotional literature, the Fund's
performance also may be compared to other mutual funds tracked by financial or
business publications and periodicals, such as Kiplinger's, Individual Investor,
Money, Forbes, Business Week, Barron's, The Financial Times, Fortune, Mutual
Fund Magazine and The Wall Street Journal. In addition, financial or business
publications and periodicals as they relate to fund management, investment
philosophy and investment techniques may be quoted.
The Fund's performance may also be compared to those of other
compilations or indices.
-15-
C/M: 12014.0001 366007.1
<PAGE>
Advertising for the Fund may contain examples of the effects of
periodic investment plans, including the principle of dollar cost averaging. In
such a program, an investor invests a fixed dollar amount in a fund at periodic
intervals, thereby purchasing fewer shares when prices are high and more shares
when prices are low. While such a strategy does not assure a profit or guard
against loss in a declining market, the investor's average cost per share can be
lower than if fixed numbers of shares are purchased at the same intervals. In
evaluating such a plan, investors should consider their ability to continue
purchasing shares during periods of low price levels.
The Fund may be available for purchase through retirement plans or
other programs offering deferral of or exemption from income taxes, which may
produce superior after-tax returns over time. For example, a $1,000 investment
earning a taxable return of 10% annually would have an after-tax value of $2,004
after ten years, assuming tax was deducted from the return each year at a 28%
rate. An equivalent tax-deferred investment would have an after-tax value of
$2,147 after ten years, assuming tax was deducted at a 28% rate from the
tax-deferred earnings at the end of the ten-year period.
Total Return Calculations
Total return quotes reflect all aspects of the Fund's return, including
the effect of reinvesting dividends and capital gains distributions, and any
change in the Fund's net asset value per share (NAV) over the period. Average
annual total returns are calculated by determining the growth or decline in
value of a hypothetical historical investment in the Fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual total return of 7.18%, which is the steady
annual rate of return that would equal 100% growth on a compounded basis in ten
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the Fund's performance is
not constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to the actual year-to-year
performance of the Fund.
In addition to average annual total returns, the Fund's unaveraged or
cumulative or total returns, reflecting the simple change in value of an
investment over a stated period, may be quoted. Average annual and cumulated
total returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into their
components of income and capital (including capital gains and changes in share
prices) in order to illustrate the relationship of these factors and their
contributions to total return. Total returns and other performance information
may be quoted numerically or in a table, graph or similar illustration.
Risk Measurements
Quantitative measures of "total risk", which quantify the total
variability of a portfolio's returns around, or below, its average return, may
be used in advertisements and in communications with current and prospective
shareholders. These measures include standard
-16-
C/M: 12014.0001 366007.1
<PAGE>
deviation of total return and the Morningstar risk statistic. Such
communications may also include market risk measures, such as beta , and
risk-adjusted measures of performance such as the Sharpe Ratio and Morningstar's
star rating system.
Standard Deviation. The risk associated with a fund or portfolio can be
viewed as the volatility of its returns, measured by the standard deviation of
those returns. For example, a fund's historical risk could be measured by
computing the standard deviation of its monthly total returns over some prior
period, such as three years. The larger the standard deviation of monthly
returns, the more volatile, i.e., spread out around the fund's average monthly
total return, the fund's monthly total returns have been over the prior period.
Standard deviation of total return can be calculated for funds of different
objectives, ranging from equity funds to fixed income funds, and can be measured
over different time frames. The standard deviation figures presented are
annualized statistics based on the trailing 36 monthly returns. Approximately
68% of the time, the annual total return of a fund will differ from its mean
annual total return by no more than plus or minus the standard deviation figure.
95% of the time, a fund's annual total return will be within a range of plus or
minus 2x the standard deviation from its mean annual total return.
Beta. Beta measures the sensitivity of a security's, or a portfolio's,
return to the market's returns. It measures the relationship between a fund's
excess return (over 3-month T-bills) and the excess return of the benchmark
index (S&P500 for domestic equity funds). The market's beta is by definition
equal to 1. Portfolios with betas greater than 1 are more volatile than the
market, and portfolios with betas less than 1 are less volatile than the market.
For example, if a portfolio had a beta of 2, a 10% market excess return would be
expected to result in a 20% portfolio excess return, and a 10% market loss would
be expected to result in a 20% portfolio loss (excluding the effects of any
firm-specific risk that has not been eliminated through diversification).
Morningstar Risk. The Morningstar proprietary risk statistic evaluates
a fund's downside volatility relative to that of other funds in its class based
on the underperformance of the fund relative to the riskless T-bill return. It
then compares this statistic to those of other funds in the same broad
investment class.
Sharpe Ratio. Also known as the Reward-to-Variability Ratio, this is
the ratio of a fund's average return in excess of the risk-free rate of return
("average excess return") to the standard deviation of the fund's excess
returns. It measures the returns earned in excess of those that could have been
earned on a riskless investment per unit of total risk assumed.
Morningstar Star Ratings. Morningstar, Inc. is a mutual fund rating
service that rates mutual funds on the basis of risk-adjusted performance.
Ratings may change monthly. Funds with at least three years of performance
history are assigned ratings from one star (lowest) to five stars (highest).
Morningstar ratings are calculated from the funds' three-, five- and ten-year
average annual returns (when available). Funds' returns are adjusted for fees
and sales loads. Ten percent of the funds in an investment category receive five
stars, 22.5% receive four stars, 35% receive three stars, 22.5% receive two
stars, and the bottom 10% receive one star.
-17-
C/M: 12014.0001 366007.1
<PAGE>
None of the quantitative risk measures taken alone can be used for a
complete analysis and, when taken individually, can be misleading at times.
However, when considered in some combination and with the total returns of a
fund, they can provide the investor with additional information regarding the
volatility of a fund's performance. Such risk measures will change over time and
are not necessarily predictive of future performance or risk.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Star Bank, N.A. (the "Custodian"), serves as custodian for the Fund's
cash and securities. Pursuant to a Custodian Agreement with the Fund, it is
responsible for maintaining the books and records of the Fund's portfolio
securities and cash. The Custodian does not assist in, and is not responsible
for, investment decisions involving assets of the Fund. American Data Services ,
Inc. (the "Transfer Agent") acts as the Fund's TRANSFER and DIVIDEND AND
DISBURSING AGENT.
COUNSEL AND INDEPENDENT AUDITORS
Legal matters in connection with the issuance of shares of common stock
of the Fund are passed upon by Battle Fowler LLP. Ernst & Young LLP, independent
certified public accountants, has been selected as auditors of the Fund.
-18-
C/M: 12014.0001 366007.1
<PAGE>
PART C - OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
Included in Prospectus:
(1) Fund Expenses
Included in Statement of Additional Information:
*(1) Report of Ernst & Young LLP, independent
accountants, dated ________________, 1996; and
*(2) Statement of Assets and Liabilities dated
___________, 1996.
(B) EXHIBITS
(1) Articles of Incorporation of the Registrant.
(2) Form of By-Laws of the Registrant.
(3) Not Applicable.
(4) Not Applicable.
(5) Form of Investment Advisory Agreement.
(6) Not Applicable.
(7) Not Applicable.
*(8) Custody Agreement.
(9) Transfer Agency and Service Agreement
(9.1) Fund Accounting Service Agreement
*(10) Consent of Messrs. Battle Fowler LLP as to the
legality of the securities being registered,
including their consent to the filing thereof
and as to the use of their name under the
heading "Counsel and Independent Auditors" in
the Prospectus and the Statement of Additional
Information.
*(11) Consent of Ernst & Young, LLP, Independent
Accountants.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Not Applicable.
(16) Not Applicable.
(17) Not Applicable.
(18) Not Applicable.
*(19) Power of Attorney.
- ------------------
* To be filed by Amendment.
-i-
C/M: 12014.0001 352686.1
<PAGE>
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
Item 26. NUMBER OF HOLDERS OF SECURITIES.
Number of Record Holders
Title of Class as of [ ], 1996
--------------- ------------------------
Common Stock
Item 27. INDEMNIFICATION.
(a) In accordance with Section 2-418 of the General Corporation
Law of the State of Maryland, Article NINTH of the Registrant's Articles of
Incorporation provides as follows:
"NINTH: (1) The Corporation shall indemnify (i) its
currently acting and former directors and officers, whether
serving the Corporation or at its request any other entity, to
the fullest extent required or permitted by the General Laws of
the State of Maryland now or hereafter in force, including the
advance of expenses under the procedures and to the fullest
extent permitted by law, and (ii) other employees and agents to
such extent as shall be authorized by the Board of Directors or
the By-Laws and as permitted by law. Nothing contained herein
shall be construed to protect any director or officer of the
Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
The foregoing rights of indemnification shall not be exclusive of
any other rights to which those seeking indemnification may be
entitled. The Board of Directors may take such action as is
necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time
such by-laws, resolutions or contracts implementing such
provisions or such indemnification arrangements as may be
permitted by law. No amendment of the charter of the Corporation
or repeal of any of its provisions shall limit or eliminate the
right of indemnification provided hereunder with respect to acts
or omissions occurring prior to such amendment or repeal.
(2) To the fullest extent permitted by Maryland
statutory or decisional law, as amended or interpreted, and the
Investment Company Act of 1940, no director or officer of the
Corporation shall be personally liable to the Corporation or its
stockholders for money damages; provided, however, that nothing
herein shall be construed to protect any director or officer of
the Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. No
amendment of the charter of the Corporation or repeal of any of
its provisions shall limit or eliminate the limitation of
liability provided to directors and officers hereunder with
respect to any act or omission occurring prior to such amendment
or repeal."
[(b) In Section [ ] of the Distribution Agreement relating to the
securities being offered hereby, the Registrant agrees to
indemnify and hold harmless any person who controls Furman Selz
LLC, within the meaning of the Securities Act of 1933, against
certain types of civil liabilities arising in connection with the
Registration Statement or Prospectus.]
-ii-
C/M: 12014.0001 352686.1
<PAGE>
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The description of the Registrant's adviser, CastleRock Capital
Management, Inc., under the caption "Management of the Fund" in the Prospectus
and "Management of the Fund" in the Statement of Additional Information
constituting parts A and B, respectively, of the Registration Statement are
incorporated herein by reference.
Item 29. PRINCIPAL UNDERWRITERS.
NONE.
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained in the physical possession of the Registrant at 237
Park Avenue, Suite 801, New York, New York 10017; the Registrant's Investment
Adviser at 237 Park Avenue, Suite 801, New York, New York 10017; the
Registrant's transfer and dividend disbursing agent, American Data Services,
Inc., of Huntington, New York; and the custodian, Star Bank,
N.A. at 425 Walnut Street, Cincinnati, Ohio 45201.
Item 31. MANAGEMENT SERVICES.
Not Applicable.
Item 32. UNDERTAKINGS.
(a) Not Applicable.
(b) The Registrant 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 its Registration Statement.
(c) The Registrant undertakes to furnish each person to whom
a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders, upon
request and without charge.
-iii-
C/M: 12014.0001 352686.1
<PAGE>
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 New York, and State of New York, on the 13th day
of May, 1996.
THE DARUMA FUNDS, INC.
By: /s/ Mariko O. Gordon
--------------------------------
Mariko O. Gordon, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
(1) Principal Executive Officer:
By: /s/ Mariko O. Gordon President May 13, 1996
------------------------
Mariko O. Gordon
(2) Majority of Directors
By: /s/ Mariko O. Gordon Director May 13, 1996
---------------------
Mariko O. Gordon
By: /s/ Noreen McKee Director May 13, 1996
---------------------
Noreen McKee
</TABLE>
-iv-
C/M: 12014.0001 352686.1
<PAGE>
Exhibit Index
(1) Articles of Incorporation of the Registrant.
(2) Form of By-Laws of the Registrant.
(3) Not Applicable.
(4) Not Applicable.
(5) Form of Investment Advisory Agreement.
(6) Not Applicable.
(7) Not Applicable.
*(8) Custody Agreement.
(9) Transfer Agency and Service Agreement
(9.1) Fund Accounting Service Agreement
*(10) Consent of Messrs. Battle Fowler LLP as to the legality
of the securities being registered, including their
consent to the filing thereof and as to the use of their
name under the heading "Counsel and Independent Auditors"
in the Prospectus and the Statement of Additional
Information.
*(11) Consent of Ernst & Young, LLP, Independent Accountants.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Not Applicable.
(16) Not Applicable.
(17) Not Applicable.
(18) Not Applicable.
*(19) Power of Attorney.
- --------------------
* To be filed by Amendment.
C/M: 12014.0001 352686.1
ARTICLES OF INCORPORATION
OF
THE DARUMA FUNDS, INC.
FIRST: (1) The name of the incorporator is Kelly
McConvery.
(2) The incorporator's post office address
is 75 East 55th Street, New York, New York 10022.
(3) The incorporator is over eighteen years
of age.
(4) The incorporator is forming the
corporation named in these Articles of Incorporation under the General
Corporation Law of the State of Maryland.
SECOND: The name of the corporation (hereinafter
called the "Corporation") is The Daruma Funds, Inc.
THIRD: The purposes for which the Corporation is
formed are:
(1) to conduct, operate and carry on the
business of an investment company;
(2) to subscribe for, invest in, reinvest in,
purchase or otherwise acquire, hold, pledge, sell, assign,
transfer, exchange, distribute or otherwise dispose of notes,
bills, bonds, debentures and other negotiable or non-negotiable
instruments, obligations and evidences of indebtedness issued or
guaranteed as to principal and interest by the United States
Government, or any agency or instrumentality thereof, any State
or local government, or any agency or instrumentality thereof, or
any other securities of any kind issued by any corporation or
other issuer organized under the laws of the United States or any
State, territory or possession thereof or any foreign country or
any subdivision thereof or otherwise, to pay for the same in cash
or by the issue of stock, including treasury stock, bonds and
notes of the Corporation or otherwise; and to exercise any and
all rights, powers and privileges of ownership or interest in
respect of any and all such investments of every kind and
description, including and without limitation, the right to
consent and otherwise act with respect thereto, with power to
designate one or more persons, firms, associations or
corporations to exercise any of
C/M: 12014.0001 364839.1
<PAGE>
said rights, powers and privileges in respect of any
said investments;
(3) to conduct research and investigations in
respect of securities, organizations, business and general
business and financial conditions in the United States of America
and elsewhere for the purpose of obtaining information pertinent
to the investment and employment of the assets of the Corporation
and to procure any and all of the foregoing to be done by others
as independent contractors and to pay compensation therefor;
(4) to borrow money or otherwise obtain credit and
to secure the same by mortgaging, pledging or otherwise
subjecting as security the assets of the Corporation, and to
endorse, guarantee or undertake the performance of any
obligation, contract or engagement of any other person, firm,
association or corporation;
(5) to issue, sell, distribute, repurchase, redeem,
retire, cancel, acquire, hold, resell, reissue, dispose of,
transfer, and otherwise deal in, shares of stock of the
Corporation, including shares of stock of the Corporation in
fractional denominations, and to apply to any such repurchase,
redemption, retirement, cancellation or acquisition of shares of
stock of the Corporation, any funds or property of the
Corporation, whether capital or surplus or otherwise, to the full
extent now or hereafter permitted by the laws of the State of
Maryland and by these Articles of Incorporation;
(6) to conduct its business, promote its purposes,
and carry on its operations in any and all of its branches and
maintain offices both within and without the State of Maryland,
in any and all States of the United States of America, in the
District of Columbia, and in any or all commonwealths,
territories, dependencies, colonies, possessions, agencies, or
instrumentalities of the United States of America and of foreign
governments;
(7) to carry out all or any part of the foregoing
purposes or objects as principal or agent, or in conjunction with
any other person, firm, association, corporation or other entity,
or as a partner or member of a partnership, syndicate or joint
venture or otherwise, and in any part of the world to the same
extent and as fully as natural persons might or could do;
-2-
C/M: 12014.0001 364839.1
<PAGE>
(8) to have and exercise all of the powers and
privileges conferred by the laws of the State of Maryland upon
corporations formed under the laws of such State; and
(9) to do any and all such further acts and things
and to exercise any and all such further powers and privileges as
may be necessary, incidental, relative, conducive, appropriate or
desirable for the foregoing purposes.
The enumeration herein of the objects and purposes of the
Corporation shall be construed as powers as well as objects and purposes and
shall not be deemed to exclude by inference any powers, objects or purposes
which the Corporation is empowered to exercise, whether expressly by force of
the laws of the State of Maryland now or hereafter in effect, or impliedly by
the reasonable construction of the said law.
FOURTH: The post office address of the principal
office of the Corporation within the State of Maryland is 11 East
Chase Street, Baltimore City, Maryland 21202.
FIFTH: The resident agent of the Corporation in the
State of Maryland is The Prentice-Hall Corporation System,
Maryland, at 11 East Chase Street, Baltimore, Maryland 21202.
SIXTH: (1) The total number of shares of stock of all classes and
series which the Corporation initially has authority to issue is one billion
(1,000,000,000) shares of capital stock (par value of One Tenth of One Cent
$.001 per share), amounting in aggregate par value to $100,000. All of such
shares are classified as "Common Stock".
(2) The Board of Directors may classify or reclassify any
unissued shares of capital stock (whether or not such shares have been
previously classified or reclassified) from time to time by setting or changing
in any one or more respects the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of such shares of stock.
(3) Unless otherwise prohibited by law, so long as the
Corporation is registered as a open-end management company under the Investment
Company Act of 1940, the Board of Directors shall have the power and authority,
without the approval of the holders of any outstanding shares, to increase or
decrease the number of shares of capital stock or the number of shares of
capital stock of any class or series that the Corporation has authority to
issue.
-3-
C/M: 12014.0001 364839.1
<PAGE>
(4) Until such time as the Board of Directors shall provide
otherwise in accordance with Section (2) of this Article SIXTH one hundred
million (100,000,000) shares of the authorized shares of stock of the
Corporation shall be allocated to the following series of Common Stock: Daruma
Mid-Cap Value Fund. The balance of nine hundred million (900,000,000) shares of
such stock may be issued in this series, or in any new series each comprising
such number of shares and having such designations, limitations and restrictions
thereof as shall be fixed and determined from time-to-time by resolution or
resolutions providing for the issuance of such stock adopted by the Board of
Directors.
(5) Any series of Common Stock shall be referred to herein
individually as a "Series" and collectively, together with any further series
from time to time established, as the "Series".
(6) The following is a description of the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of Common
Stock of the Corporation (unless provided otherwise by the Board of Directors
with respect to any such additional Series at the time it is established and
designated):
(a) Asset Belonging to Series. All consideration received
by the Corporation from the issue or sale of shares of a
particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings,
profits and proceeds thereof, including any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds
or payments derived from any investment or reinvestment of such
proceeds in whatever form the same may be, shall irrevocably
belong to that Series for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of
account of the Corporation. Such consideration, assets, income,
earnings, profits and proceeds, together with any General Items
allocated to that Series as provided in the following sentence,
are herein referred to collectively as "assets belonging to" that
Series. In the event that there are any assets, income, earnings,
profits or proceeds which are not readily identifiable as
belonging to any particular Series (collectively, "General
Items"), such General Items shall be allocated by or under the
supervision of the Board of Directors to and among any one or
more of the Series established and designated from time to time
in such manner and on such basis as the Board of Directors, in
its sole discretion, deems fair and equitable; and any General
-4-
C/M: 12014.0001 364839.1
<PAGE>
Items so allocated to a particular Series shall belong to that
Series. Each such allocation by the Board of Directors shall be
conclusive and binding for all purposes.
(b) Liabilities of Series. The assets belonging to each
particular Series shall be charged with the liabilities of the
Corporation in respect of that Series and all expenses, costs,
charges and reserves attributable to that Series, and any general
liabilities, expenses, costs, charges or reserves of the
Corporation which are not readily identifiable as pertaining to
any particular Series, shall be allocated and charged by or under
the supervision of the Board of Directors to and among any one or
more of the Series established and designated from time to time
in such manner and on such basis as the Board of Directors, in
its sole discretion, deems fair and equitable. The liabilities,
expenses, costs, charges and reserves allocated and so charged to
a Series are herein referred to collectively as "liabilities of"
that Series. Each allocation of liabilities, expenses, costs,
charges and reserves by or under the supervision of the Board of
Directors shall be conclusive and binding for all purposes.
(c) Dividends and Distributions. Dividends and capital
gains distributions on shares of a particular Series may be paid
with such frequency, in such form and in such amount as the Board
of Directors may determine by resolution adopted from time to
time, or pursuant to a standing resolution or resolutions adopted
only once or with such frequency as the Board of Directors may
determine, after providing for actual and accrued liabilities of
that Series. All dividends on shares of a particular Series shall
be paid only out of the income belonging to that Series and all
capital gains distributions on shares of a particular series
shall be paid only out of the capital gains belonging to that
Series. All dividends and distributions on shares of a particular
Series shall be distributed pro rata to the holders of that
Series in proportion to the number of shares of that Series held
by such holders at the date and time of record established for
the payment of such dividends or distributions, except that in
connection with any dividend or distribution program or
procedure, the Board of Directors may determine that no dividend
or distribution shall be payable on shares as to which the
stockholder's purchase order and/or payment have not been
received by the time or times established by the Board of
Directors under such program or procedure.
-5-
C/M: 12014.0001 364839.1
<PAGE>
Dividends and distributions may be paid in cash, property
or additional shares of the same or another Series, or a
combination thereof, as determined by the Board of Directors or
pursuant to any program that the Board of Directors may have in
effect at the time for the election by stockholders of the form
in which dividends or distributions are to be paid. Any such
dividend or distribution paid in shares shall be paid at the
current net asset value thereof.
(d) Voting. On each matter submitted to a vote of the
stockholders, each holder of shares shall be entitled to one vote
for each share standing in his name on the books of the
Corporation, irrespective of the Series thereof, and all shares
of all Series shall vote as a single class ("Single Class
Voting"); provided, however, that (i) as to any matter with
respect to which a separate vote of any Series is required by the
Investment Company Act of 1940 or by the Maryland General
Corporation Law, such requirement as to a separate vote by that
Series shall apply in lieu of Single Class Voting; (ii) in the
event that the separate vote requirement referred to in clause
(i) above applies with respect to one or more Series, then,
subject to clause (iii) below, the shares of all other Series
shall vote as a single class; and (iii) as to any matter which
does not affect the interest of a particular Series, including
liquidation of another Series as described in subsection (7)
below, only the holders of shares of the one or more affected
Series shall be entitled to vote.
(e) Redemption by Stockholders. Each holder of shares of a
particular Series shall have the right at such times as may be
permitted by the Corporation to require the Corporation to redeem
all or any part of his shares of that Series, at a redemption
price per share equal to the net asset value per share or that
Series next determined after the shares are properly tendered for
redemption, less such redemption fee or sales charge, if any, as
may be established from time to time by the Board of Directors in
its sole discretion. Payment of the redemption price shall be in
cash; provided, however, that if the Board of Directors
determines, which determination shall be conclusive, that
conditions exist which make payment wholly in cash unwise or
undesirable, the Corporation may, to the extent and in the manner
permitted by the Investment Company Act of 1940, make payment
wholly or partly in securities or other assets belonging to the
Series of which the shares being redeemed are a part,
-6-
C/M: 12014.0001 364839.1
<PAGE>
at the value of such securities or assets used in such
determination of net asset value.
Payment by the Corporation for shares of stock of the
Corporation surrendered to it for redemption shall be made by the
Corporation within such period from surrender as may be required
under the Investment Company Act and the rules and regulations
thereunder. Notwithstanding the foregoing, the Corporation may
postpone payment of the redemption price and may suspend the
right of the holders of shares of any Series to require the
Corporation to redeem shares of that Series during any period or
at any time when and to the extent permissible under the
Investment Company Act of 1940.
(f) Redemption by Corporation. The Board of Directors may
cause the Corporation to redeem at their net asset value the
shares of any Series held in an account having, because of
redemptions or exchanges, a net asset value on the date of the
notice of redemption less than the Minimum Amount, as defined
below, in that Series specified by the Board of Directors from
time to time in its sole discretion, provided that at least 30
days prior written notice of the proposed redemption has been
given to the holder of any such account by first class mail,
postage prepaid, at the address contained in the books and
records of the Corporation and such holder has been given an
opportunity to purchase the required value of additional shares.
(i) The term "Minimum Amount" when used herein
shall mean One Thousand Dollars ($1,000) unless otherwise
fixed by the Board of Directors from time to time,
provided that the Minimum Amount may not in any event
exceed Twenty-Five Thousand Dollars ($25,000). The Board
of Directors may establish differing Minimum Amounts for
each class and series of the Corporation's stock and for
holders of shares of each such class and series of stock
based on such criteria as the Board of Directors may deem
appropriate.
(ii) The Corporation shall be entitled but not
required to redeem shares of stock from any stockholder or
stockholders, as provided in this subsection (6), to the
extent and at such times as the Board of Directors shall,
in its absolute discretion, determine to be necessary or
advisable to prevent the Corporation from qualifying as a
"personal holding company", within the meaning of
-7-
C/M: 12014.0001 364839.1
<PAGE>
the Internal Revenue Code of 1986, as amended from
time to time.
(g) Liquidation. In the event of the liquidation of a
particular Series, the stockholders of the Series that is being
liquidated shall be entitled to receive, as a class, when and as
declared by the Board of Directors, the excess of the assets
belonging to that Series over the liabilities of that Series. The
holders of shares of any particular Series shall not be entitled
thereby to any distribution upon liquidation of any other Series.
The assets so distributable to the stockholders of any particular
Series shall be distributed among such stockholders in proportion
to the number of shares of that Series held by them and recorded
on the books of the Corporation. The liquidation of any
particular Series in which there are shares then outstanding may
be authorized by vote of a majority of the Board of Directors
then in office, subject to the approval of a majority of the
outstanding voting securities of that Series, as defined in the
Investment Company Act of 1940, and without the vote of the
holders of shares of any other Series. The liquidation of a
particular Series may be accomplished, in whole or in part, by
the transfer of assets of such Series to another Series or by the
exchange of shares of Series for the shares of another Series.
(h) Net Asset Value Per Share. The net asset value per
share of any Series shall be the quotient obtained by dividing
the value of the net assets of that Series (being the value of
the assets belonging to that Series less the liabilities of that
Series) by the total number of shares of that Series outstanding,
all as determined by or under the direction of the Board of
Directors in accordance with generally accepted accounting
principles and the Investment Company Act of 1940. Subject to the
applicable provisions of the Investment Company Act of 1940, the
Board of Directors, in its sole discretion, may prescribe and
shall set forth in the By-Laws of the Corporation or in a duly
adopted resolution of the Board of Directors such bases and times
for determining the value of the assets belonging to, and the net
asset value per share of outstanding shares of, each Series, or
the net income attributable to such shares, as the Board of
Directors deems necessary or desirable. The Board of Directors
shall have full discretion, to the extent not inconsistent with
the Maryland General Corporation Law and the Investment Company
Act of 1940, to determine which item shall be treated as income
and which items
-8-
C/M: 12014.0001 364839.1
<PAGE>
as capital and whether any item of expense shall be charged to
income or capital. Each such determination and allocation shall
be conclusive and binding for all purposes.
The Board of Directors may determine to maintain the net
asset value per share of any Series at a designated constant
dollar amount and in connection therewith may adopt procedures
not inconsistent with the Investment Company Act of 1940 for the
continuing declaration of income attributable to that Series as
dividends and for the handling of any losses attributable to that
Series. Such procedures may provide that in the event of any
loss, each stockholder shall be deemed to have contributed to the
capital of the Corporation attributable to that Series his pro
rata portion of the total number of shares required to be
canceled in order to permit the net asset value per share of that
Series to be maintained, after reflecting such loss, at the
designated constant dollar amount. Each stockholder of the
Corporation shall be deemed to have agreed, by his investment in
any Series with respect to which the Board of Directors shall
have adopted any such procedure, to make the contribution
referred to in the preceding sentence in the event of any such
loss.
(i) Equality. All shares of each particular Series shall
represent an equal proportionate interest in the assets belonging
to that Series (subject to the liabilities of that Series), and
each share of any particular Series shall be equal to each other
share of that Series. The Board of Directors may from time to
time divide or combine the shares of any particular Series into a
greater or lesser number of shares of that series without thereby
changing the proportionate interest in the assets belonging to
that Series or in any way affecting the rights of holders of
shares of any other Series.
(j) Conversion or Exchange Rights. Subject to compliance
with the requirements of the Investment Company Act of 1940, the
Board of Directors shall have the authority to provide that
holders of shares of any Series shall have the right to convert
or exchange said shares into shares of one or more other Series
of shares in accordance with such requirements and procedures as
may be established by the Board of Directors.
(7) The Board of Directors may, from time to time and without
stockholder action, classify shares of a particular
-9-
C/M: 12014.0001 364839.1
<PAGE>
Series into one or more additional classes of that Series, the voting, dividend,
liquidation and other rights of which shall differ from the classes of common
stock of that Series to the extent provided in Articles Supplementary for such
additional class, such Articles to be filed for record with the appropriate
authorities of the State of Maryland. Each class so created shall consist, until
further changed, of the lesser of (x) the number of shares classified in Section
(5) of this Article SIXTH or (y) the number of shares that could be issued by
issuing all of the shares of that Series currently or hereafter classified less
the total number of shares of all classes of such Series then issued and
outstanding. Any class of a Series of Common Stock shall be referred to herein
individually as a "Class" and collectively, together with any further class or
classes of such Series from time to time established, as the "Classes".
(8) All Classes of a particular Series of Common Stock of the
Corporation shall represent the same interest in the Corporation and have
identical voting, dividend, liquidation and other rights with any other shares
of Common Stock of that Series; provided, however, that notwithstanding anything
in the charter of the Corporation to the contrary:
(a) Any class of shares may be subject to such sales
loads, contingent deferred sales charges, Rule 12b-1 fees,
administrative fees, service fees, or other fees, however
designated, in such amounts as may be established by the Board of
Directors from time to time in accordance with the Investment
Company Act of 1940.
(b) Expenses related solely to a particular Class of a
Series (including, without limitation, distribution expenses
under a Rule 12b-1 plan and administrative expenses under an
administration or service agreement, plan or other arrangement,
however designated) shall be borne by that Class and shall be
appropriately reflected (in the manner determined by the Board of
Directors) in the net asset value, dividends, distributions and
liquidation rights of the shares of that Class.
(c) As to any matter with respect to which a separate vote
of any Class of a Series is required by the Investment Company
Act of 1940 or by the Maryland General Corporation Law
(including, without limitation, approval of any plan, agreement
or other arrangement referred to in subsection (b) above), such
requirement as to a separate vote by that Class shall apply in
lieu of Single Class Voting, and if permitted by the Investment
Company Act of 1940 or the Maryland General Corporation Law, the
Classes of more than one Series
-10-
C/M: 12014.0001 364839.1
<PAGE>
shall vote together as a single class on any such matter which
shall have the same effect on each such Class. As to any matter
which does not affect the interest of a particular Class of a
Series, only the holders of shares of the affected Classes of
that Series shall be entitled to vote.
(9) The Corporation may issue and sell fractions of shares of
capital stock having pro rata all the rights of full shares, including, without
limitation, the right to vote and to receive dividends, and wherever the words
"share" or "shares" are used in the charter or By-Laws of the Corporation, they
shall be deemed to include fractions of shares where the context does not
clearly indicate that only full shares are intended.
(10) The Corporation shall not be obligated to issue certificates
representing shares of any Class or Series of capital stock. At the time of
issue or transfer of shares without certificates, the Corporation shall provide
the stockholder with such information as may be required under the Maryland
General Corporation Law.
(11) No holder of any shares of stock of the Corporation shall be
entitled as of right to subscribe for, purchase, or otherwise acquire any such
shares which the Corporation shall issue or propose to issue; and any and all of
the shares of stock of the Corporation, whether now or hereafter authorized, may
be issued, or may be reissued or transferred if the same have been reacquired
and have treasury status, by the Board of Directors to such persons, firms,
corporations and associations, and for such lawful consideration, and on such
terms, as the Board of Directors in its discretion may determine, without first
offering same, or any thereof, to any said holder.
(12) All persons who shall acquire stock or other securities of
the Corporation shall acquire the same subject to the provisions of these
Articles of Incorporation, as from time to time amended.
SEVENTH: The number of directors of the Corporation, until such
number shall be increased pursuant to the By-Laws of the Corporation, shall be
two. The number of directors shall never be less than the number prescribed by
the General Corporation Law of the State of Maryland and shall never be more
than twenty. The names of the persons who shall act as directors of the
Corporation until their successors are duly chosen and qualify are Mariko O.
Gordon and Noreen McKee
EIGHTH: The following provisions are inserted for the
purpose of defining, limiting and regulating the powers of the
Corporation and of the Board of Directors and stockholders.
-11-
C/M: 12014.0001 364839.1
<PAGE>
(1) The business and affairs of the Corporation shall be managed
under the direction of the Board of Directors which shall have and may exercise
all powers of the Corporation except those powers which are by law, by these
Articles of Incorporation or by the By-Laws conferred upon or reserved to the
stockholders. In furtherance and not in limitation of the powers conferred by
law, the Board of Directors shall have power:
(a) to make, alter and repeal the By-Laws of the
Corporation;
(b) to issue and sell, from time to time, shares of any
class or series of the Corporation's stock in such amounts and on
such terms and conditions, and for such amount and kind of
consideration, as the Board of Directors shall determine,
provided that the consideration per share to be received by the
Corporation shall be not less than the greater of the net asset
value per share of that class of stock at such time computed in
accordance with Article SIXTH hereof or the par value thereof;
(c) from time to time to set apart out of any assets of
the Corporation otherwise available for dividends a reserve or
reserves for working capital or for any other proper purpose or
purposes, and to reduce, abolish or add to any such reserve or
reserves from time to time as said Board of Directors may deem to
be in the best interests of the Corporation; and to determine in
its discretion what part of the assets of the Corporation
available for dividends in excess of such reserve or reserves
shall be declared in dividends and paid to the stockholders of
the Corporation; and
(d) from time to time to determine to what extent and at
what times and places and under what conditions and regulations
the accounts, books and records of the Corporation, or any of
them, shall be open to the inspection of the stockholders; and no
stockholder shall have any right to inspect any account or book
or document of the Corporation, except as conferred by the laws
of the State of Maryland, unless and until authorized to do so by
resolution of the Board of Directors or of the stockholders of
the Corporation.
(2) Notwithstanding any provision of the General Corporation Law
of the State of Maryland requiring a greater proportion than a majority of the
votes of all classes or of any class of the Corporation's stock entitled to be
cast in order to take or authorize any action, any such action may be taken or
authorized upon the concurrence of a majority of the aggregate number of votes
entitled to be cast thereon subject to any
-12-
C/M: 12014.0001 364839.1
<PAGE>
applicable requirements of the Investment Company Act of 1940, as from time to
time in effect, or rules or orders of the Securities and Exchange Commission or
any successor thereto.
(3) Except as may otherwise be expressly provided by applicable
statutes or regulatory requirements, the presence in person or by proxy of the
holders of one-third of the shares of stock of the Corporation entitled to vote
shall constitute a quorum at any meeting of the stockholders.
(4) Any determination made in good faith and, so far as
accounting matters are involved, in accordance with generally accepted
accounting principles by or pursuant to the discretion of the Board of
Directors, as to the amount of the assets, debts, obligations, or liabilities of
the Corporation, as to the amount of any reserves or charges set up and the
propriety thereof, as to the time of or purposes for creating such reserves or
charges, as to the use, alteration or cancellation of any reserves or charges
(whether or not any debt, obligation or liability for which such reserves or
charges shall have been created shall have been paid or discharged or shall by
then or thereafter required to be paid or discharged), as to the value of or the
method of valuing any investment owned or held by the Corporation, as to the
market value or fair value of any investment or fair value of any other asset of
the Corporation, as to the allocation of any asset of the Corporation to a
particular class or classes of the Corporation's stock, as to the charging of
any liability of the Corporation to a particular class or classes of the
Corporation's stock, as to the number of shares of the Corporation outstanding,
as to the estimated expense to the Corporation in connection with purchases of
its shares, as to the ability to liquidate investments in orderly fashion, or as
to any other matters relating to the issue, sale, purchase and/or other
acquisition or disposition of investments or shares of the Corporation, shall be
final and conclusive and shall be binding upon the Corporation and all holders
of its shares, past, present and future, and shares of the Corporation are
issued and sold on the condition and understanding that any and all such
determinations shall be binding as aforesaid.
(5) Except to the extent prohibited by the Investment Company Act
of 1940, as amended, or rules, regulations or orders thereunder promulgated by
the Securities and Exchange Commission or any successor thereto or by the
By-Laws of the Corporation, a director, officer or employee of the Corporation
shall not be disqualified by his position from dealing or contracting with the
Corporation, nor shall any transaction or contract of the Corporation be void or
voidable by reason of the fact that any director, officer or employee or any
firm of which any director, officer or employee is a member or any corporation
of which any director, officer or employee is a stockholder, officer or
director, is in any way interested in such transaction or
-13-
C/M: 12014.0001 364839.1
<PAGE>
contract; provided that in case a director, or a firm or corporation of which a
director is a member, stockholder, officer or director, is so interested, such
fact shall be disclosed to or shall have been known by the Board of Directors or
a majority thereof; and any director of the Corporation who is so interested, or
who is a member, stockholder, officer or director of such firm or corporation,
may be counted in determining the existence of a quorum at any meeting of the
Board of Directors of the Corporation which shall authorize any such transaction
or contract, with like force and effect as if he were not such director, or
member, stockholder, officer or director of such firm or corporation.
(6) Specifically and without limitation of the foregoing
subsection (e) but subject to the exception therein prescribed, the Corporation
may enter into management or advisory, underwriting, distribution and
administration contracts and other contracts, and may otherwise do business,
with Furman Selz Incorporated, and any parent, subsidiary, partner, or affiliate
of such firm or any affiliates of any such affiliate, or the stockholders,
members, directors, officers, partners and employees thereof, and may deal
freely with one another notwithstanding that the Board of Directors of the
Corporation may be composed in part of directors, officers, partners or
employees of such firm and/or its parents, subsidiaries or affiliates and that
officers of the Corporation may have been, be or become directors, officers, or
employees of such firm, and/or its parents, subsidiaries or affiliates, and
neither such management or advisory, underwriting, distribution or
administration contracts nor any other contract or transaction between the
Corporation and such firm and/or its parents, subsidiaries or affiliates shall
be invalidated or in any way affected thereby, nor shall any director or officer
of the Corporation be liable to the Corporation or to any stockholder or
creditor thereof or to any person for any loss incurred by it or him under or by
reason of such contract or transaction; provided that nothing herein shall
protect any director or officer of the Corporation against any liability to the
Corporation or to its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office; and provided always that
such contract or transaction shall have been on terms that were not unfair to
the Corporation at the time at which it was entered into.
NINTH: (1) The Corporation shall indemnify (i) its currently
acting and former directors and officers, whether serving the Corporation or at
its request any other entity, to the fullest extent required or permitted by the
General Laws of the State of Maryland now or hereafter in force, including the
advance of expenses under the procedures and to the fullest extent permitted by
law, and (ii) other employees and agents to
-14-
C/M: 12014.0001 364839.1
<PAGE>
such extent as shall be authorized by the Board of Directors or the By-Laws and
as permitted by law. Nothing contained herein shall be construed to protect any
director or officer of the Corporation against any liability to the Corporation
or its security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such by-laws,
resolutions or contracts implementing such provisions or such indemnification
arrangements as may be permitted by law. No amendment of the charter of the
Corporation or repeal of any of its provisions shall limit or eliminate the
right of indemnification provided hereunder with respect to acts or omissions
occurring prior to such amendment or repeal.
(2) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, and the Investment Company Act of
1940, no director or officer of the Corporation shall be personally liable to
the Corporation or its stockholders for money damages; provided, however, that
nothing herein shall be construed to protect any director or officer of the
Corporation against any liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office. No amendment of the charter of the Corporation or repeal of any of
its provisions shall limit or eliminate the limitation of liability provided to
directors and officers hereunder with respect to any act or omission occurring
prior to such amendment or repeal.
TENTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in these Articles of Incorporation or in any
amendment hereto in the manner now or hereafter prescribed by the laws of the
State of Maryland and all rights conferred upon stockholders herein are granted
subject to this reservation.
IN WITNESS WHEREOF, the undersigned, being the incorporator of
the Corporation, has adopted and signed these Articles of Incorporation for the
purpose of forming the corporation described herein pursuant to the General
Corporation
-15-
C/M: 12014.0001 364839.1
<PAGE>
law of the State of Maryland and does hereby acknowledge that said adoption and
signing are her act.
/s/ Kelly McConvery
------------------------
Kelly McConvery
Dated: May 8, 1996
-16-
C/M: 12014.0001 364839.1
FORM OF
BY-LAWS
OF
The Daruma Funds, Inc.
a Maryland corporation
ARTICLE I
Offices
Section 1. Principal Office in Maryland. The
Corporation shall have a principal office in the City of
Baltimore, State of Maryland.
Section 2. Other Offices. The Corporation may have offices also
at such other places within and without the State of Maryland as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meeting. Meetings of stockholders shall be
held at such place, either within the State of Maryland or at such other place
within the United States, as shall be fixed from time to time by the Board of
Directors.
Section 2. Annual Meetings. The Corporation shall not be required
to hold an annual meeting of its stockholders in any year in which none of the
following is required to be acted on by the holders of any class or series of
stock under the Investment Company Act of 1940: (a) election of the directors,
(b) approval of the Corporation's investment advisory agreement with respect to
a particular class or series; (c) ratification of the selection of independent
public accountants; and (d) approval of the Corporation's distribution agreement
with respect to a particular class or series. In the event that the Corporation
shall be required to hold an annual meeting of stockholders by the Investment
Company Act of 1940, such meeting of stockholders shall be held on a date fixed
from time to time by the Board of Directors not less than ninety nor more than
one hundred twenty days following the end of such fiscal year of the
Corporation.
Section 3. Notice of Annual Meeting. Written or printed notice of
an annual meeting, stating the place, date and hour thereof, shall be given to
each stockholder entitled to vote
364852.1
<PAGE>
thereat not less than ten nor more than ninety days before the date of the
meeting.
Section 4. Special Meetings. Special meetings of stockholders may
be called by the chairman, the president or by the Board of Directors and shall
be called by the secretary upon the written request of holders of shares
entitled to cast not less than twenty-five percent of all the votes entitled to
be cast at such meeting. Such request shall state the purpose or purposes of
such meeting and the matters proposed to be acted on thereat. In the case of
such request for a special meeting, upon payment by such stockholders to the
Corporation of the estimated reasonable cost of preparing and mailing a notice
of such meeting, the secretary shall give the notice of such meeting. The
secretary shall not be required to call a special meeting to consider any matter
which is substantially the same as a matter acted upon at any special meeting of
stockholders held within the preceding twelve months unless requested to do so
by the holders of shares entitled to cast not less than a majority of all votes
entitled to be cast at such meeting.
Section 5. Notice of Special Meeting. Written or printed notice
of a special meeting of stockholders, stating the place, date, hour and purpose
thereof, shall be given by the secretary to each stockholder entitled to vote
thereat not less than ten nor more than ninety days before the date fixed for
the meeting.
Section 6. Business of Special Meetings. Business transacted at
any special meeting of stockholders shall be limited to the purposes stated in
the notice thereof.
Section 7. Quorum. Except as may otherwise be expressly provided
by applicable statutes or regulations, the holders of one-third of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business.
Section 8. Voting. When a quorum is present at any meeting, the
affirmative vote of a majority of the votes cast shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of the Investment Company Act of 1940, as from time to time in effect,
or other statutes or rules or orders of the Securities and Exchange Commission
or any successor thereto or of the Articles of Incorporation, a different vote
is required, in which case such express provision shall govern and control the
decision of such question.
Section 9. Proxies. Each stockholder shall at every meeting of
stockholders be entitled to one vote in person or by
-2-
364852.1
<PAGE>
proxy for each share of the stock having voting power held by such stockholder,
but no proxy shall be voted after eleven months from its date, unless otherwise
provided in the proxy.
Section 10. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, to express consent to corporate action
in writing without a meeting, or to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date
which shall be not more than ninety days and, in the case of a meeting of
stockholders, not less than ten days prior to the date on which the particular
action requiring such determination of stockholders is to be taken. In lieu of
fixing a record date, the Board of Directors may provide that the stock transfer
books shall be closed for a stated period, but not to exceed, in any case,
twenty days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days immediately
preceding such meeting. If no record date is fixed and the stock transfer books
are not closed for the determination of stockholders: (1) the record date for
the determination of stockholders entitled to notice of, or to vote at, a
meeting of stockholders shall be at the close of business on the day on which
notice of the meeting of stockholders is mailed or the day thirty days before
the meeting, whichever is the closer date to the meeting; and (2) the record
date for the determination of stockholders entitled to receive payment of a
dividend or an allotment of any rights shall be at the close of business on the
day on which the resolution of the Board of Directors, declaring the dividend or
allotment of rights, is adopted, provided that the payment or allotment date
shall not be more than ninety days after the date of the adoption of such
resolution.
Section 11. Inspectors of Election. The directors, in advance of
any meeting, may, but need not, appoint one or more inspectors to act at the
meeting or any adjournment thereof. If an inspector or inspectors are not
appointed, the person presiding at the meeting may, but need not, appoint one or
more inspectors. In case any person who may be appointed as an inspector fails
to appear or act, the vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before entering upon the discharge of his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his or her
ability. The inspectors, if any, shall determine the number of shares
outstanding and the voting power
-3-
364852.1
<PAGE>
of each, the shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the meeting
or any stockholder, the inspector or inspectors, if any, shall make a report in
writing of any challenge, question or matter determined by him or her or them
and execute a certificate of any fact found by him or her or them.
Section 12. Informal Action by Stockholders. Except to the extent
prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto, any action required or permitted to be taken at any meeting
of stockholders may be taken without a meeting if a consent in writing, setting
forth such action, is signed by all the stockholders entitled to vote on the
subject matter thereof and any other stockholders entitled to notice of a
meeting of stockholders (but not to vote thereat) have waived in writing any
rights which they may have to dissent from such action, and such consent and
waiver are filed with the records of the Corporation.
ARTICLE III
Board of Directors
Section 1. Number of Directors. The number of directors shall be
fixed at no less than two nor more than twenty. Within the limits specified
above, the number of directors shall be fixed from time to time by the Board of
Directors, but the tenure of office of a director in office at the time of any
decrease in the number of directors shall not be affected as a result thereof.
The directors shall be elected to hold office at the annual meeting of
stockholders, except as provided in Section 2 of this Article, and each director
shall hold office until the next annual meeting of stockholders or until his
successor is elected and qualified. Any director may resign at any time upon
written notice to the Corporation. Any director may be removed, either with or
without cause, at any meeting of stockholders duly called and at which a quorum
is present by the affirmative vote of the majority of the votes entitled to be
cast thereon, and the vacancy in the Board of Directors caused by such removal
may be filled by the stockholders at the time of such removal. Directors need
not be stockholders.
-4-
364852.1
<PAGE>
Section 2. Vacancies and Newly Created Directorships. Any vacancy
occurring in the Board of Directors for any cause, including an increase in the
number of directors, may be filled by the stockholders or by a majority of the
remaining members of the Board of Directors even if such majority is less than a
quorum. So long as the Corporation is a registered investment company under the
Investment Company Act of 1940, vacancies in the Board of Directors may be
filled by a majority of the remaining members of the Board of Directors only if,
immediately after filing any such vacancy, at least two-thirds of the directors
then holding office shall have been elected to such office at a meeting of
stockholders. A director elected by the Board of Directors to fill a vacancy
shall be elected to hold office until the next annual meeting of stockholders or
until his successor is elected and qualifies.
Section 3. Powers. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors which shall
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Articles of Incorporation or by these
By-Laws conferred upon or reserved to the stockholders.
Section 4. Annual Meeting. The first meeting of each newly
elected Board of Directors shall be held immediately following the adjournment
of the annual meeting of stockholders and at the place thereof. No notice of
such meeting to the directors shall be necessary in order legally to constitute
the meeting, provided a quorum shall be present. In the event such meeting is
not so held, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors.
Section 5. Other Meetings. The Board of Directors of the
Corporation or any committee thereof may hold meetings, both regular and
special, either within or without the State of Maryland. Regular meetings of the
Board of Directors may be held without notice at such time and at such place as
shall from time to time be determined by the Board of Directors. Special
meetings of the Board of Directors may be called by the chairman, the president
or by two or more directors. Notice of special meetings of the Board of
Directors shall be given by the secretary to each director at least three days
before the meeting if by mail or at least 24 hours before the meeting if given
in person or by telephone or by telegraph. The notice need not specify the
business to be transacted.
Section 6. Quorum and Voting. At meetings of the Board of
Directors, two of the directors in office at the time, but in no event less than
one-third of the entire Board of Directors, shall constitute a quorum for the
transaction of business. When required pursuant to Section 15(c) under the
-5-
364852.1
<PAGE>
Investment Company Act of 1940 or Rule 12b-1 thereunder a quorum shall also
require the presence in person of a majority of directors who are not parties to
a contract or agreement to be voted upon or interested persons of any such
party. 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. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
Section 7. Committees. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, appoint from among its
members an executive committee and other committees of the Board of Directors,
each committee to be composed of two or more of the directors of the
Corporation. The Board of Directors may, to the extent provided in the
resolution, delegate to such committees, in the intervals between meetings of
the Board of Directors, any or all of the powers of the Board of Directors in
the management of the business and affairs of the Corporation, except the power
to declare dividends, to issue stock, to recommend to stockholders any action
requiring stockholders' approval, to amend the By-Laws or to approve any merger
or share exchange which does not require stockholders' approval. Such committee
or committees shall have the name or names as may be determined from time to
time by resolution adopted by the Board of Directors. Unless the Board of
Directors designates one or more directors as alternate members of any
committee, who may replace an absent or disqualified member at any meeting of
the committee, the members of any such committee present at any meeting and not
disqualified from voting may, whether or not they constitute a quorum,
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member of such committee. At
meetings of any such committee, a majority of the members or alternate members
of such committee shall constitute a quorum for the transaction of business and
the act of a majority of the members or alternate members present at any meeting
at which a quorum is present shall be the act of the committee.
Section 8. Minutes of Committee Meetings. The committees shall
keep regular minutes of their proceedings.
Section 9. Informal Action by Board of Directors and Committees.
Any action, except approving the Rule 12b-1 Plan and the Advisory Agreement,
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
thereto is signed by all members of the Board of Directors or of such committee,
as the case may be, and such written consent is filed with the minutes of
proceedings of the Board of Directors or committee.
-6-
364852.1
<PAGE>
Section 10. Meetings by Conference Telephone. Except to the
extent prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto, the members of the Board of Directors or any committee
thereof may participate in a meeting of the Board of Directors or committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time and such participation shall constitute presence in person at such meeting.
Section 11. Fees and Expenses. The directors may be paid their
expenses of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like reimbursement and
compensation for attending committee meetings.
ARTICLE IV
Notices
Section 1. General. Notices to directors and stockholders mailed
to them at their post office addresses appearing on the books of the Corporation
shall be deemed to be given at the time when deposited in the United States
mail.
Section 2. Waiver of Notice. Whenever any notice is required to
be given under the provisions of the statutes, of the Articles of Incorporation
or of these By-Laws, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed the equivalent of notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
ARTICLE V
Officers
Section 1. General. The officers of the Corporation shall be
chosen by the Board of Directors at its first meeting after each annual meeting
of stockholders and shall be a chairman
-7-
364852.1
<PAGE>
of the Board of Directors, a president, a secretary and a treasurer. The Board
of Directors may also choose such vice presidents and additional officers or
assistant officers as it may deem advisable. Any number of offices, except the
offices of president and vice president, may be held by the same person. No
officer shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law to be executed, acknowledged or
verified by two or more officers.
Section 2. Other Officers and Agents. The Board of Directors may
appoint such other officers and agents as it desires who shall hold their
offices for such terms and shall exercise such power and perform such duties as
shall be determined from time to time by the Board of Directors.
Section 3. Tenure of Officers. The officers of the Corporation
shall hold office at the pleasure of the Board of Directors. Each officer shall
hold his or her office until his or her successor is elected and qualifies or
until his or her earlier resignation or removal. Any officer may resign at any
time upon written notice to the Corporation. Any officer elected or appointed by
the Board of Directors may be removed at any time by the Board of Directors
when, in its judgment, the best interests of the Corporation will be served
thereby. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise shall be filled by the Board of Directors.
Section 4. Chairman of the Board of Directors. The chairman of
the Board of Directors shall be the chief executive officer of the Corporation,
shall preside at all meetings of the stockholders and of the Board of Directors,
shall have general and active management of the business of the Corporation and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. The chairman shall execute on behalf of the Corporation, and may
affix the seal or cause the seal to be affixed to, all instruments requiring
such execution except to the extent that signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation.
Section 5. President. The president shall, in the absence of the
chairman of the Board of Directors, preside at all meetings of the stockholders
or of the Board of Directors. The president shall have general and active
management of the business of the Corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect. The president
shall execute bonds, mortgages and other contracts requiring a seal, under the
seal of the Corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the Board of Directors to some other officer or
agent of the Corporation.
-8-
364852.1
<PAGE>
Section 6. Vice Presidents. The vice presidents shall act under
the direction of the president and in the absence or disability of the president
shall perform the duties and exercise the power of the president. They shall
perform such other duties and have such other powers as the president or the
Board of Directors may from time to time prescribe. The Board of Directors may
designate one or more executive vice presidents or may otherwise specify the
order of seniority of the vice presidents and, in that event, the duties and
powers of the president shall descend to the vice presidents in the specified
order of seniority.
Section 7. Secretary. The secretary shall act under the direction
of the president. Subject to the direction of the president, the secretary shall
attend all meetings of the Board of Directors and all meetings of stockholders
and record the proceedings in a book to be kept for that purpose and shall
perform like duties for the committees designated by the Board of Directors when
required. The secretary shall give, or cause to be given, notice of all meetings
of stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the president or the Board of
Directors. The secretary shall keep in safe custody the seal of the Corporation
and shall affix the seal or cause it to be affixed to any instrument requiring
it.
Section 8. Assistant Secretaries. The assistant secretaries in
the order of their seniority, unless otherwise determined by the president or
the Board of Directors, shall, in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary. They shall perform
such other duties and have such other powers as the president or the Board of
Directors may from time to time prescribe.
Section 9. Treasurer. The treasurer shall act under the direction
of the president. Subject to the direction of the president he shall have the
custody of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all monies and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. The treasurer shall disburse the funds of the Corporation as may
be ordered by the president or the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the president and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his or her transactions as treasurer and of the financial
condition of the Corporation.
Section 10. Assistant Treasurers. The assistant treasurers in the
order of their seniority, unless otherwise determined by the president or the
Board of Directors, shall, in
-9-
364852.1
<PAGE>
the absence or disability of the treasurer, perform the duties and exercise the
powers of the treasurer. They shall perform such other duties and have such
other powers as the president or the Board of Directors may from time to time
prescribe.
ARTICLE VI
Certificates of Stock
Section 1. General. Every holder of stock of the Corporation who
has made full payment of the consideration for such stock shall be entitled upon
request to have a certificate, signed by, or in the name of the Corporation by,
the president or a vice president and countersigned by the treasurer or an
assistant treasurer or the secretary or an assistant secretary of the
Corporation, certifying the number and class of whole shares of stock owned by
such holder in the Corporation.
Section 2. Fractional Share Interests or Scrip. The Corporation
may, but shall not be obliged to, issue fractions of a share of stock, arrange
for the disposition of fractional interests by those entitled thereto, pay in
cash the fair value of fractions of a share of stock as of the time when those
entitled to receive such fractions are determined, or issue scrip or other
evidence of ownership which shall entitle the holder to receive a certificate
for a full share of stock upon the surrender of such scrip or other evidence of
ownership aggregating a full share. Fractional shares of stock shall have
proportionately to the respective fractions represented thereby all the rights
of whole shares, including the right to vote, the right to receive dividends and
distributions and the right to participate upon liquidation of the Corporation,
excluding, however, the right to receive a stock certificate representing such
fractional shares. The Board of Directors may cause such scrip or evidence of
ownership to be issued subject to the condition that it shall become void if not
exchanged for certificates representing full shares of stock before a specified
date or subject to the condition that the shares of stock for which such scrip
or evidence of ownership is exchangeable may be sold by the Corporation and the
proceeds thereof distributed to the holders of such scrip or evidence of
ownership, or subject to any other reasonable conditions which the Board of
Director shall deem advisable, including provision for forfeiture of such
proceeds to the Corporation if not claimed within a period of not less than
three years after the date of the original issuance of scrip certificates.
Section 3. Signatures on Certificates. Any of or all the
signatures on a certificate may be a facsimile. In case any officer who has
signed or whose facsimile signature has been placed upon a certificate shall
cease to be such officer before
-10-
364852.1
<PAGE>
such certificate is issued, it may be issued with the same effect as if he or
she were such officer at the date of issue. The seal of the Corporation or a
facsimile thereof may, but need not, be affixed to certificates of stock.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of any affidavit of that
fact by the person claiming the certificate or certificates to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his or her legal representative, to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate or
certificates alleged to have been lost, stolen or destroyed.
Section 5. Transfer of Shares. Upon request by the registered
owner of shares, and if a certificate has been issued to represent such shares
upon surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares of stock duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, subject to the Corporation's
rights to redeem or purchase such shares, it shall be the duty of the
Corporation, if it is satisfied that all provisions of the Articles of
Incorporation, of the By-Laws and of the law regarding the transfer of shares
have been duly complied with, to record the transactions upon its books, issue a
new certificate to the person entitled thereto upon request for such
certificate, and cancel the old certificate, if any.
Section 6. Registered Owners. The Corporation shall be entitled
to recognize the person registered on its books as the owner of shares to be the
exclusive owner for all purposes including, redemption, voting and dividends,
and the Corporation shall not be bound to recognize any equitable or other claim
to or interest in such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
provided by the laws of Maryland.
ARTICLE VII
Miscellaneous
Section 1. Reserves. There may be set aside out of any funds of
the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in their
-11-
364852.1
<PAGE>
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for repairing or maintaining any property of the Corporation,
or for the purchase of additional property, or for such other purpose as the
Board of Directors shall think conducive to the interest of the Corporation, and
the Board of Directors may modify or abolish any such reserve.
Section 2. Dividends. Dividends upon the stock of the Corporation
may, subject to the provisions of the Articles of Incorporation and of the
provisions of applicable law, be declared by the Board of Directors at any time.
Dividends may be paid in cash, in property or in shares of the Corporation's
stock, subject to the provisions of the Articles of Incorporation and of
applicable law.
Section 3. Capital Gains Distributions. The amount and number of
capital gains distributions paid to the stockholders during each fiscal year
shall be determined by the Board of Directors. Each such payment shall be
accompanied by a statement as to the source of such payment, to the extent
required by law.
Section 4. Checks. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
Section 5. Fiscal Year. The fiscal year of the
Corporation shall be fixed by resolution of the Board of
Directors.
Section 6. Seal. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words,
"Corporate Seal, Maryland". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in another manner reproduced.
Section 7. Filing of By-Laws. A certified copy of the By-Laws,
including all amendments, shall be kept at the principal office of the
Corporation in the State of Maryland.
Section 8. Annual Report. The books of account of the Corporation
shall be examined by an independent firm of public accountants at the close of
each annual fiscal period of the Corporation and at such other times, if any, as
may be directed by the Board of Directors of the Corporation. Within one hundred
and twenty days of the close of each annual fiscal period a report based upon
such examination at the close of that fiscal period shall be mailed to each
stockholder of the Corporation of record at the close of such annual fiscal
period, unless the Board of Directors shall set another record date, at his
address as the same appears on the books of the Corporation. Each such
-12-
364852.1
<PAGE>
report shall contain such information as is required to be set forth therein by
the Investment Company Act of 1940 and the rules and regulations promulgated by
the Securities and Exchange Commission thereunder. Such report shall also be
submitted at the annual meeting of the stockholders and filed within twenty days
thereafter at the principal office of the Corporation in the State of Maryland.
Section 9. Stock Ledger. The Corporation shall maintain at its
principal office outside of the State of Maryland an original or duplicate stock
ledger containing the names and addresses of all stockholders and the number of
shares of stock held by each stockholder. Such stock ledger may be in written
form or in any other form capable of being converted into written form within a
reasonable time for visual inspection.
Section 10. Ratification of Accountants by Stockholders. At every
annual meeting of the stockholders of the Corporation otherwise called there
shall be submitted for ratification or rejection the name of the firm of
independent public accountants which has been selected for the current fiscal
year in which such annual meeting is held by a majority of those members of the
Board of Directors who are not investment advisers of, or interested person (as
defined in the Investment Company Act of 1940) of an investment adviser of, or
officers or employees of, the Corporation.
Section 11. Custodian. All securities and similar investments
owned by the Corporation shall be held by a custodian which shall be either a
trust company or a national bank of good standing, having a capital surplus and
undivided profits aggregating not less than two million dollars ($2,000,000), or
a member firm of the New York Stock Exchange, Inc. The terms of custody of such
securities and cash shall include such provisions required to be contained
therein by the Investment Company Act of 1940 and the rules and regulations
promulgated thereunder by the Securities and Exchange Commission.
Upon the resignation or inability to serve of any such custodian
the Corporation shall: (a) use its best efforts to obtain a successor custodian,
(b) require the cash and securities of the Corporation held by the custodian to
be delivered directly to the successor custodian, and (c) in the event that no
successor custodian can be found, submit to the stockholders of the Corporation,
before permitting delivery of such cash and securities to anyone other than a
successor custodian, the question whether the Corporation shall be dissolved or
shall function without a custodian; provided, however, that nothing herein
contained shall prevent the termination of any agreement between the Corporation
and any such custodian by the affirmative vote of the holders of a majority of
all the stock of the Corporation at the time outstanding and entitled to vote.
Upon
-13-
364852.1
<PAGE>
its resignation or inability to serve and pending action by the Corporation as
set forth in this section, the custodian may deliver any assets of the
Corporation held by it to a qualified bank or trust company in the City of New
York, or to a member firm of the New York Stock Exchange, Inc. selected by it,
such assets to be held subject to the terms of custody which governed such
retiring custodian.
Section 12. Investment Advisers. The Corporation may enter into
one or more management or advisory, underwriting, distribution or administration
contract with any person, firm, partnership, association or corporation but such
contract or contracts shall continue in effect only so long as such continuance
is specifically approved annually by a majority of the Board of Directors or by
vote of the holders of a majority of the voting securities of the Corporation,
and in either case by vote of a majority of the directors who are not parties to
such contracts or interested persons (as defined in the Investment Company Act
of 1940) of any such party cast in person at a meeting called for the purpose of
voting on such approval.
ARTICLE VIII
Amendments
The Board of Directors shall have the power, by a majority vote
of the entire Board of Directors at any meeting thereof, to make, alter and
repeal By-Laws of the Corporation.
-14-
364852.1
FORM OF
INVESTMENT ADVISORY AGREEMENT
THE DARUMA FUNDS, INC.
__________, 1996
CastleRock Capital Management, Inc.
237 Park Avenue
New York, New York 10017
We herewith confirm our agreement with you as follows:
1. We propose to engage in the business of investing and
reinvesting our assets in securities of the type, and in accordance with the
limitations, specified in our Articles of Incorporation, By-Laws and
Registration Statement filed with the Securities and Exchange Commission under
the Investment Company Act of 1940 (the "1940 Act") and the Securities Act of
1933, including the Prospectus forming a part thereof (the "Registration
Statement"), all as from time to time in effect, and in such manner and to such
extent as may from time to time be authorized by our Board of Directors. We
enclose copies of the documents listed above and will furnish you such
amendments thereto as may be made from time to time.
2. (a) We hereby employ you to manage the investment and
reinvestment of our assets as above specified, and, without limiting the
generality of the foregoing, to provide the management and other services
specified below.
(b) Subject to the general control of our Board of Directors,
you will make decisions with respect to all purchases and sales of our portfolio
securities. To carry out such decisions, you are hereby authorized, as our agent
and attorney-in-fact, for our account and at our risk and in our name, to place
orders for the investment and reinvestment of our assets. In all purchases,
sales and other transactions in our portfolio securities you are authorized to
exercise full discretion and act for us in the same manner and with the same
force and effect as our corporation itself might or could do with respect to
such purchases, sales or other transactions, as well as with respect to all
other things necessary or incidental to the furtherance or conduct of such
purchases, sales or other transactions. In furtherance of such and subject to
applicable law and procedures adopted by the Fund's Board of Directors, you may
(i) pay commissions to brokers other than yourself which are higher than such
that might be charged by another qualified broker to obtain brokerage and/or
research services considered by you to be useful or desirable for your
investment management of the Fund and/or other advisory accounts of yours and
any investment advisor affiliated with you;
C/M 12014.0000 348639.1
<PAGE>
and (ii) consider the sales of shares of the Fund by brokers including your
affiliates as a factor in your selection of brokers for portfolio transactions.
(c) You will report to our Board of Directors at each meeting
thereof all changes in the Fund since your prior report, and will also keep us
in touch with important developments affecting the Fund and, on your own
initiative, will furnish us from time to time with such information as you may
believe appropriate for this purpose, whether concerning the individual entities
whose securities are included in the Fund the activities in which such entities
engage, Federal income tax policies applicable to our investments, or the
conditions prevailing in the economy generally. You will also furnish us with
such statistical and analytical information with respect to our portfolio
securities as you may believe appropriate or as we may reasonably request. In
making such purchases and sales of our portfolio securities, you will comply
with the policies set from time to time by our Board of Directors as well as the
limitations imposed by our Articles of Incorporation, the provisions of the
Internal Revenue Code relating to regulated investment companies and the 1940
Act, and the limitations contained in our Registration Statement.
(d) It is understood that you may from time to time employ,
subcontract with or otherwise associate yourself with, entirely at your expense,
such persons as you believe to be particularly fitted to assist you in the
execution of your duties hereunder.
(e) It is understood that pursuant to an Administrative
Services Agreement to be entered into by you and the Fund, you or your
affiliates will also furnish us such administrative personnel and supervision
and such office facilities as you may believe appropriate or as we may
reasonably request subject to the requirements of any regulatory authority to
which you may be subject. For serving as Administrator you will be paid a
separate fee as set forth in such Agreement.
3. The Fund agrees, subject to the limitations described
below, to be responsible for, and hereby assume the obligation for payment of,
all our expenses including: (a) brokerage and commission expenses; (b) foreign,
federal, state or local taxes, including issuance and transfer taxes incurred by
or levied on us; (c) commitment fees, certain insurance premiums and membership
fees and dues in investment company organizations; (d) interest charges on
borrowings; (e) charges and expenses of the Fund's custodian; (f) charges and
expenses relating to the issuance, redemption, transfer and dividend disbursing
functions for us; (g) telecommunications expenses; (h) recurring and
non-recurring legal, accounting and recordkeeping expenses; (i) costs of
organizing and maintaining the Fund's existence as a corporation; (j)
compensation, including directors' fees, of any of our directors, officers or
employees who are not your officers or employees and costs of other personnel
providing administrative and clerical services to us; (k) costs of providing
shareholders' services, including charges and expenses of persons providing
confirmations of transactions in the Fund's shares, periodic statements to
shareholders and recordkeeping services, and costs of shareholders' reports,
proxy solicitations, and corporate meetings; (l) fees and expenses of
registering our shares under the appropriate federal securities laws and of
qualifying our shares under applicable state securities laws, including expenses
attendant upon the initial registration and qualification of these shares and
attendant upon renewals of, or amendment to, those registrations and
qualifications; (m) expenses of
-2-
C/M 12014.0000 348639.1
<PAGE>
preparing, printing and delivering the initial registration statement and of
preparing, printing and delivering the Prospectus to existing shareholders and
of printing shareholder application forms for shareholder accounts; (n) fees and
expenses payable to the Adviser, distributor, custodian, transfer agent and
dividend agent; and (o) any other distribution or promotional expenses
contemplated by an effective plan adopted by us pursuant to Rule 12b-1 under the
1940 Act. Our obligation for the foregoing expenses is limited by your agreement
to be responsible, while this Agreement is in effect, for any amount by which
our annual operating expenses, including distribution expenses (excluding taxes,
brokerage, interest and extraordinary expenses) exceed the limits on investment
company expenses prescribed by any state in which the Fund's shares are
qualified for sale.
4. We will expect of you, and you will give us the benefit of,
your best judgment and efforts in rendering these services to us, and we agree
as an inducement to your undertaking these services that you will not be liable
hereunder for any mistake of judgment or for any other cause, provided that
nothing herein shall protect you against any liability to us or to our security
holders by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties hereunder, or by reason of your reckless disregard of
your obligations and duties hereunder.
5. In consideration of the foregoing we will pay you monthly
an annual investment advisory fee equal to 1.00% of the first $100 million of
the Fund's average daily net assets; 0.75% of the next $100 million of such
assets; and 0.50% of the Fund's average daily net assets over $200 million. It
is understood that you have agreed to waive this fee for the first 60 days of
this Agreement. Your fee will be accrued by us daily, and will be payable on the
last day of each calendar month for services performed hereunder during that
month or on such other schedules as you shall request of us in writing. You may
waive your right to any fee to which you are entitled hereunder, provided such
waiver is delivered to us in writing. Any reimbursement of our expenses, to
which we may become entitled pursuant to paragraph 3 hereof, will be paid to us
at the end of the month for which those expenses are accrued, at the same time
as we pay you your fee.
6. This Agreement will become effective on ________, 1996 and
shall continue in effect until ________, 1998 and thereafter for successive
twelve-month periods (computed from each ________), provided that such
continuation is specifically approved at least annually by our Board of
Directors or by a majority vote of the holders of our outstanding voting
securities, as defined in the 1940 Act, and, in either case, by a majority of
those of our directors who are neither party to this Agreement nor, other than
by their service as directors of the corporation, interested persons, as defined
in the 1940 Act, of any such person who is party to this Agreement. Upon the
effectiveness of this Agreement, it shall supersede all previous Agreements
between us covering the subject matter hereof. This Agreement may be terminated
at any time, without the payment of any penalty, by vote of a majority of our
outstanding voting securities, as defined in the 1940 Act, or by a vote of a
majority of our entire Board of Directors, on sixty days' written notice to you,
or by you on sixty days' written notice to us.
7. This Agreement may not be transferred, assigned, sold or in
any manner hypothecated or pledged by you and this Agreement shall terminate
automatically in the event
-3-
C/M 12014.0000 348639.1
<PAGE>
of any such transfer, assignment, sale, hypothecation or pledge by you. The
terms "transfer", "assignment" and "sale" as used in this paragraph shall have
the meanings ascribed thereto by governing law and in applicable rules or
regulations of the Securities and Exchange Commission.
8. Except to the extent necessary to perform your obligations
hereunder, nothing herein shall be deemed to limit or restrict your right, or
the right of any of your officers, directors or employees who may also be a
director, officer or employee of ours, or of a person affiliated with us, as
defined in the 1940 Act, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
corporation, firm, individual or association.
If the foregoing is in accordance with your understanding,
will you kindly so indicate by signing and returning to us the enclosed copy
hereof.
Very truly yours,
THE DARUMA FUNDS, INC.
By:_______________________
Name:
Title:
ACCEPTED: ________, 1996
CASTLEROCK CAPITAL MANAGEMENT, INC.
By:________________________
Name:
Title:
-4-
C/M 12014.0000 348639.1
TRANSFER AGENCY AND SERVICE AGREEMENT
between
DARUMA MID-CAP VALUE FUND
and
AMERICAN DATA SERVICES, INC.
INDEX
1. TERMS OF APPOINTMENT; DUTIES OF ADS 3
2. FEES AND EXPENSES 4
3. REPRESENTATIONS AND WARRANTIES OF ADS 4
4. REPRESENTATIONS AND WARRANTIES OF THE FUND 5
5. INDEMNIFICATION 5
6. COVENANTS OF THE FUND AND ADS 6
7. TERMINATION OF AGREEMENT 7
8. ASSIGNMENT 7
9. AMENDMENT 7
10. NEW YORK LAWS TO APPLY 8
11. MERGER OF AGREEMENT 8
12. NOTICES. 8
FEE SCHEDULE 9
(A) ACCOUNT MAINTENANCE CHARGE: 9
(B) TRANSACTION FEES: 9
(C) IRA PLAN FEES: 10
FEE INCREASES 10
(D) EXPENSES: 10
(E) SPECIAL REPORTS: 10
(F) SECURITY DEPOSIT: 11
(G) CONVERSION CHARGE: 11
SCHEDULE A 12
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made the ______ day of _________ 1996, by and between DARUMA MID-CAP
VALUE FUND having its principal office and place of business at 237 Park Avenue,
Suite 801, New York, New York 10017 (the "Fund"), and AMERICAN DATA SERVICES,
INC., having its principal office and place of business at 24 West Carver
Street., Huntington, New York 11743 ("ADS").
WHEREAS, the Fund desires to appoint ADS as its transfer agent, dividend
disbursing agent and agent in connection with certain other activities, and ADS
desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. TERMS OF APPOINTMENT; DUTIES OF ADS
1.01 Subject to the terms and conditions set forth in this agreement,
the Fund hereby employs and appoints ADS to act as, and ADS agrees to act as its
transfer agent for the Fund's authorized and issued shares of its common stock,
$____ par value, ("Shares"), dividend disbursing agent and agent in connection
with any accumulation, open-account or similar plans provided to the
shareholders of the fund ("Shareholders") set out in the currently effective
prospectus and statement of additional information ("prospectus") of the Fund.
1.02 ADS agrees that it will perform the following services:
(a) In accordance with procedures established from time to
time by agreement between the Fund and ADS, ADS shall:
(i) Receive for acceptance, orders for the purchase of Shares, and promptly
deliver payment and appropriate documentation therefore to the Custodian of the
Fund authorized by the Board of Directors of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of Shares and
hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption directions
and deliver the appropriate documentation therefore to the Custodian;
(iv) At the appropriate time as and when it receives monies paid to it by the
Custodian with respect to any redemption, pay over or cause to be paid over in
the appropriate manner such monies as instructed by the redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and distributions declared
by the Fund;
(vii) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(viii) Record the issuance of shares of the Fund and maintain pursuant to SEC
Rule 17Ad-10(e) a record of the total number of shares of the Fund which are
authorized, based upon data provided to it by the Fund, and issued and
outstanding. ADS shall also provide the Fund on a regular basis with the total
number of shares which are authorized and issued and outstanding and shall have
no obligation, when recording the issuance of shares, to monitor the issuance of
such shares or to take cognizance of any laws relating to the issue or sale of
such shares, which functions shall be the sole responsibility of the Fund.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a), ADS shall:
(i) Perform all of the customary services of a transfer agent, dividend
disbursing agent, including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for all purchases redemption's
of Shares and other confirmable transactions in Shareholder accounts, preparing
and mailing activity statements for Shareholders, and providing Shareholder
account information and (ii) provide a system and reports which will enable the
Fund to monitor the total number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to ADS in writing those
transactions and shares to be treated as exempt from blue sky reporting for each
State and (ii) verify the establishment of such transactions for each state on
the system prior to activation and thereafter monitor the daily activity for
each State as provided by ADS. The responsibility of ADS for the Fund's blue sky
State registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Fund and the reporting of
such transactions to the Fund as provided above.
Procedures applicable to certain of these services may be established
from time to time by agreement between the Fund and ADS.
2. FEES AND EXPENSES
2.01 For performance by ADS pursuant to this Agreement, the Fund agrees
to pay ADS an annual maintenance fee for each Shareholder account and
transaction fees for each portfolio or class of shares serviced under this
Agreement (See Schedule A) as set out in the fee schedule attached hereto. Such
fees and out-of pocket expenses and advances identified under Section 2.02 below
may be changed from time to time subject to mutual written agreement between the
Fund and ADS.
2.02 In addition to the fee paid under Section 2.01 above, the Fund
agrees to reimburse ADS for out-of-pocket expenses or advances incurred by ADS
for the items set out in the fee schedule attached hereto. In addition, any
other expenses incurred by ADS at the request or with the consent of the Fund,
will be reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses within
five days following the receipt of the respective billing notice. Postage for
mailing of dividends, proxies, Fund reports and other mailings to all
shareholder accounts shall be advanced to ADS by the Fund at least seven (7)
days prior to the mailing date of such materials.
3. REPRESENTATIONS AND WARRANTIES OF ADS
ADS represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in good
standing under the laws of The State of New York.
3.02 It is duly qualified to carry on its business in The State of New
York.
3.03 It is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
3.06 ADS is duly registered as a transfer agent under the Securities Act
of 1934 and shall continue to be registered throughout the remainder of this
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to ADS that;
4.01 It is a corporation duly organized and existing and in good standing
under the laws of -----------------------.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to authorize it to enter into and
perform this Agreement.
4.04 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940.
4.05 A registration statement under the Securities Act of 1933 is
currently or will become effective and will remain effective, and appropriate
state securities law filings as required, have been or will be made and will
continue to be made, with respect to all Shares of the Fund being offered for
sale.
5. INDEMNIFICATION
5.01 ADS shall not be responsible for, and the Fund shall indemnify and
hold ADS harmless from and against, any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liability arising out of or attributable
to:
(a) All actions of ADS or its agents or subcontractors required to be taken
pursuant to this Agreement, provided that such actions are taken in good faith
and without gross negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this Agreement,
or which arise out of the Fund's lack good faith, gross negligence or willful
misconduct or which arise out of the breach of any representation or warranty of
the Fund hereunder.
(c) The reliance on or use by ADS or its agents or subcontractors of
information, records and documents which (i) are received by ADS or its agents
or subcontractors and furnished to it by or on behalf of the Fund, and (ii) have
been prepared and/or maintained by the Fund or any other person or firm on
behalf of the Fund.
(d) The reliance on, or the carrying out by ADS or its agents or
subcontractors of any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities laws or regulations of
any state that such Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such Shares in such state.
5.02 ADS shall indemnify and hold the Fund harmless from and against any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to any action or failure or omission to
act by ADS as a result of ADS's lack of good faith, gross negligence or willful
misconduct.
5.03 At any time ADS may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by ADS under this
Agreement, and ADS and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. ADS, its
agents and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Fund, reasonably believed to
be genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided ADS or its agents
or subcontractors by machine readable input, telex, CRT data entry or other
similar means authorized by the Fund, and shall not be held to have notice of
any change of authority of any person, until receipt of written notice thereof
from the Fund. ADS, its agents and subcontractors shall also be protected and
indemnified in recognizing stock certificates which are reasonably believed to
bear the proper manual or facsimile signatures of the officers of the Fund, and
the proper countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any act
or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party of seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
6. COVENANTS OF THE FUND AND ADS
6.01 The Fund Shall promptly furnish to ADS a certified copy of the
resolution of the Board of Directors of the Fund authorizing the appointment of
ADS and the execution and delivery of this Agreement.
6.02 ADS hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
6.03 ADS shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, and
the Rules thereunder, ADS agrees that all such records prepared or maintained by
ADS relating to the services to be performed by ADS hereunder are the property
of the Fund and will be preserved, maintained and made available in accordance
with such Section and Rules, and will be surrendered promptly to the Fund on and
in accordance with its request.
6.04 ADS and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, ADS will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. ADS reserves the right, however, to exhibit the Shareholder records
to any person whenever it is advised by its counsel that it may be held liable
for the failure to exhibit the Shareholder records to such person, and shall
promptly notify the Fund of any unusual request to inspect or copy the
shareholder records of the Fund or the receipt of any other unusual request to
inspect, copy or produce the records of the Fund.
7. TERMINATION OF AGREEMENT
7.01 This Agreement shall become effective as of the date hereof and
shall remain in force for a period of three (3) years, provided however, that
both parties to this Agreement have the option to terminate the Agreement,
without penalty, upon ninety (90) days prior written notice.
7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Fund. Additionally, ADS reserves the right to charge for any other
reasonable expenses associated with such termination.
8. ASSIGNMENT
8.01 Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
9. AMENDMENT
9.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Directors of the Fund.
10. NEW YORK LAWS TO APPLY
10.01 The provisions of this Agreement shall be construed and interpreted
in accordance with the laws of the State of New York as at the time in effect
and the applicable provisions of the 1940 Act. To the extent that the applicable
law of the State of New York, or any of the provisions herein, conflict with the
applicable provisions of the 1940 Act, the latter shall control. 11. MERGER OF
AGREEMENT
11.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
12. NOTICES.
All notices and other communications hereunder shall be in writing,
shall be deemed to have been given when received or when sent by telex or
facsimile, and shall be given to the following addresses (or such other
addresses as to which notice is given):
To the Fund: To the Administrator:
Mariko O. Gordon Michael Miola
President President
Daruma Mid-Cap Value Fund American Data Services, Inc.
237 Park Avenue , Suite 801 24 West Carver Street
New York, New York 10017 Huntington, New York 11743
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
DARUMA MID-CAP VALUE FUND AMERICAN DATA SERVICES, INC.
By:____________________________ By:__________________________
Mariko O. Gordon, President Michael Miola, President
FEE SCHEDULE
For the services rendered by ADS in its capacity as transfer agent, the
Fund shall pay ADS, within ten (10) days after receipt of an invoice from ADS at
the beginning of each month, a fee, calculated as a combination of account
maintenance charges and transaction charges as follows:
(a) ACCOUNT MAINTENANCE CHARGE:
The Greater of:
(1) Minimum maintenance charge per fund -
Under 250 accounts - $450.00/month (No prorating partial months); Over 250
accounts - $800.00/month (No prorating partial months);
OR,
(2) Based upon the total of all open/closed accounts in the Fund upon the
following annual rates (billed monthly): **
Equity Fund ....................... $ 10.00 per account
Fixed Income Fund............. $12.00 per account
Money Market Fund .......... $16.00 per account
Closed accounts ................. $ 2.00 per account***
** All accounts closed during a calendar year will be considered as open
accounts for billing purposes until the end of that calendar year.
*** Closed accounts will remain in the shareholder files until all 1099's and
5498's have been sent to shareholders and reported (via mag media) to the IRS.
(b) TRANSACTION FEES:
Trade Entry (purchase/liquidation) and maintenance transactions ..$ 1.35 each
New account set-up ..............................................$ 2.50 each
Customer service calls ...........................................$ 1.00 each
Correspondence/ information requests .............................$ 1.25 each
Check preparation ................................................$ .50 each
Liquidation's paid by wire transfer ..............................$ 3.00 each
Omnibus accounts .................................................$ 1.25 per
transaction*
ACH charge .......................................................$ .30 each
SWP ..............................................................$ 1.25 each *
* Not included as a Trade Entry.
(c) IRA PLAN FEES:
The following fees will be charged directly to the shareholder account:
Annual maintenance fee ................................... $15.00 /account *
Incoming transfer from prior custodian ................... $12.00
Distribution to a participant ............................ $15.00
Refund of excess contribution ............................ $15.00
Transfer to successor custodian .......................... $15.00
Automatic periodic distributions ........................ $15.00/year per
account
* Includes Star Bank N.A. $8.00 Custody Fee.
FEE INCREASES
On each annual anniversary date of this Agreement, the fees enumerated above
will be increased by the change in the Consumer Price Index for the Northeast
region (CPI) for the twelve month period ending with the month preceding such
annual anniversary date.
(d) EXPENSES:
The Fund shall reimburse ADS for any out-of-pocket expenses, exclusive
of salaries, advanced by ADS in connection with but not limited to the printing
of confirmation forms and statements, proxy expenses, travel requested by the
Fund, telephone, facsimile transmissions, stationery and supplies (related to
Fund records), record storage, postage (plus a $0.15 service charge for all
mailings), pro-rata portion of annual 17AD-13 audit letter, telex and courier
charges incurred in connection with the performance of its duties hereunder. ADS
shall provide the Fund with a monthly invoice of such expenses and the Fund
shall reimburse ADS within fifteen (15) days after receipt thereof.
(e) SPECIAL REPORTS:
All reports and/or analyses requested by the Fund that are not included
in the fee schedule, shall be subject to an additional charge, agreed upon in
advance, based upon the following rates:
Labor:
Senior staff - $100.00/hr. Junior staff - $ 50.00/hr.
Computer time - $45.00/hr.
(f) SECURITY DEPOSIT:
The Fund will remit to ADS upon execution of this Agreement a security
deposit of equal to one (1) month's shareholder service fee. The security
deposit computation will be based either on the total number of shareholder
accounts (open and closed) of the Fund or the minimum fee, whichever is greater
on the date above written. The Fund will have the option to have the security
deposit applied to the last month's service fee, or applied to any new contract
between the Fund and ADS.
(g) CONVERSION CHARGE:
NOTE: FOR EXISTING FUNDS ONLY (new funds please ignore):
There will be a charge to convert the Fund's shareholder accounting
records on to the ADS stock transfer system (ADSHARE). In addition, ADS will be
reimbursed for all out-of-pocket expenses, enumerated in paragraph (b) above and
data media conversion costs, incurred during the conversion process.
The conversion charge will be estimated and agreed upon in advance by
the Fund and ADS. The charge will be based upon the quantity of records to be
converted and the condition of the previous service agents records.
SCHEDULE A
PORTFOLIOS TO BE SERVICED UNDER THIS AGREEMENT:
DARUMA MID-CAP VALUE FUND
12
5
FUND ACCOUNTING SERVICE AGREEMENT
between
DARUMA MID-CAP VALUE FUND
and
AMERICAN DATA SERVICES, INC.
INDEX
1. DUTIES OF ADS. 3
2. COMPENSATION OF ADS. 4
3. LIMITATION OF LIABILITY OF ADS. 4
4. REPORTS. 5
5. ACTIVITIES OF ADS. 5
6. ACCOUNTS AND RECORDS. 5
7. CONFIDENTIALITY. 5
8. DURATION AND TERMINATION OF THIS AGREEMENT. 5
9. ASSIGNMENT. 6
10. NEW YORK LAWS TO APPLY 6
11. AMENDMENTS TO THIS AGREEMENT. 6
12. MERGER OF AGREEMENT 6
13. NOTICES. 6
SCHEDULE A 7
(A) FUND ACCOUNTING SERVICE FEE: 7
FEE INCREASES 7
(B) EXPENSES. 8
(C) SPECIAL REPORTS. 8
(D) SECURITY DEPOSIT. 8
(E) CONVERSION CHARGE. 8
SCHEDULE B: 9
FUND ACCOUNTING SERVICE AGREEMENT
AGREEMENT made the ______ day of _________ 1996, by and between DARUMA MID-CAP
VALUE FUND having its principal office and place of business at 237 Park Avenue,
Suite 801, New York, New York 10017 (the "Fund"), and AMERICAN DATA SERVICES,
INC., having its principal office and place of business at 24 West Carver
Street., Huntington, New York 11743 ("ADS").
BACKGROUND
WHEREAS, the Fund is a diversified, open-end management investment company
registered with the United States Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, ADS is a corporation experienced in providing accounting services to
mutual funds and possesses facilities sufficient to provide such services; and
WHEREAS, the Fund desires to avail itself of the experience, assistance and
facilities of ADS and to have ADS perform for the Fund certain services
appropriate to the operations of the Fund, and ADS is willing to furnish such
services in accordance with the terms hereinafter set forth.
TERMS
NOW, THEREFORE, in consideration of the promises and mutual covenants
hereinafter contained, the Fund and ADS hereby agree as follows:
1. DUTIES OF ADS.
ADS will provide the Fund with the necessary office space, communication
facilities and personnel to perform the following services for the Fund:
(a) Timely calculate and transmit to NASDAQ the Fund's daily
net asset value and communicate such value to the Fund and its transfer agent;
(b) Maintain and keep current all books and records of the
Fund as required by Rule 31a-1 under the 1940 Act, as such rule or any successor
rule may be amended from time to time ("Rule 31a-1"), that are applicable to the
fulfillment of ADS's duties hereunder, as well as any other documents necessary
or advisable for compliance with applicable regulations as may be mutually
agreed to between the Fund and ADS. Without limiting the generality of the
foregoing, ADS will prepare and maintain the following records upon receipt of
information in proper form from the Fund or its authorized agents:
Cash receipts journal
Cash disbursements journal
Dividend record
Purchase and sales - portfolio securities journals Subscription and
redemption journals Security ledgers Broker ledger General ledger Daily
expense accruals Daily income accruals Securities and monies borrowed or
loaned and collateral therefore Foreign currency journals Trial balances
(c) Provide the Fund and its investment adviser with daily
portfolio valuation, net asset value calculation and other standard operational
reports as requested from time to time.
(d) Provide all raw data available from our fund accounting
system (PAIRS) for management's or the administrators preparation of the
following:
1. Semi-annual financial statements;
2. Semi-annual form N-SAR;
3. Annual tax returns;
4. Financial data necessary to update form N-1a;
5. Annual proxy statement.
(e) Provide facilities to accommodate annual audit and any
audits or examinations conducted by the Securities and Exchange Commission or
any other governmental or quasi-governmental entities with jurisdiction.
ADS shall for all purposes herein be deemed to be an independent contractor and
shall, unless otherwise expressly provided or authorized, have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
2. COMPENSATION OF ADS.
In consideration of the services to be performed by ADS as set forth
herein for each portfolio listed in Schedule B, ADS shall be entitled to receive
compensation and reimbursement for all reasonable out-of-pocket expenses. The
Fund agrees to pay ADS the fees and reimbursement of out-of-pocket expenses as
set forth in the fee schedule attached hereto as Schedule A.
3. LIMITATION OF LIABILITY OF ADS.
(a) ADS shall be held to the exercise of reasonable care in carrying out
the provisions of the Agreement, but shall be without liability to the Fund for
any action taken or omitted by it in good faith without gross negligence, bad
faith, willful misconduct or reckless disregard of its duties hereunder. It
shall be entitled to rely upon and may act upon the accounting records and
reports generated by the Fund, advice of the Fund, or of counsel for the Fund
and upon statements of the Fund's independent accountants, and shall be without
liability for any action reasonably taken or omitted pursuant to such records
and reports or advice, provided that such action is not, to the knowledge of
ADS, in violation of applicable federal or state laws or regulations, and
provided further that such action is taken without gross negligence, bad faith,
willful misconduct or reckless disregard of its duties.
(b) Nothing herein contained shall be construed to protect ADS against
any liability to the Fund or its security holders to which ADS shall otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence in the
performance of its duties on behalf of the Fund, reckless disregard of the
Administrator's obligations and duties under this Agreement or the willful
violation of any applicable law.
(c) Except as may otherwise be provided by applicable law, neither ADS
nor its stockholders, officers, directors, employees or agents shall be subject
to, and the Fund shall indemnify and hold such persons harmless from and
against, any liability for and any damages, expenses or losses incurred by
reason of the inaccuracy of information furnished to ADS by the Fund or its
authorized agents.
4. REPORTS.
(a) The Fund shall provide to ADS on a quarterly basis a report of a
duly authorized officer of the Fund representing that all information furnished
to ADS during the preceding quarter was true, complete and correct in all
material respects. ADS shall not be responsible for the accuracy of any
information furnished to it by the Fund or its authorized agents, and the Fund
shall hold ADS harmless in regard to any liability incurred by reason of the
inaccuracy of such information.
(b) Whenever, in the course of performing its duties under this
Agreement, ADS determines, on the basis of information supplied to ADS by the
Fund or its authorized agents, that a violation of applicable law has occurred
or that, to its knowledge, a possible violation of applicable law may have
occurred or, with the passage of time, would occur, ADS shall promptly notify
the Fund and its counsel of such violation.
5. ACTIVITIES OF ADS.
The services of ADS under this Agreement are not to be deemed exclusive,
and ADS shall be free to render similar services to others so long as its
services hereunder are not impaired thereby.
6. ACCOUNTS AND RECORDS.
The accounts and records maintained by ADS shall be the property of the
Fund, and shall be surrendered to the Fund promptly upon request by the Fund in
the form in which such accounts and records have been maintained or preserved.
ADS agrees to maintain a back-up set of accounts and records of the Fund (which
back-up set shall be updated on at least a weekly basis) at a location other
than that where the original accounts and records are stored. ADS shall assist
the Fund's independent auditors, or, upon approval of the Fund, any regulatory
body, in any requested review of the Fund's accounts and records. ADS shall
preserve the accounts and records as they are required to be maintained and
preserved by Rule 31a-1.
7. CONFIDENTIALITY.
ADS agrees that it will, on behalf of itself and its officers and
employees, treat all transactions contemplated by this Agreement, and all other
information germane thereto, as confidential and not to be disclosed to any
person except as may be authorized by the Fund.
8. DURATION AND TERMINATION OF THIS AGREEMENT.
This Agreement shall become effective as of the date hereof and shall
remain in force for a period of three (3) years, provided however, that both
parties to this Agreement have the option to terminate the Agreement, without
penalty, upon ninety (90) days prior written notice.
Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Fund. Additionally, ADS reserves the right to charge for any other
reasonable expenses associated with such termination.
9. ASSIGNMENT.
This Agreement shall extend to and shall be binding upon the parties
hereto and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable by the Fund without the prior written consent
of ADS, or by ADS without the prior written consent of the Fund.
10. NEW YORK LAWS TO APPLY
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the 1940 Act. To the extent that the applicable law
of the State of New York, or any of the provisions herein, conflict with the
applicable provisions of the 1940 Act, the latter shall control.
11. AMENDMENTS TO THIS AGREEMENT.
This Agreement may be amended by the parties hereto only if such
amendment is in writing and signed by both parties.
12. MERGER OF AGREEMENT
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
13. NOTICES.
All notices and other communications hereunder shall be in writing,
shall be deemed to have been given when received or when sent by telex or
facsimile, and shall be given to the following addresses (or such other
addresses as to which notice is given):
To the Fund: To the Administrator:
Mariko O. Gordon Michael Miola
President President
Daruma Mid-Cap Value Fund American Data Services, Inc.
237 Park Avenue , Suite 801 24 West Carver Street
New York, New York 10017 Huntington, New York 11743
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
DARUMA MID-CAP VALUE FUND AMERICAN DATA SERVICES, INC.
By:____________________________ By:__________________________
Mariko O. Gordon, President Michael Miola, President
SCHEDULE A
(a) FUND ACCOUNTING SERVICE FEE:
For the services rendered by ADS in its capacity as fund accounting
agent, as specified in Paragraph 1. DUTIES OF ADS, the Fund shall pay ADS,
within ten (10) days after receipt of an invoice from ADS at the beginning of
each month, a fee equal to:
Monthly fund accounting service fees will be determined utilizing either the
minimum fee per portfolio, or the net asset charge, whichever is greater:
Calculated Fee Will Be Based Upon Prior Month Average Net Assets:
(No prorating partial months)
MONTHLY MINIMUM FEE PER PORTFOLIO:
Portfolio Type
Net Assets (in millions) Global Domestic Money Mkt
Under $3 ....... $1,000 $800 $600
From $3 to $ 5 . 1,375 900 825
From $5 to $10 . 1,750 1,250 1,050
From $10 to $20 2,125 1,600 1,275
From $20 to $25 2,500 2,200 1,500
Over $25 ....... 3,000 3,050 2,000
OR,
MONTHLY NET ASSET CHARGE (on all assets in fund group):
First $500 million .............. 1/12th of 3.0 basis points
Next $500 million .............. 1/12th of 2.0 basis points
Excess over $1 billion ........ 1/12th of 1.25 basis points
MULTI-CLASS PROCESSING CHARGE
$300 per month will be charged for each additional class of stock per portfolio.
FEE INCREASES
On each annual anniversary date of this Agreement, the fees enumerated
above will be increased by the change in the Consumer Price Index for the
Northeast region (CPI) for the twelve month period ending with the month
preceding such annual anniversary date.
(b) EXPENSES.
The Fund shall reimburse ADS for any out-of-pocket expenses , exclusive
of salaries, advanced by ADS in connection with but not limited to the printing
or filing of documents for the Fund, travel, telephone, quotation services,
facsimile transmissions, stationery and supplies, record storage, postage,
telex, and courier charges, incurred in connection with the performance of its
duties hereunder. ADS shall provide the Fund with a monthly invoice of such
expenses and the Fund shall reimburse ADS within fifteen (15) days after receipt
thereof.
(c) SPECIAL REPORTS.
All reports and /or analyses requested by the Fund, its auditors, legal
counsel, portfolio manager, or any regulatory agency having jurisdiction over
the Fund, that are not in the normal course of fund accounting activities as
specified in Section 1 of this Agreement shall be subject to an additional
charge, agreed upon in advance, based upon the following rates:
Labor:
Senior staff - $100.00/hr. Junior staff - $ 50.00/hr.
Computer time - $45.00/hr.
(d) SECURITY DEPOSIT.
The Fund will remit to ADS upon execution of this Agreement a security
deposit equal to one (1) month's minimum fee under this Agreement, computed in
accordance with the number of portfolios listed in Schedule B of this Agreement
without giving effect to any fee waivers that may be in effect. The Fund will
have the option to have the security deposit applied to the last month's service
fee, or applied to any new contract between the Fund and ADS.
(e) CONVERSION CHARGE.
NOTE: FOR EXISTING FUNDS ONLY (new funds please ignore):
There will be a charge to convert the Fund's portfolio accounting
records on to the ADS fund accounting system (PAIRS). In addition, ADS will be
reimbursed for all out-of-pocket expenses, enumerated in paragraph (b) above,
incurred during the conversion process.
The conversion charge will be estimated and agreed upon in advance by
the Fund and ADS. The charge will be based upon the quantity of records to be
converted and the condition of the previous service agents records.
SCHEDULE B:
PORTFOLIOS TO BE SERVICED UNDER THIS AGREEMENT:
DARUMA MID-CAP VALUE FUND
9
