Securities Act File No. 333-29253
Investment Company Act File No. 811-8253
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No.
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Post-Effective Amendment No. 1
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 3
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(Check appropriate box or boxes)
BOYAR VALUE FUND, INC.
(Exact Name of Registrant as Specified in Charter)
590 Madison Avenue
New York, New York 10022
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (212) 409-2000
Mr. Jay R. Petschek
Boyar Value Fund, Inc.
590 Madison Avenue
New York, New York 10022
(Name and Address of Agent for Service)
Copies to:
Daniel Schloendorn, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
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)
/ / days after filing pursuant to paragraph (a)
/X/ on May 1, 1999 pursuant to paragraph (a) of Rule 485
Registrant registered an indefinite number of shares under the Securities
Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Registrant's Rule 24f-2 Notice for the fiscal year ended December 31, 1998 was
filed with the Commission on February 22, 1999.
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BOYAR VALUE FUND, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A)
UNDER THE SECURITIES ACT OF 1933
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PART A
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Item No. Registration Statement Caption Caption in Prospectus
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1. Front and Back Cover Pages Cover Pages
2. Risk/Return Summary: Risk/Return Summary
Investments, Risks,
and Performance
3. Risk/Return Summary: Expense Information
Fee Table
4. Investment Objectives, Investment Objective,
Principal Investment Investment Strategies
Strategies, and Related Risks and Risk Considerations
5. Management's Discussion of Inapplicable (contained in
Fund Performance and Analysis Annual Report
6. Management, Organization, Management of the Fund
and Capital Structure
7. Shareholder Information How to Purchase Shares; How
to Redeem Shares; Dividend
and Distributions; Taxes;
Calculation of Share Price;
Application
8. Distribution Arrangements Management of the Fund
9. Financial Highlights Financial Highlights
Information
PART B
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Caption in Statement
of Additional
Item No. Registration Statement Caption Information
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10. Cover Page and Table Cover Page; Table of
of Contents Contents
11. Fund History The Fund
12. Description of the Fund and Investment Objective and,
Its Investments and Risks Policies; Considerations;
Quality Ratings of Corporate
Bonds and Preferred Stocks;
Investment Limitations;
Securities Transactions;
Portfolio Turnover
(i)
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13. Management of the Fund Directors and Officers
14. Control Persons and Principal Principal Security
Holders of Securities Holders
15. Investment Advisory and Other The Manager; The Investment
Services Adviser; Distribution and
Shareholder Servicing Plan;
Custodian; Auditors and
Counsel; Countrywide Fund
Services, Inc.; Securities
Transactions
16. Brokerage Allocation and Other Securities Transactions
Practices
17. Capital Stock and Other The Fund
Securities
18. Purchase, Redemption and Calculation of Share
Pricing of Shares Price; Additional Purchase
and Redemption Information
19. Taxation of the Fund Taxes
20. Underwriters The Distributor
21. Calculation of Performance Historical Performance
Data Information
22. Financial Statements Annual Report
PART C
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The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
(ii)
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BOYAR
VALUE FUND
PROSPECTUS
MAY 1, 1999
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PROSPECTUS
May 1, 1999
BOYAR VALUE FUND, INC.
590 Madison Avenue, New York, NY 10022
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Boyar Value Fund, Inc. (the "Fund") is a no-load mutual fund that seeks
long-term capital appreciation, which it pursues by investing primarily in
equity securities of companies that are believed by the Fund's investment
adviser to be intrinsically undervalued.
Investment advisory services for the Fund are provided by Boyar Asset
Management, Inc. (the "Adviser") and the Fund is managed by Ladenburg Thalmann
Fund Management Inc. (the "Manager").
This Prospectus has information you should know before you invest. Please read
it carefully and retain it with your investment records. Although these
securities have been registered with the Securities and Exchange Commission, the
Commission has not judged them for investment merit and does not guarantee the
accuracy or adequacy of the information in this Prospectus. Anyone who informs
you otherwise is committing a criminal offense.
TABLE OF CONTENTS
Risk/Return Summary........................................................
Expense Information........................................................
Investment Objective, Investment Strategies and Risk Considerations........
Management of the Fund.....................................................
How to Purchase Shares.....................................................
How to Redeem Shares.......................................................
Shareholder Services.......................................................
Dividends and Distributions................................................
Taxes......................................................................
Calculation of Share Price.................................................
Financial Highlights.......................................................
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FOR INFORMATION OR ASSISTANCE IN OPENING AN ACCOUNT, PLEASE CALL:
(Toll-Free) 1-800-266-5566
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RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is long-term capital appreciation.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
Under normal market conditions, the Fund will invest primarily in equity
securities which are believed by the Adviser to be intrinsically undervalued.
Intrinsic value, as the Adviser defines it, is the estimated current worth that
would accrue to the stockholders of a company, either through liquidation of
corporate assets upon termination of operations, or through the sale or merger
of the entire enterprise as a continuing business.
The Adviser believes that stock market prices often fail to accurately reflect
the underlying intrinsic value of companies. To find undervalued stocks, the
Adviser evaluates a corporation and its assets as any acquisition-minded
business executive would. The Adviser takes the company's balance sheet, tears
it apart, and reconstructs it in accordance with economic reality -- as opposed
to generally accepted accounting principles. If the Adviser determines that he
would purchase the assets of a company at a significant discount to intrinsic
value, the Adviser believes that after a reasonable period of time, either the
stock market will accurately reflect those values, or the assets of the
corporation will be acquired by a third party.
The Adviser utilizes a "Buy and Hold" investment strategy which reflects the
determination to grow capital and maintain purchasing power by holding stocks
for the long term. A long- term orientation may seem stodgy, but this approach
is as important to investment success as pricing the right stocks at the right
price and at the right time. Holding the equity of good companies purchased at
bargain prices allows compounding to work without the return-eroding effects of
commissions and capital gains taxes. The Adviser employs a variety of different
investment strategies and techniques to uncover opportunities for the Fund.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?
The return on and value of an investment in the Fund will fluctuate in response
to stock market movements. Stocks and other equity securities are subject to
market risks and fluctuations in value due to earnings, economic conditions and
other factors beyond the control of the Adviser. As a result, there is a risk
that you could lose money by investing in the Fund.
Further risks associated with an investment in the Fund may arise from the
Fund's investment in the securities of small and medium-sized companies and
foreign securities and the Fund's ability to write call options and purchase put
options, although the Fund plans to write and purchase options for hedging
purposes only.
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EXPENSE INFORMATION
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY IF YOU BUY AND
HOLD SHARES OF THE FUND.
SHAREHOLDER FEES (fees paid directly from your investment)
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fee None 1
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
Management and Advisory Fees 1.00%
Distribution (12b-1) Fees .25%
Other Expenses 1.20%
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Total Annual Fund Operating Expenses 2 2.45%
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1 A wire transfer fee is charged by the Fund's custodian in the case of
redemptions made by wire. Such fee is subject to change and is currently
$9.
2 The Manager and the Adviser are voluntarily absorbing certain expenses
(excluding litigation, indemnification, taxes and other extraordinary
expenses) that would cause the Fund's total annual operating expenses to
exceed 1.75%. It is currently anticipated that this arrangement will
continue until further notice to shareholders.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 Year 3 Years
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$ 248 $ 764
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INVESTMENT OBJECTIVE, INVESTMENT STRATEGIES AND RISK CONSIDERATIONS
IN GENERAL
The investment objective of the Fund is long-term capital appreciation, which it
pursues by investing primarily in equity securities which are believed by the
Adviser to be intrinsically undervalued. The Fund seeks to achieve its
investment objective by investing substantially all, but under normal market
conditions no less than 65%, of its total assets in equity securities, including
common stock, preferred stock or securities convertible into or exchangeable for
common stock. It is anticipated that the equity securities in which the Fund
will invest will be traded on domestic and foreign securities exchanges or on
the over-the-counter markets. The Fund is not intended to be a complete
investment program, and there is no assurance that its investment objective can
be achieved. The Fund's investment objective is fundamental and as such may not
be changed without the affirmative vote of the holders of a majority of its
outstanding shares. Unless otherwise indicated, all investment practices and
limitations of the Fund are nonfundamental policies which may be changed by the
Board of Directors without shareholder approval.
Because the Fund will invest primarily in equity securities, it will be subject
to general conditions prevailing in securities markets and the net asset value
of the Fund's shares will fluctuate with changes in the market prices of its
portfolio securities.
INVESTMENT STRATEGIES
The Adviser seeks out intrinsically undervalued corporations and purchases their
shares at low prices relative to their perceived inherent worth. This can lead
to the potential for significant capital appreciation. The intrinsic value of a
corporation is the estimated current worth that would accrue to the stockholders
of a company, either through liquidation of corporate assets upon termination of
operations, or through the sale or merger of the entire enterprise as a
continuing business. In the Adviser's opinion, within an investment time horizon
of three to five years, typically either the stock market will accurately
reflect a corporation's intrinsic value or the assets of the corporation will be
acquired by a third party. From 1975 through December 31, 1998, approximately
___% of the corporations that the chief investment officer of the Adviser, Mark
A. Boyar, has extensively researched and written in-depth research reports about
in Asset Analysis Focus have been acquired or liquidated (i.e., the assets were
sold to a third party and the proceeds of the sale were distributed to the
shareholders) at a premium to the price of the company's shares at the time the
initial research report appeared in Asset Analysis Focus. Of the companies which
were acquired or liquidated, the average time period from the date the initial
research report was issued until a transaction actually occurred was ___ years.
This "buy and hold" investment strategy reflects the determination to grow
capital and maintain purchasing power by holding stocks for the long term. A
long-term orientation may sound stodgy, but this approach is as important to
investment success as picking the right stocks at the right price and at the
right time. Holding the equity of good companies purchased at bargain prices
allows compounding to work without the return-eroding effects of commissions and
capital gains taxes. Buying and holding stocks not only postpones the payment of
capital gains taxes but there are also added positive effects on the compounding
rate. The Adviser believes that by reducing the number of transactions generated
by profit taking, all the money invested is still working for a better return
until future tax liability is incurred.
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There is an advantage to the "buy and hold" investment strategy assuming various
rates of return. Frequent securities trading may increase the tax liabilities of
investors and reduce investors' after tax return by not taking advantage of
lower capital gains rates and the advantage of deferring payment of federal tax
liabilities. Under a "buy and hold" strategy, tax liabilities may be deferred to
the future and, when paid, may be paid at capital gains rates that may be lower
than ordinary tax rates. There is no guarantee that federal capital gains rates
will remain lower than federal ordinary tax rates.
To hasten the recognition factor of an intrinsically undervalued corporation's
shares in the marketplace, the Adviser also looks for companies that have some
type of catalyst or trigger, for example: a corporation that has undergone, or
is about to undergo, an asset redeployment program, resulting in potentially
greater return on assets; a company whose chief operating officer and major
stockholder is relatively old and has no heir to take over the company upon his
death or retirement; or a corporation that is engaged in more than one business,
with the possibility that the second business might be spun off to the existing
shareholders. The Adviser generally will avoid investing in corporations whose
shares are widely held by institutions or closely followed by investment
analysts, because the likelihood of a great disparity between stock market value
and intrinsic value is remote.
At the time of the purchase of the corporation's shares, the Adviser determines
the value of all of the assets and liabilities of the corporation and thereby
establishes a potential selling price for the corporation's common stock. The
Adviser reviews the company's asset base from time to time (especially when the
common stock of a corporation nears its selling price target), to carefully
determine if something has changed to alter the Adviser's opinion - if not, the
security is sold when it meets its fully valued price.
The Adviser may alternatively sell covered call options or buy put options with
exercise prices at a stock's sell target price, although it is not currently
anticipated that the value of the underlying securities on which covered call
and put options will be written or purchased, respectively, will exceed 5% of
the Fund's total assets.
The Adviser employs a variety of different investment strategies to uncover
investment opportunities for the Fund, including the following:
1. Hidden Assets
"Hidden" assets are assets whose current values are undervalued on a
corporation's financial statements - a situation which may lead to a
disparity between market value and intrinsic worth. Hidden assets include
real estate (buildings and undeveloped acreage), reserves of natural
resources (coal, gas, oil and timber), cellular or cable franchises, and
inventory reserves resulting from the last-in, first-out method of
inventory accounting. The Adviser adjusts the value of these assets to
their current market value to calculate the intrinsic worth of the
corporation, which may be much higher than the value the stock market
accords them.
2. Underpriced Businesses
Excessive pessimism about a particular industry or a specific company may
result in extreme disparities between the stock market value of a
corporation and the price that would be placed upon the company if the
entire enterprise were acquired by a knowledgeable private investor. When
employing this method of valuation, the Adviser considers the subject
corporation's
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historical earning power, present product mix and financial strength as
well as the prices at which similar corporations have been acquired in the
recent past. The Adviser's findings help place an appropriate value on the
shares of the subject company.
3. Undervalued Franchises
A number of corporations have, over time, created valuable consumer
franchises. Their products are recognized easily by consumers around the
world. Such franchises are virtually impossible for a potential competitor
to duplicate. These "franchise" corporations often can raise prices or even
charge a premium for their products or services without losing market
share. The value of this competitive advantage may not be adequately
reflected in the price of the company's shares.
4. Selling For Less Than Net Working Capital
The minimum liquidation value of a corporation is, in most instances, its
net working capital value. This amount is determined by subtracting from
current assets all liabilities senior to the common stock, including
current liabilities, long term debt, preferred stock, capitalized lease
obligations and certain pension liabilities. The stock market will, at
pessimistic extremes, value individual securities at a discount to their
net working capital on a per share basis. Investments made at these levels
provide an opportunity to purchase securities below their liquidating value
and acquire the pro-rata value of property, plant and equipment at zero
cost.
5. "Fallen Angels"
Well known corporations, that were once the "darlings" of Wall Street, may
fall out of favor with the investment community, causing their stock prices
to plummet to unrealistically low levels. The Adviser may purchase shares
of such companies if it determines that the fundamentals of such a concern
are not permanently impaired.
6. Restructuring Plays, Breakups and Spin-offs
A company interested in enhancing shareholder value may spin off a portion
of its assets to current stockholders through the creation of a new public
entity. The common stock of the newly spun-off company often trades
temporarily at a substantial discount to its underlying net asset value.
This is in part because this new entity is not immediately followed by Wall
Street analysts. However, the newly focused "pure play" companies often
perform well and soon receive more coverage than they ever would have as
one ungainly and difficult to analyze conglomerate.
7. Bankruptcies
An over-leveraged company that declares bankruptcy can purge itself of
excess debt and then emerge as a more competitive enterprise. The stigma of
bankruptcy, however, can sometimes depress the stock prices of those
companies to bargain levels.
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8. Under-Followed Companies
The Adviser normally invests in the equity of corporations not widely held
by institutions or closely followed by other investment analysts. The
Adviser believes that this is the area where the stock market is most
inefficient in providing investors the opportunity to find unrecognized
values. High-profile, popular companies are monitored carefully and
consistently by portfolio managers and investment analysts. The likelihood
of a profitable disparity developing between the stock market values and
the intrinsic values of these businesses is remote.
9. Low Price to Earnings Ratios
The Adviser believes that the risk inherent in the stock selection process
can be reduced by purchasing common stock at price to earnings ratios that
are low relative to those that prevail in the general stock market.
Earnings disappointments rarely hurt low price to earnings common stocks
for long periods of time. On the other hand, positive earnings surprises
usually result in an increase of the price to earnings ratio.
10. Large Free Cash Flows
The Adviser favors companies that generate significantly more cash than
they need to finance day-to-day operations. Such companies can use this
excess cash to repurchase their own shares, increase dividends or make
acquisitions.
11. Insider Ownership
The Adviser will take positions in the common equity of corporations whose
executives buy and hold large amounts of the company's stock. Significant
insider ownership of a corporation's shares indicates that the interests of
the executives and managers who own those shares are aligned with the
interests of other shareholders and they have a powerful incentive to work
for the company's long-term success. On the other hand, insignificant
insider ownership can depress the shares of an otherwise good company
because its managers own too little equity in the business to care much
about maximizing shareholder value. The Adviser evaluates investments in
companies with extreme positions of insider ownership significant or
insignificant - to aid in determining a company's intrinsic value.
Excessive non-stock and non-performance related compensation for a
company's top officers can also depress the shares of an otherwise good
company.
In making investment selections, the Fund also focuses on certain fundamental
financial characteristics of a company, including debt to capital ratios and the
market capitalization of small-, medium- and large-sized companies. The Fund has
no policy regarding the minimum or maximum market capitalization of companies in
which it may invest. Although the Fund will invest primarily in domestic
securities, and has no intention of investing any significant portion of its
assets in foreign securities, it reserves the right to invest in foreign
securities in an amount up to 15% of the Fund's total assets.
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For defensive purposes, the Fund may from time to time have a significant
portion, and possibly all, of its assets in U.S. Government obligations,
corporate bonds rated at least Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Ratings Group ("S&P"), or money market
instruments. "U.S. Government obligations" include securities which are issued
or guaranteed by the United States Treasury, by various agencies of the United
States Government, and by various instrumentalities which have been established
or sponsored by the United State Government. Bonds rated Baa by Moody's or BBB
by S&P, while considered "investment grade" obligations, may have speculative
characteristics. The money market instruments which the Fund may own from time
to time include U.S. Government obligations having a maturity of less than one
year, commercial paper rated at least A-2 by S&P or Prime-2 by Moody's,
repurchase agreements, bank debt instruments (certificates of deposit, time
deposits and bankers' acceptances) and other short-term instruments issued by
domestic branches of U.S. financial institutions that are insured by the Federal
Deposit Insurance Corporation and have assets exceeding $10 billion.
RISK CONSIDERATIONS
PRICE FLUCTUATION. Because the major portion of the Fund's portfolio consists of
common stocks, it may be expected that its net asset value will be subject to
greater fluctuation than a portfolio containing mostly fixed income securities.
SMALL- AND MEDIUM-SIZED COMPANIES. There is no minimum or maximum market
capitalization of the companies in which the Fund may invest. Investing in
securities of small- and medium-sized companies may involve greater risks since
these securities may have limited marketability and, thus, may be more volatile
than securities of larger, more established companies or the market in general.
Because small- and medium-sized companies normally have fewer shares outstanding
than larger companies, it may be more difficult for the Fund to buy or sell
significant amounts of these shares without an unfavorable impact on prevailing
prices. Small-sized companies may have limited product lines, markets or
financial resources and may lack management depth. In addition, small- and
medium-sized companies are typically subject to a greater degree of changes in
earnings and business prospects than are larger, more established companies.
There is typically less publicly available information concerning small- and
medium-sized companies than for larger, more established ones. Although
investing in securities of small- and medium-sized companies offers potential
for above-average returns if the companies are successful, the risk exists that
such companies will not succeed and the prices of their shares could
significantly decline in value.
RELATED TRANSACTIONS. The Fund may purchase securities that have been researched
by Asset Analysis Focus (the research service affiliated with the Adviser).
However, the Fund will acquire new recommendations made by Asset Analysis Focus
no earlier than five business days after publication of Asset Analysis Focus.
The Fund may also purchase shares in combination with other accounts managed by
the Adviser. These practices may have an impact on the price and availability of
the securities to be purchased by the Fund.
FOREIGN SECURITIES. Foreign securities present special considerations not
typically associated with investments in domestic securities. Foreign taxes may
reduce income. Currency exchange rates and regulations may cause fluctuations in
the value of foreign securities. Foreign securities are subject to different
regulatory environments than in the United States and, compared to the United
States, there may be a lack of uniform accounting, auditing and financial
reporting standards, less volume and liquidity and more volatility, less public
information and less regulation of foreign issuers. Countries
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have been known to expropriate or nationalize assets, and foreign investments
may be subject to political, financial or social instability or adverse
diplomatic developments. There may be difficulties in obtaining service of
process on foreign issuers and difficulties in enforcing judgments with respect
to claims under the U.S. securities laws against these issuers. Favorable or
unfavorable differences between U.S. and foreign economies could affect foreign
securities values. The U.S. Government has, in the past, discouraged certain
foreign investments by U.S. investors through taxation or other restrictions and
it is possible that such restrictions could be imposed again.
MANAGEMENT OF THE FUND
The Fund is an open-end, diversified management investment company organized as
a Maryland corporation. The Board of Directors supervises the business
activities of the Fund. Like other mutual funds, various organizations are
retained to perform specialized services for the Fund.
MANAGER
Pursuant to a Management Agreement with the Fund, the Manager oversees the daily
operations of the Fund and supervises the performance of administrative and
professional services provided by others, including the Adviser. As compensation
for its services and the related expenses borne by the Manager, the Fund pays
the Manager a fee, computed daily and payable monthly, at the annual rate of
.50% of the Fund's average daily net assets. The Manager may voluntarily waive
all or a portion of its fees from time to time and in its discretion reimburse
expenses to be paid by the Fund.
The Manager is located at 590 Madison Avenue, New York, New York 10022.
Ladenburg Thalmann Asset Management Inc. owns 50% of the outstanding securities
of the Manager. Ladenburg Thalmann Asset Management Inc. is a wholly-owned
subsidiary of Ladenburg Thalmann & Co. Inc. ("LTCI"), a registered broker-dealer
and a member of the New York Stock Exchange since 1876. Ebbets Field Association
LLC, an entity controlled by Mark A. Boyar, holds the other 50% of the
outstanding voting securities of the Manager.
INVESTMENT ADVISER
The Adviser is an affiliate of Mark Boyar & Company, Inc. ("Mark Boyar & Co."),
a registered broker-dealer. The Adviser's principal business address is 35 East
21st Street, New York, New York 10010.
Pursuant to the Investment Advisory Agreement among the Manager, the Adviser and
the Fund, the Adviser has agreed to furnish continuous investment advisory
services to the Fund. Subject to the supervision and direction of the Manager
and the Board of Directors, the Adviser manages the Fund's portfolio in
accordance with the stated policies of the Fund. The Adviser makes investment
decisions for the Fund and places the purchase and sale orders for portfolio
transactions. For the services provided pursuant to the Investment Advisory
Agreement, the Fund pays the Adviser a fee, computed daily and payable monthly,
at the annual rate of .50% of the Fund's average daily net assets. The Adviser
may voluntarily waive all or a portion of its fees from time to time and in its
discretion reimburse expenses to be paid by the Fund.
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Mark A. Boyar is the chief investment officer of the Fund, and is primarily
responsible for the day-to-day management of the Fund's portfolio. Mr. Boyar,
the President of Mark Boyar & Co., has also been the President of the Adviser
since 1983. Mark Boyar & Co. publishes Asset Analysis Focus, an institutionally
oriented research service that focuses on uncovering intrinsically undervalued
corporations for investment and merger and acquisition activity.
DISTRIBUTOR
Ladenburg Thalmann & Co. Inc., 590 Madison Avenue, New York, New York 10022,
serves as the primary agent for the distribution of shares of the Fund. LTCI is
a member of the New York Stock Exchange, the American Stock Exchange and other
principal national securities exchanges.
LTCI is paid monthly fees by the Fund in connection with the servicing of
shareholder accounts. A monthly service fee, authorized pursuant to a
Shareholder Servicing and Distribution Plan (the "Plan") adopted by the Fund
pursuant to Rule 12b-1 under the 1940 Act, is calculated at the annual rate of
.25% of the value of the average daily net assets of the Fund and is used by
LTCI to provide compensation for ongoing servicing and/or maintenance of
shareholder accounts with the Fund. Compensation is paid by LTCI to persons,
including employees of LTCI, who respond to inquiries of shareholders of the
Fund regarding their ownership of shares or their accounts with the Fund or who
provide other similar services not otherwise required to be provided by other
agents of the Fund.
Payments under the Plan are not tied exclusively to the service expenses
actually incurred by LTCI, and the payments may exceed expenses actually
incurred by LTCI. The Board of Directors evaluates the appropriateness of the
Plan and its payment terms on a continuing basis and in doing so considers all
relevant factors, including expenses borne by LTCI and amounts it receives under
the Plan.
HOW TO PURCHASE SHARES
THERE ARE NO SALES COMMISSIONS CHARGED TO INVESTORS. Assistance in opening
accounts may be obtained from the Transfer Agent by calling 1-800-266-5566, or
by writing to the Fund at the address shown below for regular mail orders.
Assistance is also available through any broker-dealer authorized to sell shares
of the Fund. Such broker-dealer may charge you a fee for its services. Payment
for shares purchased may be made through your account at the broker-dealer
processing your application and order to purchase. Your investment will purchase
shares at the Fund's net asset value next determined after your order is
received by the Fund in proper order as indicated herein. The minimum initial
investment in the Fund, unless stated otherwise herein, is $5,000. For
retirement plans, the minimum initial investment is $2,500. The Fund may, in the
Manager's sole discretion, accept certain accounts with less than the stated
minimum initial investment.
Payment must be made by check or money order drawn on a U.S. bank and payable in
U.S. dollars. All orders received by the Transfer Agent, whether by mail, bank
wire or facsimile order from a qualified broker-dealer, prior to the close of
regular trading on the New York Stock Exchange (normally 4:00 p.m., Eastern
time) will purchase shares at the net asset value next determined on that
business day. If your order is not received by the close of regular trading on
the New York Stock Exchange, your order will purchase shares at the net asset
value determined on the next business day.
See "Calculation of Share Price."
The Fund mails you confirmations of all purchases or redemptions of Fund shares.
The Fund and the Manager reserve the rights to limit the amount of investments
and to refuse to sell to any person.
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The Fund's account application contains provisions in favor of the Fund, the
Transfer Agent and certain of their affiliates, excluding such entities from
certain liabilities (including, among others, losses resulting from unauthorized
shareholder transactions) relating to the various services made available to
investors.
Should an order to purchase shares be canceled because your check does not
clear, you will be responsible for any resulting losses or fees incurred by the
Fund or the Transfer Agent in the transaction.
REGULAR MAIL ORDERS. Please complete and sign the Account Application form
accompanying this Prospectus and send it with your check, made payable to Boyar
Value Fund, Inc. and mail it to:
Boyar Value Fund, Inc.
c/o Shareholder Services
P.O. Box 5354
Cincinnati, Ohio 45201-5354
BANK WIRE ORDERS. Provided the Fund has received a completed Account
Application, investments can be made directly by bank wire. To establish a new
account or add to an existing account by wire, please call the Fund, at
1-800-266-5566 for instructions. Your bank may impose a charge for sending your
wire. There is presently no fee for receipt of wired Funds, but the Transfer
Agent reserves the right to charge shareholders for this service upon thirty
days' notice to shareholders.
It is important that the wire contain all the information and that the Fund
receives prior telephone notification to ensure proper credit. To make your
initial wire purchase, you must mail a completed Account Application to the
Transfer Agent.
ADDITIONAL INVESTMENTS. You may add to your account by mail or wire (minimum
additional investment of $1,000) at any time by purchasing shares at the then
current net asset value as aforementioned. Before making additional investments
by bank wire, please call the Fund at 1-800- 266-5566. Follow the wire
instructions given to send your wire. When calling for any reason, please have
your account number ready, if known. Mail orders should include, when possible,
the "Invest by Mail" stub which is attached to your Fund confirmation statement.
Otherwise, be sure to identify your account number in your letter.
EMPLOYEES AND AFFILIATES OF THE FUND. The minimum purchase requirement is not
applicable to accounts of Directors, officers or employees of the Fund or
certain parties related thereto. The minimum initial investment for such
accounts is $1,000.
STOCK CERTIFICATES. Stock certificates will not be issued for your shares.
Evidence of ownership will be given by issuance of periodic account statements
which will show the number of shares owned.
HOW TO REDEEM SHARES
You may redeem shares of the Fund on each day that the Fund is open for business
by sending a written request to the Transfer Agent. The request must state the
number of shares or the dollar amount to be redeemed and your account number.
The request must be signed exactly as your name appears on the Fund's account
records. If the shares to be redeemed have a value of $25,000 or more,
- 11 -
<PAGE>
your signature must be guaranteed by any eligible guarantor institution,
including banks, brokers and dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and savings
associations. If the name(s) or the address on your account has been changed
within 30 days of your redemption request, you will be required to request the
redemption in writing with your signature guaranteed, regardless of the value of
the shares being redeemed.
Redemption requests may direct that the proceeds be wired directly to your
existing account in any commercial bank or brokerage firm in the United States
as designated on your application. The Fund's custodian currently charges a $9
fee for processing wire redemptions. The Fund reserves the right, upon thirty
days' written notice, to change the processing fee. All charges will be deducted
from your account by redemption of shares in your account. Your bank or
brokerage firm may also impose a charge for processing the wire. In the event
that wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
You will receive the net asset value per share next determined after receipt by
the Transfer Agent (or other agents of the Fund) of your redemption request in
the form described above. Payment is normally made within three business days
after tender in such form, provided that payment in redemption of shares
purchased by check will be effected only after the check has been collected,
which may take up to fifteen days from the purchase date. To eliminate this
delay, you may purchase shares of the Fund by certified check or wire.
You may also redeem your shares through a brokerage firm or financial
institution that has been authorized to accept orders on behalf of the Fund at
the Fund's net asset value next determined after your order is received by such
organization in proper form before 4:00 p.m., Eastern time, or such earlier time
as may be required by such organization. These organizations may be authorized
to designate other intermediaries to act in this capacity. Such an organization
may charge you transaction fees on redemptions of Fund shares and may impose
other charges or restrictions or account options that differ from those
applicable to shareholders who redeem shares directly through the Transfer
Agent.
At the discretion of the Fund or the Transfer Agent, corporate investors and
other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization. The Fund reserves the
right to require you to close your account if at any time the value of your
shares is less than $25,000 (based on actual amounts invested, unaffected by
market fluctuations), or such other minimum amount as the Fund may determine
from time to time. After notification to you of the Fund's intention to close
your account, you will be given sixty days to increase the value of your account
to the minimum amount.
The Fund reserves the right to suspend the right of redemption or to postpone
the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission. Under
unusual circumstances, when the Board of Directors deems it appropriate, the
Fund may make payment for shares redeemed in portfolio securities of the Fund
taken at current value.
SHAREHOLDER SERVICES
Contact the Transfer Agent (Nationwide call toll-free 800-266-5566) for
additional information about the shareholder services described below.
- 12 -
<PAGE>
Automatic Withdrawal Plan
- -------------------------
If the shares in your account have a value of at least $25,000, you may elect to
receive, or may designate another person to receive, monthly or quarterly
payments in a specified amount of not less than $100 each. There is no charge
for this service.
Tax-Deferred Retirement Plans
- -----------------------------
Shares of the Fund are available for purchase in connection with the following
tax-deferred retirement plans:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for individuals and their
non-employed spouses, including Roth IRAs and Education IRAs
-- Qualified pension and profit-sharing plans for employees, including
those profit- sharing plans with a 401(k) provision
-- 403(b)(7) custodial accounts for employees of public school systems,
hospitals, colleges and other non-profit organizations meeting certain
requirements of the Internal Revenue Code
Direct Deposit Plans
- --------------------
Shares of the Fund may be purchased through direct deposit plans offered by
certain employers and government agencies. These plans enable you to have all or
a portion of your payroll or social security checks transferred automatically to
purchase shares of the Fund.
Automatic Investment Plan
- -------------------------
You may make automatic monthly investments in the Fund from your bank, savings
and loan or other depository institution account. The minimum investment must be
$100 under the plan. The Transfer Agent pays the costs associated with these
transfers, but reserves the right, upon thirty days' written notice, to make
reasonable charges for this service. Your depository institution may impose its
own charge for debiting your account which would reduce your return from an
investment in the Fund.
DIVIDENDS AND DISTRIBUTIONS
The Fund expects to distribute substantially all of its net investment income
and net realized capital gains, if any, on an annual basis. Distributions are
paid according to one of the following options:
Share Option - income distributions and capital gains distributions
reinvested in additional shares.
Income Option - income distributions and short-term capital gains
distributions paid in cash; long-term capital gains
distributions reinvested in additional shares.
Cash Option - income distributions and capital gains distributions paid
in cash.
- 13 -
<PAGE>
You should indicate your choice of option on your application. If no option is
specified on your application, distributions will automatically be reinvested in
additional shares. All distributions will be based on the net asset value in
effect on the payable date.
If you select the Income Option or the Cash Option and the U.S. Postal Service
cannot deliver your checks or if your checks remain uncashed for six months,
your dividends may be reinvested in your account at the then current net asset
value and your account will be converted to the Share Option. No interest will
accrue on amount represented by uncashed distribution checks.
TAXES
The Fund has qualified and intends to continue to qualify for the special tax
treatment afforded a "regulated investment company" under Subchapter M of the
Internal Revenue Code so that it does not pay federal taxes on income and
capital gains distributed to shareholders. The Fund intends to distribute
substantially all of its net investment income and any net realized capital
gains to its shareholders. Distributions of net investment income as well as net
realized short-term capital gains, if any, are taxable as ordinary income.
Dividends distributed by the Fund from net investment income may be eligible, in
whole or in part, for the dividends received deduction available to
corporations.
Distributions of net capital gains (i.e., the excess of net long-term capital
gains over net short-term capital losses) by the Fund are taxable to you as
capital gains, without regard to the length of time you have held your Fund
shares. Capital gains distributions may be taxable at different rates depending
on the length of time the Fund holds its assets. Redemptions of shares of the
Fund are taxable events on which you may realize a gain or loss.
The Fund will mail a statement to you annually indicating the amount and federal
income tax status of all distributions made during the year. The Fund's
distributions may be subject to federal income tax whether received in cash or
reinvested in additional shares. In addition to federal taxes, you may be
subject to state and local taxes on distributions.
CALCULATION OF SHARE PRICE
On each day that the Fund is open for business, the share price (net asset
value) of the Fund's shares is determined as of the close of the regular session
of trading on the New York Stock Exchange (normally 4:00 p.m., Eastern time).
The Fund is open for business on each day the New York Stock Exchange is open
for business and on any other day when there is sufficient trading in the Fund's
investments that its net asset value might be materially affected. The net asset
value per share of the Fund is calculated by dividing the sum of the value of
the securities held by the Fund plus cash or other assets minus all liabilities
(including estimated accrued expenses) by the total number of shares outstanding
of the Fund, rounded to the nearest cent. The price at which a purchase or
redemption of Fund shares is effected is based on the next calculation of net
asset value after the order is placed.
The Fund's portfolio securities are valued as follows: (1) securities which are
traded on stock exchanges or are quoted by NASDAQ are valued at the last
reported sale price as of the close of the regular session of trading on the New
York Stock Exchange on the day the securities are being valued, or, if not
traded on a particular day, at the closing bid price, (2) securities traded in
the over-the-counter market, and which are not quoted by NASDAQ, are valued at
the last sale price (or, if the last sale price is not readily available, at the
last bid price as quoted by brokers that make markets in the securities) as of
the close of the regular session of trading on the New York Stock Exchange on
- 14 -
<PAGE>
the day the securities are being valued, (3) securities which are traded both in
the over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market, and (4) securities (and other assets)
for which market quotations are not readily available are valued at their fair
value as determined in good faith in accordance with consistently applied
procedures established by and under the general supervision of the Board of
Directors. The net asset value per share of the Fund will fluctuate with the
value of the securities it holds.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Ernst & Young LLP, whose report, along with the Fund's financial
statements, are included in the Statement of Additional Information, which is
available upon request.
Per Share Data for a Share Outstanding Throughout the Period
Ended December 31, 1998 (a)
Net asset value at beginning of period $ 10.00
-------------
Income from investment operations:
Net investment income 0.03
Net realized and unrealized losses on investments (0.28)
-------------
Total from investment operations (0.25)
-------------
Less distributions:
From net investment income (0.03)
-------------
Net asset value at end of period $ 9.72
=============
Total return (2.46%)
=============
Net assets at end of period $ 1,415,827
=============
Ratio of net expenses to average net assets (b) 1.75%(c)
Ratio of net investment income to average net assets 0.66%(c)
Portfolio turnover rate 0%
(a) Represents the period from the commencement of operations (May 5, 1998)
through December 31, 1998.
(b) Absent fees waived and expenses reimbursed by the Manager and the Adviser,
the ratio of expenses to average net assets would have been 13.19%(c) for
the period ended December 31, 1998.
(c) Annualized.
<PAGE>
Rep Name and Number_____________________Account No. L3 -- ______________________
(For Fund Use Only)
BOYAR VALUE FUND, INC.
Send completed application to:
BOYAR VALUE FUND, INC.
c/o Shareholder Services
FUND SHARES APPLICATION P.O. Box 5354
(Please type or print clearly) Cincinnati, OH 45201-5354
================================================================================
ACCOUNT REGISTRATION
o Individual _________________________________________________________________
(First Name) (Middle Initial) (Last Name) (Birthdate) (SS#)
o Joint* _________________________________________________________________
(First Name) (Middle Initial) (Last Name) (Birthdate) (SS#)
*Joint accounts will be registered joint tenants with the right
of survivorship unless otherwise indicated.
o UGMA/UTMA ___________________________________________ under the ___________
(First Name) (Middle Initial) (Last Name) (State)
Uniform Gifts/Transfers to Minors Act
____________________________________________________ as Custodian
(First Name) (Middle Name) (Last Name)
_________________________________________________________________
(Birthdate of Minor) (SS # of Minor)
o For Corporations
Partnerships, Trusts
Retirement Plans and
Third Party IRAs
_________________________________________________________________
Name of Corporation or Partnership. If a Trust, include the
name(s) of Trustees in which account will be registered, and the
date of the Trust instrument.
_________________________________________________________________
(Taxpayer Identification Number)
================================================================================
ADDRESS
Street or P.O. Box _____________________________________________________________
City _______________________________ State ________________ Zip _______________
Telephone _________________________ U.S. Citizen ________
Resident Alien ______
Non Resident ________ (Country of Residence)
================================================================================
DUPLICATE CONFIRMATION ADDRESS (if desired)
Name ___________________________________________________________________________
Street or P.O. Box _____________________________________________________________
City _______________________________ State ________________ Zip _______________
================================================================================
INITIAL INVESTMENT (Minimum initial investment: $5,000 or $2,500 for Retirement
Plans)
o Enclosed is a check payable to BOYAR VALUE FUND, INC. for $_________
o Funds were wired to Star Bank on ____________ in the amount of $__________
By Mail: You may purchase shares by mail by completing and signing this
application. Please mail with your check to the address above.
By Wire: You may purchase shares by wire. Prior to sending the wire, please
contact the Fund at 1-800-266-5566 for instructions.
================================================================================
DIVIDEND AND DISTRIBUTION INSTRUCTIONS
o Reinvest all dividends and capital gains distributions
o Reinvest all capital gain distributions; dividends to be paid in cash
o Pay all dividends and capital gain distributions in cash
o By Check o By ACH to my bank checking or savings account.
Please Attach a Voided Check.
<PAGE>
SIGNATURE AUTHORIZATION -- FOR USE BY CORPORATIONS, TRUSTS, PARTNERSHIPS AND
OTHER INSTITUTIONS
================================================================================
Please retain a copy of this document for your files. Any modification of the
information contained in this section will require an Amendment to this
Application Form.
o New Application
o Amendment to previous Application dated ________ Account No. _______________
Name of Registered Owner _______________________________________________________
The following named person(s) are currently authorized signatories of the
Registered Owner. Any ____________ of them is/are authorized under the
applicable governing document to act with full power to sell, assign or transfer
securities of BOYAR VALUE FUND, INC. for the Registered Owner and to execute and
deliver any instrument necessary to effectuate the authority hereby conferred:
Name Title Signature
_________________________ _________________________ ________________________
_________________________ _________________________ ________________________
_________________________ _________________________ ________________________
BOYAR VALUE FUND, INC., or any agent of the Fund may, without inquiry, rely upon
the instruction of any person(s) purporting to be an authorized person named
above, or in any Amendment received by the Fund or their agent. The Fund and its
Agent shall not be liable for any claims, expenses or losses resulting from
having acted upon any instruction reasonably believed to be genuine.
================================================================================
SPECIAL INSTRUCTIONS
--------------------
REDEMPTION INSTRUCTIONS
Please honor any redemption instruction received via telegraphic or facsimile
believed to be authentic.
o Please mail redemption proceeds to the name and address of record
o Please wire redemptions to the commercial bank account indicated below
(subject to a minimum wire transfer of $5,000)
AUTOMATIC INVESTMENT
Please purchase shares of BOYAR VALUE FUND, INC. by withdrawing from the
commercial bank account below, per the instructions below:
Amount $______________ (minimum $100) Please make my automatic investment on:
_____________________________________ o the last business day of each month
(Name of Bank) o the 15th day of each month
is hereby authorized to charge to my o both the 15th and last business day
account the bank draft amount here
indicated. I understand the payment
of this draft is subject to all
provisions of the contract as stated
on my bank account signature card.
__________________________________________________________________
(Signature as your name appears on the bank account to be drafted)
Name as it appears on the account ______________________________________________
Commercial bank account #_______________________________________________________
ABA Routing #___________________________________________________________________
City, State and Zip in which bank is located ___________________________________
For AUTOMATIC INVESTMENT please attach a voided check from the above account.
================================================================================
SIGNATURE AND TIN CERTIFICATION
I certify that I have full right and power, and legal capacity to purchase
shares of the Fund and affirm that I have received a current prospectus and
understand the investment objectives and policies stated therein. The investor
hereby ratifies any instructions given pursuant to this Application and for
himself and his successors and assigns does hereby release Countrywide Fund
Services, Inc., Boyar Asset Management, Inc., Ladenburg Thalmann Fund Management
Inc., Ladenburg Thalmann & Co., Inc., Ladenburg Thalman Asset Management, Mark
Boyar & Co., Inc., and their respective officers, employees, agents and
affiliates from any and all liability in the performance of the acts instructed
herein provided that such entities have exercised due care to determine that the
instructions are genuine. I certify under the penalties of perjury that (1) the
Social Security Number or Tax Identification Number shown is correct and (2) I
am not subject to backup withholding. The certifications in this paragraph are
required from all non-exempt persons to prevent backup withholding of 31% of all
taxable distributions and gross redemption proceeds under the federal income tax
law. The Internal Revenue Service does not require my consent to any provision
of this document other than the certifications required to avoid backup
withholding. (Check here if you are subject to backup withholding) [ ].
_____________________________________ _______________________________________
APPLICANT DATE JOINT APPLICANT DATE
_____________________________________ _______________________________________
OTHER AUTHORIZED SIGNATORY DATE OTHER AUTHORIZED SIGNATORY DATE
<PAGE>
BOYAR VALUE FUND, INC.
INVESTMENT ADVISER
Boyar Asset Management, Inc.
35 East 21st Street
New York, New York 10010
FUND MANAGER
Ladenburg Thalmann Fund Management, Inc.
590 Madison Avenue
New York, New York 10022
DISTRIBUTOR
Ladenburg Thalmann & Co. Inc.
590 Madison Avenue
New York, New York 10022
ADMINISTRATOR
Countrywide Fund Services, Inc.
312 Walnut Street
P.O. Box 5354
Cincinnati, Ohio 45201-5354
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
INDEPENDENT AUDITORS
Ernst & Young LLP
1300 Chiquita Center
Cincinnati, Ohio 45202
BOARD OF DIRECTORS
Henry A. Alpert
Mark A. Boyar
Richard Finkelstein
A.F. Petrocelli
Jay R. Petschek
Jeffrey S. Silverman
<PAGE>
Additional information about the Fund is included in the Statement of Additional
Information ("SAI"), which is incorporated by reference in its entirety.
Additional information about the Fund's investments is available in the Fund's
annual and semiannual reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and strategies that
significantly affected the Fund's performance during its last fiscal year.
To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Fund, or to make inquiries about the Fund, please call
1-248-644-8500.
Information about the Fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's public reference room in Washington, D.C.
Information about the operation of the public reference room can be obtained by
calling the Commission at 1-800-SEC-0330. Reports and other information about
the Fund are available on the Commission's Internet site at http://www.sec.gov.
Copies of information on the Commission's Internet site may be obtained, upon
payment of a duplicating fee, by writing to: Securities and Exchange Commission,
Public Reference Section, Washington, D.C. 20549-6009.
File No. 811-8253
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
BOYAR VALUE FUND, INC.
590 MADISON AVENUE, NEW YORK, NEW YORK 10022
For information, call 800-266-5566
TABLE OF CONTENTS
-----------------
PAGE
----
THE FUND.......................................................................2
INVESTMENT OBJECTIVE AND POLICIES..............................................2
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS.......................10
INVESTMENT LIMITATIONS........................................................12
DIRECTORS AND OFFICERS........................................................14
THE MANAGER...................................................................18
THE INVESTMENT ADVISER........................................................19
THE DISTRIBUTOR...............................................................19
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN...................................19
SECURITIES TRANSACTIONS.......................................................20
PORTFOLIO TURNOVER............................................................23
CALCULATION OF SHARE PRICE....................................................23
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................24
TAXES.........................................................................24
HISTORICAL PERFORMANCE INFORMATION............................................29
PRINCIPAL SECURITY HOLDERS....................................................31
CUSTODIAN.....................................................................31
AUDITORS AND COUNSEL..........................................................31
COUNTRYWIDE FUND SERVICES, INC................................................31
ANNUAL REPORT.................................................................32
This Statement of Additional Information is meant to be read in conjunction
with the Prospectus for Boyar Value Fund, Inc. (the "Fund") dated May 1, 1999,
as amended or supplemented from time to time, and is incorporated by reference
in its entirety into that Prospectus. Because this Statement of Additional
Information is not itself a prospectus, no investment in shares of the Fund
should be made solely upon the information contained herein. Copies of the
Fund's Prospectus may be obtained by calling the Fund at 800-266-5566.
<PAGE>
THE FUND
The Fund was incorporated on February 28, 1997 under the laws of the State
of Maryland under the name "Boyar Value Fund, Inc." The Fund's charter
authorizes the Board to issue one billion (1,000,000,000) shares of common
stock, $.001 par value per share (the "Shares").
All shareholders of the Fund, upon liquidation, will participate ratably in
the Fund's net assets. Shares do not have cumulative voting rights, which means
that holders of more than 50% of the Shares voting for the election of Directors
can elect all Directors. Shares are transferable but have no preemptive,
conversion or subscription rights.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term capital appreciation.
The following policies supplement the descriptions of the Fund's investment
objective and policies in the Prospectus.
Stock Options and Currency Exchange Transactions
- ------------------------------------------------
STOCK OPTIONS. When the Adviser believes that individual portfolio
securities are approaching the top of the Adviser's growth and price
expectations, the Fund may write covered call options against such securities.
The Fund may also purchase put options. The value of the underlying securities
on which covered call and put options will be written or purchased,
respectively, at any one time by the Fund is not anticipated to exceed 5% of the
Fund's total assets. The Fund writes and purchases options only for hedging
purposes and not for speculation.
The Fund realizes fees (referred to as "premiums") for granting the rights
evidenced by the options it has written. A call option embodies the right of its
purchaser to compel the writer of the option to sell to the option holder an
underlying security at a specified price for a specified time period or at a
specified time. A put option embodies the right of its purchaser to compel the
writer of the option to purchase from the option holder an underlying security
at a specified price for a specified period or at a specified time.
The principal reason for writing covered call options on a security is to
attempt to realize, through the receipt of premiums, a greater return than would
be realized on the securities alone. In return for a premium, the Fund as the
writer of a covered call option forfeits the right to any appreciation in the
value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the Fund as a call writer retains the risk of a decline in the price of the
underlying security. The size of the premiums that the Fund may receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.
- 2 -
<PAGE>
In the case of options written by the Fund that are deemed covered by
virtue of the Fund's holding convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stock with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, the Fund may purchase or
temporarily borrow the underlying securities for purposes of physical delivery.
By so doing, the Fund will not bear any market risk, since the Fund will have
the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed securities, but the Fund may
incur additional transaction costs or interest expenses in connection with any
such purchase or borrowing.
Options written by the Fund will normally have expiration dates between one
and nine months from the date written. The exercise price of the options may be
below, equal to or above the market values of the underlying securities at the
times the options are written. In the case of call options, these exercise
prices are referred to as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively. The Fund may write (i) in-the-money call options when the Adviser
expects that the price of the underlying security will remain flat or decline
moderately during the option period, (ii) at-the-money call options when the
Adviser expects that the price of the underlying security will remain flat or
advance moderately during the option period and (iii) out-of-the-money call
options when the Adviser expects that the premiums received from writing the
call option plus the appreciation in market price of the underlying security up
to the exercise price will be greater than the appreciation in the price of the
underlying security alone. In any of the preceding situations, if the market
price of the underlying security declines and the security is sold at this lower
price, the amount of any realized loss will be offset wholly or in part by the
premium received. To secure its obligation to deliver the underlying security
when it writes a call option, the Fund will be required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Options
Clearing Corporation (the "Clearing Corporation") and of the securities exchange
on which the option is written.
Prior to their expirations, call options may be sold in closing sale or
purchase transactions (sales or purchases by the Fund prior to the exercise of
options that it has purchased or written, respectively, of options of the same
series) in which the Fund may realize a profit or loss from the sale. An option
position may be closed out only where there exists a secondary market for an
option of the same series on a recognized securities exchange or in the
over-the-counter market. When the Fund has purchased a put option and engages in
a closing sale transaction, whether the Fund realizes a profit or loss will
depend upon whether the amount received in the closing sale transaction is more
or less than the premium the Fund initially paid for the original option plus
the related transaction costs. Similarly, in cases where the Fund has written a
call option, it will realize a profit if the cost of the closing purchase
transaction is less than the premium received upon writing the original option
and will incur a loss if the cost of the closing purchase transaction exceeds
the premium received upon writing the original option. The Fund may engage in a
closing purchase transaction to realize a profit, to prevent an underlying
security with respect to which it has written an option from being called or, in
the case of a call option, to unfreeze an underlying security (thereby
permitting its sale or the writing of a new option on the security prior to the
outstanding option's expiration). The obligation of the Fund under an option it
has
- 3 -
<PAGE>
written would be terminated by a closing purchase transaction, but the Fund
would not be deemed to own an option as a result of the transaction. So long as
the obligation of the Fund as the writer of an option continues, the Fund may be
assigned an exercise notice by the broker-dealer through which the option was
sold, requiring the Fund to deliver the underlying security against payment of
the exercise price. This obligation terminates when the option expires or the
Fund effects a closing purchase transaction. The Fund can no longer effect a
closing purchase transaction with respect to an option once it has been assigned
an exercise notice.
There is no assurance that sufficient trading interest will exist to create
a liquid secondary market on a securities exchange for any particular option or
at any particular time, and for some options no such secondary market may exist.
A liquid secondary market in an option may cease to exist for a variety of
reasons. In the past, for example, higher than anticipated trading activity or
order flow or other unforeseen events have at times rendered certain of the
facilities of the Clearing Corporation and various securities exchanges
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. Moreover, the Fund's ability
to terminate options positions established in the over-the-counter market may be
more limited than for exchange-traded options and may also involve the risk that
securities dealers participating in over-the-counter transactions would fail to
meet their obligations to the Fund. The Fund, however, intends to purchase
over-the-counter options only from dealers whose debt securities, as determined
by the Adviser, are considered to be investment grade. If, as a covered call
option writer, the Fund is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise. In either
case, the Fund would continue to be at market risk on the security and could
face higher transaction costs, including brokerage commissions.
Securities exchanges generally have established limitations governing the
maximum number of calls of each class which may be held or written, or exercised
within certain time periods by an investor or group of investors acting in
concert (regardless of whether the options are written on the same or different
securities exchanges or are held, written or exercised in one or more accounts
or through one or more brokers). It is possible that the Fund and other clients
of the Adviser may be considered to be such a group. A securities exchange may
order the liquidation of positions found to be in violation of these limits and
it may impose certain other sanctions. These limits may restrict the number of
options the Fund will be able to purchase on a particular security.
CURRENCY EXCHANGE TRANSACTIONS. The value in U.S. dollars of the assets of
the Fund that are invested in foreign securities may be affected favorably or
unfavorably by changes in exchange control regulations, and the Fund may incur
costs in connection with conversion between various currencies. Currency
exchange transactions may be from any non-U.S. currency into U.S. dollars or
into other appropriate currencies. The Fund will conduct its currency exchange
transactions (i) on a spot (i.e., cash) basis at the rate prevailing in the
currency exchange market, (ii) through entering into forward contracts to
purchase or sell currency or (iii) by purchasing exchange-traded currency
options.
- 4 -
<PAGE>
FOREIGN INVESTMENTS. Investors should recognize that investing in foreign
companies involves certain risks, including those discussed below, which are not
typically associated with investing in U.S. issuers. Since the Fund may invest
in securities denominated in currencies other than the U.S. dollar, and since
the Fund may temporarily hold funds in bank deposits or other money market
investments denominated in foreign currencies, the Fund may be affected
favorably or unfavorably by exchange control regulations or changes in the
exchange rate between such currencies and the dollar. A change in the value of a
foreign currency relative to the U.S. dollar will result in a corresponding
change in the dollar value of the Fund's assets denominated in that foreign
currency. Changes in foreign currency exchange rates may also affect the value
of dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Fund. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. Changes in the exchange rate may result over time from the
interaction of many factors directly or indirectly affecting economic and
political conditions in the United States and a particular foreign country,
including economic and political developments in other countries. Of particular
importance are rates of inflation, interest rate levels, the balance of payments
and the extent of government surpluses or deficits in the United States and the
particular foreign country, all of which are in turn sensitive to the monetary,
fiscal and trade policies pursued by the governments of the United States and
foreign countries important to international trade and finance. Governmental
intervention may also play a significant role. National governments rarely
voluntarily allow their currencies to float freely in response to economic
forces. Sovereign governments use a variety of techniques, such as intervention
by a country's central bank or imposition of regulatory controls or taxes, to
affect the exchange rates of their currencies.
Individual foreign economies may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency, and balance of
payments positions. The Fund may invest in securities of foreign governments (or
agencies or instrumentalities thereof), and many, if not all, of the foregoing
considerations apply to such investments as well.
Securities of some foreign companies are less liquid and their prices are
more volatile than securities of comparable U.S. companies. Certain foreign
countries are known to experience long delays between the trade and settlement
dates of securities purchased or sold. Due to the increased exposure of the Fund
to market and foreign exchange fluctuations brought about by such delays, and
due to the corresponding negative impact on Fund liquidity, the Fund will avoid
investing in countries which are known to experience settlement delays which may
expose the Fund to unreasonable risk of loss.
U.S. GOVERNMENT SECURITIES. The Fund may invest in debt obligations of
varying maturities issued or guaranteed by the United States government, its
agencies or instrumentalities ("U.S. Government securities"). Direct obligations
of the U.S. Treasury include a variety of securities that differ in their
interest rates, maturities and dates of issuance. U.S. Government securities
also include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Loan Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association,
- 5 -
<PAGE>
General Services Administration, Central Bank for Cooperatives, Federal Farm
Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation,
Federal Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage
Association, Maritime Administration, Tennessee Valley Authority, District of
Columbia Armory Board and Student Loan Marketing Association. The Fund may also
invest in instruments that are supported by the right of the issuer to borrow
from the U.S. Treasury and instruments that are supported by the credit of the
instrumentality. Because the U.S. Government is not obligated by law to provide
support to an instrumentality it sponsors, the Fund will invest in obligations
issued by such an instrumentality only if the Adviser determines that the credit
risk with respect to the instrumentality does not make its securities unsuitable
for investment by the Fund.
LENDING OF PORTFOLIO SECURITIES. The Fund may lend portfolio securities to
brokers, dealers and other financial organizations that meet capital and other
credit requirements or other criteria established by the Fund's Board of
Directors (the "Board"). These loans, if and when made, may not exceed 33 1/3%
of the Fund's total assets taken at current value. The Fund will not lend
portfolio securities to affiliates of the Adviser unless it has applied for and
received specific authority to do so from the SEC. Loans of portfolio securities
will be collateralized by cash, letters of credit or U.S. Government securities,
which are maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. Any gain or loss in the market
price of the securities loaned that might occur during the term of the loan
would be for the account of the Fund. From time to time, the Fund may return a
part of the interest earned from the investment of collateral received for
securities loaned to the borrower and/or a third party that is unaffiliated with
the Fund and that is acting as a "finder."
By lending its securities, the Fund can increase its income by continuing
to receive interest and any dividends on the loaned securities as well as by
either investing the collateral received for securities loaned in short-term
instruments or obtaining yield in the form of interest paid by the borrower when
U.S. Government securities are used as collateral. Although the generation of
income is not an investment objective of the Fund, income received could be used
to pay the Fund's expenses and would increase an investor's total return. The
Fund will adhere to the following conditions whenever its portfolio securities
are loaned: (i) the Fund must receive at least 100% cash collateral or
equivalent securities of the type discussed in the preceding paragraph from the
borrower; (ii) the borrower must increase such collateral whenever the market
value of the securities rises above the level of such collateral; (iii) the Fund
must be able to terminate the loan at any time; (iv) the Fund must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities and any increase in market value; (v) the
Fund may pay only reasonable custodian fees in connection with the loan; and
(vi) voting rights on the loaned securities may pass to the borrower, provided,
however, that if a material event adversely affecting the investment occurs, the
Board must terminate the loan and regain the right to vote the securities. Loan
agreements involve certain risks in the event of default or insolvency of the
other party including possible delays or restrictions upon the Fund's ability to
recover the loaned securities or dispose of the collateral for the loan.
- 6 -
<PAGE>
AMERICAN, EUROPEAN AND CONTINENTAL DEPOSITARY RECEIPTS. The assets of the
Fund may be invested in the securities of foreign issuers in the form of
American Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs").
These securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a U.S. bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe
typically by non-U.S. banks and trust companies that evidence ownership of
either foreign or domestic securities. Generally, ADRs in registered form are
designed for use in U.S. securities markets and EDRs and CDRs in bearer form are
designed for use in European securities markets.
CONVERTIBLE SECURITIES. Convertible securities are fixed income securities
that may be converted at either a stated price or stated rate into underlying
shares of common stock. Because of this conversion feature, convertible
securities enable an investor to benefit from increases in the market price of
the underlying common stock while permitting the investor to obtain a yield that
is generally greater than that obtainable from the underlying common stock. In
addition, convertible securities generally offer greater stability of price than
the underlying common stock during declining market periods. The value of
convertible securities fluctuates in relation to changes in interest rates and,
in addition, also fluctuates in relation to the underlying common stock. The
Adviser may make modifications of its investment strategy for the Fund as it
deems advisable in light of its experience in managing the Fund or in response
to changing market or economic conditions.
WARRANTS. The Fund may purchase warrants issued by domestic and foreign
companies to purchase newly created equity securities consisting of common and
preferred stock. The equity security underlying a warrant is outstanding at the
time the warrant is issued or is issued together with the warrant.
Investing in warrants can provide a greater potential for profit or loss
than an equivalent investment in the underlying security, and, thus, can be a
speculative investment. The value of a warrant may decline because of a decline
in the value of the underlying security, the passage of time, changes in
interest rates or in the dividend or other policies of the company whose equity
underlies the warrant or a change in the perception as to the future price of
the underlying security, or any combination thereof. Warrants generally pay no
dividends and confer no voting or other rights other than to purchase the
underlying security.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from one
to two hundred seventy days) unsecured promissory notes issued by corporations
in order to finance their current operations. The Fund will only invest in
commercial paper rated at least A-2 by Standard & Poor's Ratings Group
("Standard & Poor's") or Prime-2 by Moody's Investors Service, Inc. ("Moody's")
or unrated paper of issuers who have outstanding unsecured debt rated AA or
better by Standard & Poor's or Aa or better by Moody's. Certain notes may have
floating or variable rates. Variable and floating rate notes with a demand
notice period exceeding seven days will be subject to the Fund's policy with
respect to illiquid investments (see "Investment Limitations") unless, in the
judgment of the Adviser, such note is liquid.
- 7 -
<PAGE>
The rating of Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: valuation of the management of the issuer; economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
strength of the parent company and the relationships which exist with the
issuer; and recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations to meet such
obligations. These factors are all considered in determining whether the
commercial paper is rated Prime-1 or Prime-2. Commercial paper rated A (highest
quality) by Standard & Poor's has the following characteristics: liquidity
ratios are adequate to meet cash requirements; long-term senior debt is rated
"A" or better, although in some cases "BBB" credits may be allowed; the issuer
has access to at least two additional channels of borrowing; basic earnings and
cash flow have an upward trend with allowance made for unusual circumstances;
typically, the issuer's industry is well established and the issuer has a strong
position within the industry; and the reliability and quality of management are
unquestioned. The relative strength or weakness of the above factors determines
whether the issuer's commercial paper is rated A-1 or A-2.
BANK DEBT INSTRUMENTS. Bank debt instruments in which the Fund may invest
consist of certificates of deposit, bankers' acceptances and time deposits
issued by national banks and state banks, trust companies and mutual savings
banks, or by banks or institutions the accounts of which are insured by the
Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation. Certificates of deposit are negotiable certificates evidencing the
indebtedness of a commercial bank to repay funds deposited with it for a
definite period of time (usually from fourteen days to one year) at a stated or
variable interest rate. Bankers' acceptances are credit instruments evidencing
the obligation of a bank to pay a draft which has been drawn on it by a
customer, which instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. Time deposits are
non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. The Fund will not invest in time
deposits maturing in more than seven days if, as a result thereof, more than 15%
of the value of its net assets would be invested in such securities and other
illiquid securities.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which the
Fund purchases a security and simultaneously commits to resell that security to
the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
by the seller of a repurchase agreement, the Fund could experience both delays
in liquidating the underlying security and losses. To minimize these
possibilities, the Fund intends to enter into repurchase agreements only with
its Custodian, with banks having assets in excess of $10 billion and with
broker-dealers who are recognized as primary dealers in U.S. Government
obligations by the Federal Reserve Bank of New York. At the time the Fund enters
into a repurchase agreement, the value of the collateral, including accrued
interest, will equal at least 102% of the value of the repurchase agreement and,
in the case of a repurchase agreement exceeding one day, the seller agrees to
maintain sufficient collateral so that the value of the collateral, including
accrued interest, will at all times equal at least 102% of the value of the
repurchase agreement. Collateral for
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<PAGE>
repurchase agreements is held in safekeeping in the customer-only account of the
Fund's Custodian at the Federal Reserve Bank. The Fund will not enter into a
repurchase agreement not terminable within seven days if, as a result thereof,
more than 15% of the value of its net assets would be invested in such
securities and other illiquid securities.
Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year 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 securities, 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 equal 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 equal or exceed the value of the repurchase
agreement. The collateral securing the seller's obligation must be of a credit
quality at least equal to the Fund's investment criteria for portfolio
securities 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 a court characterized the transaction as a loan and
the Fund has not perfected a security interest in the security, the Fund may be
required to return the security to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt obligation purchased for the Fund, the
Adviser seeks to minimize the risk of loss through 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 to the Fund of the sale of the security 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 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 the Fund will be unsuccessful in seeking to enforce the seller's
contractual obligation to deliver additional securities.
ILLIQUID SECURITIES. The Fund may not invest more than 15% of its net
assets in illiquid securities, including securities that are illiquid by virtue
of the absence of a readily available market, time deposits maturing in more
than seven days and repurchase agreements which
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<PAGE>
have a maturity of longer than seven days. Securities that have legal or
contractual restrictions on resale but have a readily available market are not
considered illiquid for purposes of this limitation. Repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. The Fund's investment in illiquid
securities is subject to the risk that, should the Fund desire to sell any of
these securities when a ready buyer is not available at a price that is deemed
to be representative of their value, the value of the Fund's net assets could be
adversely affected.
BORROWING. The Fund may borrow, temporarily, up to 33 1/3% of its total
assets for extraordinary purposes or to meet redemption requests which might
otherwise require untimely disposition of portfolio holdings. To the extent the
Fund borrows for these purposes, the effects of market price fluctuations on
portfolio net asset value will be exaggerated. If, while such borrowing is in
effect, the value of the Fund's assets declines, the Fund could be forced to
liquidate portfolio securities when it is disadvantageous to do so. The Fund
would incur interest and other transaction costs in connection with borrowing.
The Fund will borrow only from a bank.
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS
THE RATINGS OF MOODY'S INVESTORS SERVICE, INC. AND STANDARD & POOR'S
RATINGS GROUP FOR CORPORATE BONDS IN WHICH THE FUND MAY INVEST ARE AS FOLLOWS:
Moody's Investors Service, Inc.
-------------------------------
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
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<PAGE>
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Standard & Poor's Ratings Group
-------------------------------
AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
THE RATINGS OF MOODY'S INVESTORS SERVICE, INC. AND STANDARD & POOR'S
RATINGS GROUP FOR PREFERRED STOCKS IN WHICH THE FUND MAY INVEST ARE AS FOLLOWS:
Moody's Investors Service, Inc.
-------------------------------
aaa - An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa - An issue which is rated aa is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
a - An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
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<PAGE>
baa - An issue which is rated baa is considered to be medium grade, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
Standard & Poor's Ratings Group
-------------------------------
AAA - This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A - An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the diverse
effects of changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
INVESTMENT LIMITATIONS
The investment limitations numbered 1 through 10 may not be changed without
the affirmative vote of the holders of a majority of the Fund's outstanding
shares. Such majority is defined as the lesser of (i) 67% or more of the shares
present at the meeting, if the holders of more than 50% of the outstanding
shares of the Fund are present or represented by proxy, or (ii) more than 50% of
the outstanding shares. Investment limitations 11 through 13 may be changed by a
vote of the Board at any time.
The Fund may not:
1. Borrow money except that the Fund may borrow from banks for temporary or
emergency purposes in an amount that may not exceed 33 1/3% of the value of the
Fund's total assets at the time of such borrowing. For purposes of this
restriction, short sales, the entry into currency transactions, options, and
forward commitment transactions that are not accounted for as financings (and
the segregation of assets in connection with any of the foregoing) shall not
constitute borrowing.
2. Make loans, except that the Fund may purchase or hold fixed-income
securities, lend portfolio securities up to 33 1/3% of the Fund's total assets
and enter into repurchase agreements in accordance with its investment
objective, policies and limitations.
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<PAGE>
3. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the securities
of issuers conducting their principal business activities in the same industry;
provided that there shall be no limit on the purchase of U.S. Government
Securities.
4. Purchase the securities of any issuer if as a result (a) more than 5% of
the value of the Fund's total assets would be invested in the securities of such
issuer or (b) the Fund would acquire 10% or more of the voting securities of
such issuer, except that these limitations do not apply to U.S. Government
Securities and repurchase agreements collateralized by U.S. Government
Securities and except that up to 25% of the value of the Fund's total assets may
be invested without regard to these limitations.
5. Underwrite any securities issued by others except to the extent that the
investment in restricted securities and the sale of securities or the purchase
of securities directly from the issuer in accordance with the Fund's investment
objective, policies and limitations may be deemed to be underwriting.
6. Purchase or sell real estate, except that the Fund may invest in
securities (a) secured by real estate, mortgages or interests therein, (b)
issued by companies which invest in real estate or interests therein or (c) hold
and sell real estate acquired by the Fund as the result of the ownership of
securities.
7. Make short sales of securities or maintain a short position, except that
the Fund may maintain short positions in currencies, securities and stock
indexes, futures contracts and options on futures contracts and enter into short
sales or short sales "against the box" in accordance with the Fund's investment
objective, policies and limitations.
8. Purchase securities on margin, except that the Fund may obtain any
short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with transactions in currencies, options,
futures contracts or related options will not be deemed to be a purchase of
securities on margin.
9. Invest in commodities, except that the Fund may (a) purchase and sell
futures contracts, including those relating to securities, currencies and
indexes, and options on futures contracts, securities, currencies or indexes,
(b) purchase and sell currencies on a forward commitment or delayed-delivery
basis and (c) enter into stand-by commitments.
10. Pledge, mortgage or hypothecate its assets, or otherwise issue senior
securities, except (a) to the extent necessary to secure permitted borrowings
and (b) to the extent related to the deposit of assets in escrow in connection
with the purchase of securities on a forward commitment or delayed-delivery
basis and collateral and initial or variation margin arrangements with respect
to currency transactions, options, futures contracts, and options on futures
contracts.
11. Invest more than 15% of the Fund's net assets in securities which may
be illiquid because of legal or contractual restrictions on resale or securities
for which there are no readily available market quotations. For purposes of this
limitation, repurchase agreements with maturities greater than seven days shall
be considered illiquid securities.
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<PAGE>
12. Make additional investments if the Fund's borrowings exceed 5% of its
total assets.
13. Purchase securities of other investment companies except in connection
with a merger, consolidation, acquisition, reorganization or offer of exchange,
or as otherwise permitted under the 1940 Act.
Notwithstanding paragraphs numbered 1, 7, 8, 9 and 10, the Fund has no
present intention of engaging in transactions involving futures contracts and
options on futures contracts or of entering into short sales and short sales
"against the box," and will not do so until approved by the Fund's Board and
upon appropriate notice to investors.
If a percentage restriction (other than the percentage limitation set forth
in No. 1 above) is adhered to at the time of an investment, a later increase or
decrease in the percentage of assets resulting from a change in the values of
portfolio securities or in the amount of the Fund's assets will not constitute a
violation of such restriction.
DIRECTORS AND OFFICERS
The names (and ages) of the Fund's Directors and officers, their addresses,
present positions and principal occupations during the past five years and other
affiliations are set forth below.
<TABLE>
<CAPTION>
Name, Address, Age Position(s) Held Occupations During the Past Five Years
- ------------------ ---------------- --------------------------------------
<S> <C> <C>
Mark A. Boyar (55)* Chairman and President and Director of Boyar
35 East 21 Street Chief Executive Officer Asset Management, Inc.; President of Mark
New York, New York 10010 Boyar & Company, Inc.; Manager and
Member of Ebbets Field Association LLC;
Chairman and General Partner of Boyar
Partners L.P.; Chairman of N.R.M.B.
Management, Inc.
Jay R. Petschek (40)* President, Treasurer, President of LTFM; President and Director
590 Madison Avenue Chief Financial Officer of Ladenburg Thalmann Asset
New York, New York 10022 and Director Management Inc.; Senior Managing
Director, Director of Investment
Policy and Director of Ladenburg
Thalmann & Co., Inc.; President of
Corsair Management Company Inc.;
General Partner of Corsair Capital
Partners L.P.
Henry A. Alpert (51) Director President of Spartan Petroleum Corp.;
1158 Broadway Director of Griffon Corp.
Hewlett, New York 10010
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<PAGE>
A.F. Petrocelli (55) Director Chairman, President, CEO and
United Capital Corp. Director of United Capital Corp.;
9 Park Place, 4th Floor Director of Philips International Realty
Great Neck, New York 11021 Corp.; Director of Nathan's Famous, Inc.;
Director of Prime Hospitality Corp.;
Director of Metex Corporation; Director
of Dorne & Margolin, Inc.
Jeffrey S. Silverman (53) Director Chairman of LTS Capital Partners;
777 Third Avenue Chairman and CEO of Ply Gem Industries,
New York, New York 10017 Inc.; Director of Catalina Lighting since
June 1997; Director of Realco.
Richard Finkelstein (49) Director Vice President of Kenco Management, Inc.
1000 Clint Moore Road, & Affiliates.
Suite 110
Boca Raton, Florida 33487
Robert G. Dorsey (42) Vice President President and Treasurer of Countrywide
312 Walnut Street Fund Services, Inc. (the Fund's transfer
Cincinnati, Ohio 45202 agent and administrator) and CW Fund
Distributors, Inc. (a registered broker-
dealer) and First Vice President and
Treasurer of Countrywide Investments, Inc.
(a registered investment adviser and
broker-dealer) and Countrywide Financial
Services, Inc. (a financial services
company and the parent of Countrywide
Fund Services, Inc., CW Fund Distributors,
Inc. and Countrywide Investments, Inc.).
He is also Vice President of Countrywide
Tax-Free Trust, Countrywide Strategic
Trust, Countrywide Investment Trust,
Brundage, Story and Rose Investment
Trust, Markman MultiFund Trust,
Maplewood Investment Trust, a series
company, The Thermo Opportunity Fund,
Inc., The Dean Family of Funds, The New
York State Opportunity Funds, the Wells
Family of Real Estate Funds, the Lake
Shore Family of Funds, Profit Funds
Investment Trust, Atalanta/Sosnoff
Investment Trust, UC Investment Trust and
The Winter Harbor Fund and Assistant Vice
President of Williamsburg Investment Trust,
The Tuscarora Investment Trust, Schwartz
Investment Trust, The Gannett Welsh &
- 15 -
<PAGE>
Kotler Funds, Firsthand Funds, the
Westport Funds, Albemarle Investment
Trust, The James Advantage Funds and
The Bjurman Funds, all of which are
registered investment companies.
John F. Splain (42) Secretary First Vice President, Secretary and General
312 Walnut Street Counsel of Countrywide Fund Services,
Cincinnati, Ohio 45202 Inc., CW Fund Distributors, Inc.,
Countrywide Investments, Inc. and
Countrywide Financial Services, Inc. He
is also Secretary of Countrywide
Tax-Free Trust, Countrywide Strategic
Trust, Countrywide Investment Trust,
Brundage, Story and Rose Investment
Trust, Williamsburg Investment Trust,
Markman MultiFund Trust, The Tuscarora
Investment Trust, Maplewood Investment
Trust, a series company, The Thermo
Opportunity Fund, Inc., the Lake Shore
Family of Funds, the Wells Family of
Real Estate Funds, Profit Funds
Investment Trust and The Winter Harbor
Fund and Assistant Secretary of Schwartz
Investment Trust, The Gannett Welsh &
Kotler Funds, Firsthand Funds, the New
York State Opportunity Funds, the Dean
Family of Funds, the Westport Funds,
Atalanta/Sosnoff Investment Trust,
Albemarle Investment Trust, The James
Advantage Funds, The Bjurman Funds and
UC Investment Trust.
Mark J. Seger (37) Assistant Treasurer First Vice President and Chief Operating
312 Walnut Street Officer of Countrywide Fund Services, Inc.
Cincinnati, Ohio 45202 and CW Fund Distributors, Inc. He is also
Treasurer of Countrywide Tax-Free Trust,
Countrywide Strategic Trust, Countrywide
Investment Trust, Brundage, Story and
Rose Investment Trust, Williamsburg
Investment Trust, Markman MultiFund
Trust, Maplewood Investment Trust, a
series company, The Thermo Opportunity
Fund, Inc., the New York State
Opportunity Funds, the Dean Family of
Funds, the Wells Family of Real Estate
Funds, Profit Funds Investment Trust,
the Lake Shore
- 16 -
<PAGE>
Family of Funds, Albemarle Investment
Trust, Atalanta/Sosnoff Investment
Trust, UC Investment Trust and The
Winter Harbor Fund and Assistant
Treasurer of The Tuscarora Investment
Trust, The Gannett Welsh & Kotler Funds,
Firsthand Funds, the Westport Funds,
Schwartz Investment Trust, The James
Advantage Funds and The Bjurman Funds.
Tina D. Hosking (30) Assistant Secretary Assistant Vice President and Associate
312 Walnut Street General Counsel of Countrywide Fund
Cincinnati, Ohio 45202 Services, Inc. and CW Fund Distributors,
Inc. She is also Secretary of The New
York State Opportunity Funds and the
Atalanta/Sosnoff Investment Trust and
Assistant Secretary of Albemarle
Investment Trust, The Gannett Welsh &
Kotler Funds, The Westport Funds, Wells
Family of Real Estate Funds, UC
Investment Trust, The James Advantage
Funds and Lake Shore Family of Funds.
</TABLE>
- ---------------------------
* Indicates an "interested person" of the Fund under Section 2(a)(19) of the
1940 Act.
No employee of the Manager, the Adviser or any of their respective
affiliates will receive any compensation from the Fund for acting as an officer
or director of the Fund. Each other Director will receive an annual fee of
$3,000, and $500 for each meeting of the Board attended by him for his services
as Director and will be reimbursed for expenses incurred in connection with his
attendance at Board meetings.
Directors' Compensation
- -----------------------
Name of Director Total Compensation from Fund+
- ---------------- -----------------------------
Mark A. Boyar None
Jay R. Petschek None
Jeffrey S. Silverman $5,000
Henry A. Alpert $5,000
A.F. Petrocelli $5,000
Richard Finkelstein $5,000
+ Amounts shown are estimates of payments to be made in the fiscal year
ending December 31, 1999, which the Directors have elected to take in
shares of the Fund.
- 17 -
<PAGE>
THE MANAGER
Ladenburg Thalmann Fund Management Inc. (the "Manager") serves as manager
of the Fund pursuant to a Management Agreement. The services provided by, and
the fees payable by the Fund to, the Manager under the Management Agreement are
described in the Prospectus. The fees are calculated at an annual rate based on
a percentage of the Fund's average daily net assets. See "Management of the
Fund" in the Prospectus. For the fiscal period ended December 31, 1998, the
Manager voluntarily waived its management fees of $3,741 and reimbursed the Fund
for $78,578 of other operating expenses.
The Fund is responsible for the payment of all expenses incurred in
connection with the organization, registration of shares and operations of the
Fund, including fees and expenses in connection with membership in investment
company organizations, brokerage fees and commission, legal, auditing and
accounting expenses, expenses of registering shares under federal and state
securities laws, insurance expenses, taxes or governmental fees, fees and
expenses of the custodian, transfer agent and accounting and pricing agent of
the Fund, fees and expenses of members of the Board of Directors who are not
interested persons of the Fund, the cost of preparing and distributing
prospectuses, statements, reports and other documents to shareholders, expenses
of shareholders' meetings and proxy solicitations, and such extraordinary or
non-recurring expenses as may arise, such as litigation to which the Fund may be
a party. The Fund may have an obligation to indemnify the Fund's officers and
Directors with respect to such litigation, except in instances of willful
misfeasance, bad faith, gross negligence or reckless disregard by such officers
and Directors in the performance of their duties. The Manager bears promotional
expenses in connection with the distribution of the Fund's shares to the extent
that such expenses are not assumed by the Fund under its 12b-1 Plan (see below).
The compensation and expenses of any officer, Director or employee of the Fund
who is an officer, director or employee of the Manager are paid by the Manager.
By its terms, the Fund's Management Agreement will remain in force from
year to year, subject to annual approval by (a) the Board of Directors or (b) a
vote of the majority of the Fund's outstanding voting securities; provided that
in either event continuance is also approved by a majority of the Directors who
are not interested persons of the Fund, by a vote cast in person at a meeting
called for the purpose of voting on such approval. The Fund's Management
Agreement may be terminated at any time, on sixty days' written notice, without
the payment of any penalty, by the Board of Directors, by a vote of the majority
of a Fund's outstanding voting securities, or by the Manager. The Management
Agreement automatically terminates in the event of its assignment, as defined by
the 1940 Act and the rules thereunder.
Ladenburg Thalmann Asset Management, Inc. ("LTAM") owns 50% of the
outstanding securities of the Manager. LTAM is a wholly owned subsidiary of
Ladenburg Thalmann & Co. Inc., a registered broker-dealer which is a member of
all principal exchanges, including the NYSE since 1876. Ladenburg Thalmann & Co.
Inc. is a wholly owned subsidiary of Ladenburg Thalmann Group Inc. An entity
controlled by Mark A. Boyar, Ebbets Field Association LLC, holds the other 50%
of the outstanding voting securities of the Manager. The principal business
address of the Manager is 590 Madison Avenue, New York, New York 10022.
- 18 -
<PAGE>
THE INVESTMENT ADVISER
Boyar Asset Management, Inc. (the "Adviser") serves as investment adviser
to the Fund pursuant to an Investment Advisory Agreement. The services provided
by, and the fees payable by the Fund to, the Adviser under the Investment
Advisory Agreement are described in the Prospectus. These fees are calculated at
an annual rate based on a percentage of the Fund's average daily net assets. See
"Management of the Fund" in the Prospectus. For the fiscal period ended December
31, 1998, the Adviser voluntarily waived its investment advisory fees of $3,741.
By its terms, the Fund's Advisory Agreement will remain in force from year
to year, subject to annual approval by (a) the Board of Directors or (b) a vote
of the majority of the Fund's outstanding voting securities; provided that in
either event continuance is also approved by a majority of the Directors who are
not interested persons of the Fund, by a vote cast in person at a meeting called
for the purpose of voting on such approval. The Fund's Advisory Agreement may be
terminated at any time, on sixty days' written notice, without the payment of
any penalty, by the Board of Directors, by a vote of the majority of a Fund's
outstanding voting securities, or by the Adviser. The Advisory Agreement
automatically terminates in the event of its assignment, as defined by the 1940
Act and the rules thereunder.
The name "Boyar" is a property right of the Adviser. The Adviser may use
the name "Boyar" in other connections and for other purposes, including in the
name of other investment companies. The Fund has agreed to discontinue any use
of the name "Boyar" if the Adviser ceases to be employed as the Fund's
investment adviser.
The Adviser is an affiliate of Mark Boyar & Co., a broker-dealer registered
with the SEC. The Adviser's principal business address is 35 East 21st Street,
New York, New York 10010. Mark A. Boyar, Chairman and Chief Executive Officer of
the Fund, is a controlling person of the Adviser and Mark Boyar & Co.
THE DISTRIBUTOR
Ladenburg Thalmann & Co. Inc. (the "Distributor"), an affiliate of the
Manager, is the principal underwriter of the Fund as, as such, the exclusive
agent for distribution of shares of the Fund. The Distributor is obligated to
sell the shares on a best efforts basis only against purchase orders for the
shares. Shares of the Fund are offered to the public on a continuous basis.
The Distributor may compensate dealers based on the average balance of all
accounts in the Fund for which the dealer is designated as the party responsible
for the account. See "Distribution and Shareholder Servicing Plan" below.
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
The Fund has entered into a Shareholder Servicing and Distribution Plan
(the "12b-1 Plan"), pursuant to Rule 12b-1 under the 1940 Act, pursuant to which
the Fund will pay the Distributor, in consideration for Services (as defined
below), a fee calculated at an annual rate
- 19 -
<PAGE>
of .25% of the average daily net assets of the Fund. Services performed by the
Distributor include (i) ongoing servicing and/or maintenance of the accounts of
shareholders of the Fund, as set forth in the 12b-1 Plan ("Shareholder
Services"), and (ii) sub-transfer agency services, subaccounting services or
administrative services related to the sale of Shares, as set forth in the 12b-1
Plan ("Administrative Services" and collectively with Shareholder Services,
"Services") including, without limitation, (a) payments reflecting an allocation
of overhead and other office expenses of the Distributor related to providing
Services; (b) payments made to, and reimbursement of expenses of, persons who
provide support services in connection with the distribution of Shares
including, but not limited to, office space and equipment, telephone facilities,
answering routine inquiries regarding the Fund, and providing any other
Shareholder Services; (c) payments made to compensate selected dealers or other
authorized persons for providing any Services; (d) costs of printing and
distributing prospectuses, statements of additional information and reports of
the Fund to prospective shareholders of the Fund; and (e) costs involved in
obtaining whatever information, analyses and reports with respect to service
activities that the Fund may, from time to time, deem advisable.
For the fiscal period ended December 31, 1998, the Distributor received
fees of $1,871 pursuant to the 12b-1 Plan.
Pursuant to the 12b-1 Plan, the Distributor provides the Board, at least
quarterly, with reports of amounts expended under the 12b-1 Plan and the purpose
for which the expenditures were made. The 12b-1 Plan will continue in effect for
so long as their continuance is specifically approved at least annually by the
Board, including a majority of the Directors who are not interested persons of
the Fund and who have no direct or indirect financial interest in the operation
of the 12b-1 Plan ("Independent Directors"). Any material amendment of the 12b-1
Plan would require the approval of the Board in the manner described above. The
12b-1 Plan may not be amended to increase materially the amount to be spent
thereunder without shareholder approval. The 12b-1 Plan may be terminated at any
time, without penalty, by vote of a majority of the Independent Directors or by
a vote of a majority of the outstanding voting securities of the Fund.
SECURITIES TRANSACTIONS
The Adviser is responsible for establishing, reviewing and, where
necessary, modifying the Fund's investment program to achieve its investment
objective. Purchases and sales of newly issued portfolio securities are usually
principal transactions without brokerage commissions effected directly with the
issuer or with an underwriter acting as principal. Other purchases and sales may
be effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid by the Fund to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of securities
from dealers, acting as either principals or agents in the after market, are
normally executed at a price between the bid and asked price, which includes a
dealer's mark-up or mark-down. Transactions on U.S. stock exchanges and some
foreign stock exchanges involve the payment of negotiated brokerage commissions.
On exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. On most foreign exchanges, commissions are
generally fixed. There is generally no stated commission in the
- 20 -
<PAGE>
case of securities traded in domestic or foreign over-the-counter markets, but
the price of securities traded in over-the-counter markets includes an
undisclosed commission or mark-up. U.S. government securities are generally
purchased from underwriters or dealers, although certain newly issued U.S.
government securities may be purchased directly from the U.S. Treasury or from
the issuing agency or instrumentality.
The Adviser will select specific portfolio investments and effect
transactions for the Fund and in doing so seeks to obtain the overall best
execution of portfolio transactions. In evaluating prices and executions, the
Adviser will consider the factors it deems relevant, which may include the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of a broker or dealer and the reasonableness
of the commission, if any, for the specific transaction and on a continuing
basis. All orders for transactions in securities and options on behalf of the
Fund are placed with broker-dealers selected by the Adviser. Affiliates of the
Manager or the Adviser may serve as the Fund's broker in effecting portfolio
transactions on national securities exchanges and retain commissions in
accordance with certain regulations of the SEC.
The Adviser may, in its discretion, effect transactions in portfolio
securities with dealers (other than the Adviser, the Manager and their
affiliates) who provide brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) to the Fund
and/or other accounts over which the Adviser exercises investment discretion.
The Adviser may place portfolio transactions with a broker or dealer with whom
it has negotiated a commission that is in excess of the commission another
broker or dealer would have charged for effecting the transaction if the Adviser
determines in good faith that such amount of commission was reasonable in
relation to the value of such brokerage and research services provided by such
broker or dealer viewed in terms of either that particular transaction or of the
overall responsibilities of the Adviser. Research and other services received
may be useful to the Adviser in serving both the Fund and its other clients and,
conversely, research or other services obtained by the placement of business of
other clients may be useful to the Adviser in carrying out its obligations to
the Fund. Research may include furnishing advice, either directly or through
publications or writings, as to the value of securities, the advisability of
purchasing or selling specific securities and the availability of securities or
purchasers or sellers of securities; furnishing seminars, information, analyses
and reports concerning issuers, industries, securities, trading markets and
methods, legislative developments, changes in accounting practices, economic
factors and trends and portfolio strategy; access to research analysts,
corporate management personnel, industry experts and economists; comparative
performance evaluation and technical measurement services and quotation
services; and products and other services (such as third party publications,
reports and analyses, and computer and electronic access, equipment, software,
information and accessories that deliver, process or otherwise utilize
information, including the research described above) that assist the Adviser in
carrying out its responsibilities. Research received from brokers or dealers is
supplemental to the Adviser's own research program. The fees to the Adviser
under its advisory agreement with the Fund are not reduced by reason of its
receiving any brokerage and research services. Since the Adviser and the Manager
are obligated to provide management, which includes elements of research and
related skills, such research and related skills will not be used by the Adviser
or the Manager (or their affiliates) for negotiating commissions at a rate
higher than that determined in accordance with the above criteria.
- 21 -
<PAGE>
Investment decisions for the Fund concerning specific portfolio securities
are made independently from those for other clients advised by the Adviser. Such
other investment clients may invest in the same securities as the Fund. When
purchases or sales of the same security are made at substantially the same time
on behalf of such other clients, transactions are averaged as to price and
available investments allocated as to amount, in a manner which the Adviser
believes to be equitable to each client, including the Fund. In some instances,
this investment procedure may adversely affect the price paid or received by the
Fund or the size of the position obtained or sold for the Fund. To the extent
permitted by law, securities to be sold or purchased for the Fund may be
aggregated with those to be sold or purchased for such other investment clients
in order to obtain best execution.
During the fiscal period ended December 31, 1998, the Fund paid brokerage
commissions of $5,095.
Any portfolio transaction for the Fund on a securities exchange may be
executed through the Distributor or Mark Boyar & Company, Inc. ("Mark Boyar &
Co."), an affiliate of the Adviser, if, in the Adviser's judgment, the use of
the Distributor or an affiliate of the Adviser is likely to result in price and
execution at least as favorable as those of other qualified brokers, and if, in
the transaction, the Distributor or an affiliate of the Adviser charges the Fund
a commission rate consistent with those charged by the Distributor or an
affiliate of the Adviser to comparable unaffiliated customers in similar
transactions. All transactions with affiliated brokers will comply with Rule
17e-1 under the 1940 Act. During the fiscal period ended December 31, 1998, the
Distributor executed all of the Fund's portfolio transactions, for which the
Distributor received aggregate commissions of $5,095.
In no instance will portfolio securities be purchased from or sold to the
Manager, the Adviser or the Distributor or any affiliated person of such
companies. In addition, the Fund will not give preference to any institutions
with whom the Fund enters into distribution or shareholder servicing agreements
concerning the provision of distribution services or support services.
Transactions for the Fund may be effected on foreign securities exchanges.
In transactions for securities not actively traded on a foreign securities
exchange, the Fund will deal directly with the dealers who make a market in the
securities involved, except in those circumstances where better prices and
execution are available elsewhere. Such dealers usually are acting as principal
for their own account. On occasion, securities may be purchased directly from
the issuer. Such portfolio securities are generally traded on a net basis and do
not normally involve brokerage commissions. Securities firms may receive
brokerage commissions on certain portfolio transactions, including options,
futures and options on futures transactions and the purchase and sale of
underlying securities upon exercise of options.
The Fund may participate, if and when practicable, in bidding for the
purchase of securities for the Fund's portfolio directly from an issuer in order
to take advantage of the lower purchase price available to members of such a
group. The Fund will engage in this practice, however, only when the Adviser, in
its sole discretion, believes such practice to be otherwise in the Fund's
interest.
- 22 -
<PAGE>
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. The Adviser anticipates that the portfolio turnover rate for the Fund
normally will not exceed 50%. A 100% turnover rate would occur if all of the
Fund's portfolio securities were replaced once within a one year period.
Generally, the Fund intends to invest for long-term purposes. However, the
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when the Adviser believes that portfolio changes
are appropriate. For the fiscal period ended December 31, 1998, the Fund's
portfolio turnover rate was 0%.
CALCULATION OF SHARE PRICE
The share price (net asset value) of the shares of the Fund is determined
as of the close of the regular session of trading on the New York Stock Exchange
("NYSE") (normally 4:00 p.m., Eastern time) on each business day, except on days
when the NYSE is closed. The NYSE is currently scheduled to be closed on New
Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas, and on
the preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively. The Fund may also be open for business on
other days in which there is sufficient trading in its portfolio securities such
that its net asset value might be materially affected. For a description of the
methods used to determine the share price, see "Calculation of Share Price" in
the Prospectus.
Trading in securities in certain foreign countries is completed at various
times prior to the close of business on each business day in New York (i.e., a
day on which the NYSE is open for trading). In addition, securities trading in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in various foreign markets on days which
are not business days in New York and days on which the Fund's net asset value
is not calculated. As a result, calculation of the Fund's net asset value may
not take place contemporaneously with the determination of the prices of certain
portfolio securities used in such calculation. Events affecting the values of
portfolio securities that occur between the time their prices are determined and
the close of regular trading on the NYSE will not be reflected in the Fund's
calculation of net asset value unless the Board or its delegates deems that the
particular event would materially affect net asset value, in which case an
adjustment may be made. All assets and liabilities initially expressed in
foreign currency values will be converted into U.S. dollar values at the
prevailing rate as quoted by a pricing service. If such quotations are not
available, the rate of exchange will be determined in good faith pursuant to
consistently applied procedures established by the Board.
- 23 -
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of the Fund's shares is equal to the per share net asset
value of the shares of the Fund. Information on how to purchase and redeem Fund
shares and how such shares are priced is included in the Prospectus.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than customary weekend and holiday closings, or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC) an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods as
the SEC may permit.
If the Board determines that conditions exist which make payment of
redemption proceeds wholly in cash unwise or undesirable, the Fund may make
payment wholly or partly in securities or other investment instruments which may
not constitute securities as such term is defined in the applicable securities
laws. If a redemption is paid wholly or partly in securities or other property,
a shareholder would incur transaction costs in disposing of the redemption
proceeds.
TAXES
The following is a summary of the material federal income tax
considerations regarding the purchase, ownership and disposition of shares in
the Fund. Each prospective shareholder is urged to consult his own tax adviser
with respect to the specific federal, state, local and foreign tax consequences
of investing in the Fund. The summary is based on the laws in effect on the date
of this Statement of Additional Information, which are subject to change.
The Fund intends to qualify to be treated as a regulated investment company
each taxable year under the Internal Revenue Code of 1986, as amended (the
"Code"). To so qualify, the Fund must, among other things: (a) derive at least
90% of its gross income in each taxable year from dividends, interest, payments
with respect to securities, loans and gains from the sale or other disposition
of stock or securities or foreign currencies, or other income (including, but
not limited to, gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies and
(b) diversify its holdings so that, at the end of each quarter of the Fund's
taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash, securities of other regulated investment companies, United
States government securities and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
Fund's assets and not greater than 10% of the outstanding voting securities of
such issuer and (ii) not more than 25% of the value of its assets is invested in
the securities (other than United States government securities or securities of
other regulated investment companies) of any one issuer or any two or more
issuers that the Fund controls and are determined to be engaged in the same or
similar trades or businesses or related trades or businesses. The Fund expects
that all of its foreign currency gains will be directly related to its principal
business of investing in stocks and securities.
- 24 -
<PAGE>
As a regulated investment company, the Fund will not be subject to federal
income tax on its net investment income (i.e., income other than its net
realized long- and short-term capital gains) and its net realized long- and
short-term capital gains, if any, that it distributes to its shareholders,
provided that an amount equal to at least 90% of the sum of its investment
company taxable income (i.e., 90% of its taxable income minus the excess, if
any, of its net realized long-term capital gains over its net realized
short-term capital losses (including any capital loss carryovers), plus or minus
certain other adjustments as specified in the Code) and its net tax-exempt
income for the taxable year is distributed, but will be subject to tax at
regular corporate rates on any taxable income or gains that it does not
distribute. Furthermore, the Fund will be subject to corporate income tax with
respect to such distributed amounts in any year that it fails to qualify as a
regulated investment company or fails to meet this distribution requirement. Any
dividend declared by the Fund in October, November or December of any calendar
year and payable to shareholders of record on a specified date in such a month
shall be deemed to have been received by each shareholder on December 31 of such
calendar year and to have been paid by the Fund not later than such December 31,
provided that such dividend is actually paid by the Fund during January of the
following calendar year.
The Fund intends to distribute annually to its shareholders substantially
all of its investment company taxable income. The Board of Directors of the Fund
will determine annually whether to distribute any net realized long-term capital
gains in excess of net realized short-term capital losses (including any capital
loss carryovers). The Fund currently expects to distribute any excess annually
to its shareholders. However, if the Fund retains for investment an amount equal
to all or a portion of its net long-term capital gains in excess of its net
short-term capital losses and capital loss carryovers, it will be subject to a
corporate tax on the amount retained. In that event, the Fund will designate
such retained amounts as undistributed capital gains in a notice to its
shareholders who (a) will be required to include in income for federal income
tax purposes, as long-term capital gains, their proportionate shares of the
undistributed amount, (b) will be entitled to credit their proportionate shares
of the tax paid by the Fund on the undistributed amount against their federal
income tax liabilities, if any, and to claim refunds to the extent their credits
exceed their liabilities, if any, and (c) will be entitled to increase their tax
basis, for federal income tax purposes, in their shares by an amount equal to
65% of the amount of undistributed capital gains included in the shareholder's
income. Organizations or persons not subject to federal income tax on such
capital gains will be entitled to a refund of their pro rata share of such taxes
paid by the Fund upon filing appropriate returns or claims for refund with the
Internal Revenue Service (the "IRS").
The Code imposes a 4% nondeductible excise tax on the Fund to the extent
the Fund does not distribute by the end of any calendar year at least 98% of its
net investment income for that year and 98% of the net amount of its capital
gains (both long-and short-term) for the one-year period ending, as a general
rule, on October 31 of that year. For this purpose, however, any income or gain
retained by the Fund that is subject to corporate income tax will be considered
to have been distributed by year-end. In addition, the minimum amounts that must
be distributed in any year to avoid the excise tax will be increased or
decreased to reflect any underdistribution or overdistribution, as the case may
be, from the previous year. The Fund anticipates that it will pay such dividends
and will make such distributions as are necessary in order to avoid the
application of this tax.
- 25 -
<PAGE>
With regard to the Fund's investments in foreign securities, exchange
control regulations may restrict repatriations of investment income and capital
or the proceeds of securities sales by foreign investors such as the Fund and
may limit the Fund's ability to pay sufficient dividends and to make sufficient
distributions to satisfy the 90% and excise tax distribution requirements.
If, in any taxable year, the Fund fails to qualify as a regulated
investment company under the Code, it would be taxed in the same manner as an
ordinary corporation and distributions to its shareholders would not be
deductible by the Fund in computing its taxable income. In addition, in the
event of a failure to qualify, the Fund's distributions, to the extent derived
from the Fund's current or accumulated earnings and profits would constitute
dividends (eligible for the corporate dividends-received deduction) which are
taxable to shareholders as ordinary income, even though those distributions
might otherwise (at least in part) have been treated in the shareholders' hands
as long-term capital gains. If the Fund fails to qualify as a regulated
investment company in any year, it must pay out its earnings and profits
accumulated in that year in order to qualify again as a regulated investment
company. In addition, if the Fund failed to qualify as a regulated investment
company for a period greater than one taxable year, the Fund may be required to
recognize any net built-in gains (the excess of the aggregate gains, including
items of income, over aggregate losses that would have been realized if it had
been liquidated) in order to qualify as a regulated investment company in a
subsequent year.
The Fund's short sales against the box, if any, and transactions in foreign
currencies, forward contracts, options and futures contracts (including options
and futures contracts on foreign currencies) will be subject to special
provisions of the Code that, among other things, may affect the character of
gains and losses realized by the Fund (i.e., may affect whether gains or losses
are ordinary or capital), accelerate recognition of income to the Fund and defer
Fund losses. These rules could therefore affect the character, amount and timing
of distributions to shareholders. These provisions also (a) will require the
Fund to mark-to-market certain types of the positions in its portfolio (i.e.,
treat them as if they were closed out) and (b) may cause the Funds to recognize
income without receiving cash with which to pay dividends or make distributions
in amounts necessary to satisfy the distribution requirements for avoiding
income and excise taxes. The Fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books and
records when it acquires any foreign currency, forward contract, option, futures
contract or hedged investment in order to mitigate the effect of these rules and
prevent disqualification of the Fund as a regulated investment company.
Passive Foreign Investment Companies. If the Fund purchases shares in
certain foreign investment entities, called "passive foreign investment
companies" (a "PFIC"), it may be subject to federal income tax on a portion of
any "excess distribution" or gain from the disposition of such shares even if
such income is distributed as a taxable dividend by the Fund to its
shareholders. Additional charges in the nature of interest may be imposed on the
Fund in respect of deferred taxes arising from such distributions or gains. Any
tax paid by the Fund as a result of its ownership of shares in a PFIC will not
give rise to any deduction or credit to the Fund or any shareholder. If the Fund
were to invest in a PFIC and elected to treat the PFIC as a "qualified electing
fund" under the Code, in lieu of the foregoing
- 26 -
<PAGE>
requirements, the Fund might be required to include in income each year a
portion of the ordinary earnings and net capital gains of the qualified election
fund, even if not distributed to the Fund, and such amounts would be subject to
the 90% and excise tax distribution requirements described above. In order to
make this election, the Fund would be required to obtain certain annual
information from the passive foreign investment companies in which it invests,
which may be difficult or not possible to obtain.
Recently, legislation was enacted that provides a mark-to-market election
for regulated investment companies effective for taxable years beginning after
December 31, 1997. This election would result in the Fund being treated as if it
had sold and repurchased all of the PFIC stock at the end of each year. In this
case, the Fund would report gains as ordinary income and would deduct losses as
ordinary losses to the extent of previously recognized gains. The election, once
made, would be effective for all subsequent taxable years of the Fund, unless
revoked with the consent of the IRS. By making the election, the Fund could
potentially ameliorate the adverse tax consequences with respect to its
ownership of shares in a PFIC, but in any particular year may be required to
recognize income in excess of the distributions it receives from PFICs and its
proceeds from dispositions of PFIC company stock. The Fund may have to
distribute this "phantom" income and gain to satisfy its distribution
requirement and to avoid imposition of the 4% excise tax. The Fund will make the
appropriate tax elections, if possible, and take any additional steps that are
necessary to mitigate the effect of these rules.
Dividends and Distributions. Dividends of net investment income and
distributions of net realized short-term capital gains are taxable to a United
States shareholder as ordinary income, whether paid in cash or in shares.
Distributions of net-long-term capital gains, if any, that the Fund designates
as capital gains dividends are taxable as long-term capital gains, whether paid
in cash or in shares and regardless of how long a shareholder has held shares of
the Fund. Dividends and distributions paid by the Fund (except for the portion
thereof, if any, attributable to dividends on stock of U.S. corporations
received by the Fund) will not qualify for the deduction for dividends received
by corporations. Distributions in excess of the Fund's current and accumulated
earnings and profits will, as to each shareholder, be treated as a tax-free
return of capital, to the extent of a shareholder's basis in his shares of the
Fund, and as a capital gain thereafter (if the shareholder holds his shares of
the Fund as capital assets).
Shareholders receiving dividends or distributions in the form of additional
shares should be treated for federal income tax purposes as receiving a
distribution in the amount equal to the amount of money that the shareholders
receiving cash dividends or distributions will receive, and should have a cost
basis in the shares received equal to such amount.
Investors considering buying shares just prior to a dividend or capital
gain distribution should be aware that, although the price of shares just
purchased at that time may reflect the amount of the forthcoming distribution,
such dividend or distribution may nevertheless be taxable to them.
- 27 -
<PAGE>
If the Fund is the holder of record of any stock on the record date for any
dividends payable with respect to such stock, such dividends are included in the
Fund's gross income not as of the date received but as of the later of (a) the
date such stock became ex-dividend with respect to such dividends (i.e., the
date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date the Fund acquired such stock.
Accordingly, in order to satisfy its income distribution requirements, the Fund
may be required to pay dividends based on anticipated earnings, and shareholders
may receive dividends in an earlier year than would otherwise be the case.
Sales of Shares. Upon the sale of his shares, a shareholder will realize a
taxable gain or loss equal to the difference between the amount realized and his
basis in his shares. Such gain or loss will be treated as capital gain or loss,
if the shares are capital assets in the shareholder's hands, and will be
long-term capital gain or loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for one year or less. Any
loss realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced, including replacement through the reinvesting of
dividends and capital gains distributions in the Fund, within a 61-day period
beginning 30 days before and ending 30 days after the disposition of the shares.
In such a case, the basis of the shares acquired will be increased to reflect
the disallowed loss. Any loss realized by a shareholder on the sale of a Fund
share held by the shareholder for six months or less will be treated for federal
income tax purposes as a long-term capital loss to the extent of any
distributions or deemed distributions of long-term capital gains received by the
shareholder with respect to such share.
Foreign Taxes. Income received by the Fund from non-U.S. sources may be
subject to withholding and other taxes imposed by other countries. Because it is
not expected that more than 50 percent of the value of the Fund's total assets
at the close of its taxable year will consist of stock and securities of
non-U.S. corporations, it is not expected that the Fund will be eligible to
elect to "pass through" to the Fund's shareholders the amount of foreign income
and similar taxes paid by the Fund. In the absence of such an election, the
foreign taxes paid by the Fund will reduce its investment company taxable
income, and distributions of investment company taxable income received by the
Fund from non-U.S. sources will be treated as United States source income.
Backup Withholding. The Fund may be required to withhold, for federal
income tax purposes, 31% of the dividends and distributions payable to
shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup withholding is not an
additional tax and any amount withheld may be credited against a shareholder's
federal income tax liabilities.
Notices. Shareholders will be notified annually by the Fund as to the
federal income tax status of the dividends, distributions and deemed
distributions attributable to undistributed capital gains made by the Fund to
its shareholders. Furthermore, shareholders will also receive, if appropriate,
various written notices after the close of the Fund's taxable year regarding the
federal income tax status of certain dividends, distributions and deemed
distributions that were paid (or that are treated as having been paid) by the
Fund to its shareholders during the preceding taxable year.
- 28 -
<PAGE>
Other Taxation. Distributions also may be subject to additional state,
local and foreign taxes depending on each shareholder's particular situation.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES
AFFECTING THE FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT
THEIR OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM
OF AN INVESTMENT IN THE FUND.
HISTORICAL PERFORMANCE INFORMATION
From time to time, the Fund may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
n
P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 and 10 year periods at the end of the 1, 5 or 10
year periods (or fractional portion thereof)
The calculation of average annual total return assumes the reinvestment of all
dividends and distributions.
The Fund may also advertise total return (a "nonstandardized quotation")
which is calculated differently from average annual total return. A
nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. The Fund's total return for the
period from its commencement of operations (May 5, 1998) through December 31,
1998 was -2.46%. A nonstandardized quotation may also indicate average annual
compounded rates of return over periods other than those specified for average
annual total return. A nonstandardized quotation of total return will always be
accompanied by the Fund's average annual total return as described above.
From time to time, the Fund may advertise its yield. A yield quotation is
based on a 30-day (or one month) period and is computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the period, according to the following
formula:
- 29 -
<PAGE>
6
Yield = 2[(a-b/cd + 1) - 1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that the
Fund owns the security. Generally, interest earned (for the purpose of "a"
above) on debt obligations is computed by reference to the yield to maturity of
each obligation held based on the market value of the obligation (including
actual accrued interest) at the close of business on the last business day prior
to the start of the 30-day (or one month) period for which yield is being
calculated, or, with respect to obligations purchased during the month, the
purchase price (plus actual accrued interest). With respect to the treatment of
discount and premium on mortgage or other receivables-backed obligations which
are expected to be subject to monthly paydowns of principal and interest, gain
or loss attributable to actual monthly paydowns is accounted for as an increase
or decrease to interest income during the period and discount or premium on the
remaining security is not amortized.
The performance quotations described above are based on historical earnings
and are not intended to indicate future performance.
From time to time the Funds may advertise their performance rankings as
published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc. ("Lipper"), or by publications of general
interest such as FORBES, MONEY, THE WALL STREET JOURNAL, BUSINESS WEEK,
BARRON'S, FORTUNE or MORNINGSTAR MUTUAL FUND VALUES. The Funds may also compare
their performance to that of other selected mutual funds, averages of the other
mutual funds within their categories as determined by Lipper, or recognized
indicators such as the Dow Jones Industrial Average, the Standard & Poor's 500
Stock Index, the Russell 2000 Index, the NASDAQ Composite Index and the Value
Line Composite Index. In connection with a ranking, the Funds may provide
additional information, such as the particular category of funds to which the
ranking relates, the number of funds in the category, the criteria upon which
the ranking is based, and the effect of fee waivers and/or expense
reimbursements, if any. The Funds may also present their performance and other
investment characteristics, such as volatility or a temporary defensive posture,
in light of the Adviser's view of current or past market conditions or
historical trends.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Fund's portfolio, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
performance. In addition, there can be no assurance that the Fund will continue
this performance as compared to such other averages.
- 30 -
<PAGE>
PRINCIPAL SECURITY HOLDERS
As of January 31, 1999, the Manager, 590 Madison Avenue, New York, New York
10022, owned of record 6.8% of the outstanding shares of the Fund; Jay R.
Petschek, 87 Sheldrake Road, Scarsdale, New York 10583, owned of record 6.8% of
the outstanding shares of the Fund; Attilio F. Petrocelli, c/o United Capital
Corp., 9 Park Place, Great Neck, New York 11021, owned of record 6.9% of the
outstanding shares of the Fund; List Inc., 320 Northern Boulevard, Suite 14,
Great Neck, New York, New York 11021, owned of record 7.0% of the outstanding
shares of the Fund; and Weiss, Peck & Greer LLC, 1 New York Plaza, 31st Floor,
New York, New York 10004, owned of record 52.4% of the outstanding shares of the
Fund. Weiss, Peck & Greer LLC, a New York limited liability company, may be
deemed to control the Fund. For purposes of voting on matters submitted to
shareholders, any person who owns more than 50% of the outstanding shares of the
Fund would be able to case the deciding vote.
As of January 31, 1999, the Directors and officers of the Fund as a group
owned of record or beneficially 20.5% of the outstanding shares of the Fund.
CUSTODIAN
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio, has been retained to
act as Custodian for the Fund's investments. Star Bank acts as the Fund's
depository, safekeeps its portfolio securities, collects all income and other
payments with respect thereto, disburses funds as instructed and maintains
records in connection with its duties.
AUDITORS AND COUNSEL
The firm of Ernst & Young LLP, with principal offices at 1300 Chiquita
Center, Cincinnati, Ohio, has been selected as independent public accountants
for the Fund for the fiscal year ending December 31, 1999. Ernst & Young LLP
performs an annual audit of the Fund's financial statements and advised the Fund
as to certain accounting matters.
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New
York, New York, 10022, serves as counsel for the Fund as well as counsel to the
Manager and the Distributor.
COUNTRYWIDE FUND SERVICES, INC.
The Fund's transfer agent, Countrywide Fund Services, Inc. ("Countrywide"),
maintains the records of each shareholder's account, answers shareholders'
inquiries concerning their accounts, processes purchases and redemptions of the
Fund's shares, acts as dividend and distribution disbursing agent and performs
other shareholder service functions. Countrywide is a wholly-owned indirect
subsidiary of Countrywide Credit Industries, Inc., a New York Stock Exchange
listed company principally engaged in the business of residential mortgage
lending. Countrywide receives for its services as transfer agent a fee payable
monthly at an annual rate of $18 per account from the Fund, provided, however,
that the minimum fee is $1,200 per month. In addition, the Fund pays
out-of-pocket expenses, including but not limited to, postage, envelopes,
checks, drafts, forms, reports, record storage and communication lines.
- 31 -
<PAGE>
Countrywide also provides accounting and pricing services to the Fund. For
calculating daily net asset value per share and maintaining such books and
records as are necessary to enable Countrywide to perform its duties, the Fund
pays Countrywide a fee in accordance with the following schedule:
Asset Size of Fund Monthly Fee
-----------
$ 0 - $ 50,000,000 $2,000
50 - 100,000,000 2,500
100 - 200,000,000 3,000
200 - 300,000,000 4,000
Over 300,000,000 5,000
In addition, the Fund pays all costs of external pricing services.
In addition, Countrywide is retained to provide administrative services to
the Fund. In this capacity, Countrywide supplies non-investment related
statistical and research data, internal regulatory compliance services and
executive and administrative services. Countrywide supervises the preparation of
tax returns, reports to shareholders of the Fund, reports to and filings with
the Securities and Exchange Commission and state securities commissions, and
materials for meetings of the Board of Directors. For the performance of these
administrative services, the Fund pays Countrywide a fee at the annual rate of
.15% of the average value of its daily net assets up to $50,000,000, .125% of
such assets from $50,000,000 to $100,000,000 and .10% of such assets in excess
of $100,000,000; provided, however, that the minimum fee is $1,000 per month.
For the fiscal period ended December 31, 1998, Countrywide received fees of
$9,600, $16,000 and $8,000 for transfer agent services, accounting and pricing
services and administrative services, respectively.
ANNUAL REPORT
The Fund's financial statements as of December 31, 1998 appear in the
Fund's annual report, which is attached to this Statement of Additional
Information.
- 32 -
<PAGE>
================================================================================
BOYAR VALUE FUND, INC.
----------------------
ANNUAL REPORT
December 31, 1998
FUND MANAGER
------------
LADENBURG THALMANN FUND MANAGEMENT INC.
590 Madison Avenue
New York, NY 10022
INVESTMENT ADVISER ADMINISTRATOR
------------------ -------------
BOYAR ASSET MANAGEMENT, INC. COUNTRYWIDE FUND SERVICES, INC.
35 East 21st Street 312 Walnut Street
New York, NY 10010 P.O. Box 5354
1.212.995.8300 Cincinnati, OH 45201-5354
1.800.266.5566
================================================================================
<PAGE>
[LOGO]
BOYAR
VALUE FUND
----------
February 22, 1999
Dear Shareholder:
A LOOK BACK AT 1998
- -------------------
o The fourth quarter saved the year.
o After global market turmoil from August to early October wiped out most of
the stock market's 1998 gains, stocks roared back to post one of their best
quarters of the decade, preserving an unprecedented four-year streak of
double-digit gains for the major indices.
o Indeed, one of the most striking results of the aftermath of the midyear
meltdown was that large, blue-chip growth stocks, which so many analysts
felt had reached overvalued extremes, emerged, if anything, more overvalued
than ever.
o During 1998, about 90% of diversified equity funds failed to beat the S&P
500 Index. During the prior year, 1997, mutual funds still managed to earn
a hefty 24.7% total return compared with 33.7% for the S&P 500 Index. But
in 1998, the average domestic fund managed returns slightly above 10% -
creating the largest negative performance disparity between the leading
indices and fund managers since 1994, when the average fund actually lost
money.
o 1998 also witnessed the emergence of the Internet-related stocks as market
drivers. Several, such as online bookseller Amazon.com Inc. and
online-auction service e-Bay Inc., saw their market values multiply several
times over.
o However, what investors probably will remember most about 1998 and what
they already fear most about the current year is volatility. Volatility
within the average trading day was much more pronounced in 1998 than in
most years of the century.
o According to Ned Davis research, the Dow Jones Industrial Average typically
had fewer than five swings of 5% in each year since 1946. In 1998, the
volatile industrials went through 10 such swings. Two of those swings
exceeded 15%. The last time the blue chips staged two 15% reversals of
fortune in a single year was 1987, the year of the crash. In fact, the
industrials have endured that kind of volatility only one other time since
the early 1930s - 1973.
o Throughout 1998, investors worried about every imaginable trouble. Sagging
Asian economies dragged down the earnings growth of American
multinationals. Forecasters warned of inflation that would drive up
interest rates, and then of deflation that would lead to recession.
o Neither inflation nor deflation materialized but corporate earnings staged
their worst performance in a decade, in some cases falling sharply. Russia
effectually defaulted on its debt and devalued the Ruble in the early part
of 1999. Brazil elected not to support the Real allowing it to decline
dramatically.
o For many long-term market watchers, the most worrisome aspect of the 1998
gains was that they applied to such a narrow group of stocks. Many of the
less prominent issues were left behind. Despite its own late-year gains,
the Russell 2000 Index of small stocks finished down 2.5% for the year. For
every analyst encouraged by the heady gains of the technology-denominated
NASDAQ 100, two are worried that the gains are limited to such a narrow
group of stocks.
- --------------------------------------------------------------------------------
<PAGE>
o The problem for 1999 is that many of the same worries persist, and the
Federal Reserve is signaling it may be through lowering interest rates, at
least for now. While many now expect the Dow Industrials to hit 10,000 this
year, others fear that the overextended market leaders are about to tank -
if this occurs, and the market is to continue its upward bias, the market
advance must broaden and new leadership must emerge.
o Clearly both the S&P 500 and the NASDAQ 100 stock indices are selling at
historically high price-to-earnings ratios. Both of these indices, however,
are based on the change in a company's market capitalization - the product
of the change in price and the amount of stock outstanding. The bigger a
company's market cap, the bigger its impact. Twelve stocks, according to
Merrill Lynch, accounted for more than half of 1998's move in the S&P 500.
During 1998, the four largest companies on the NASDAQ 100, Microsoft,
Intel, MCI Worldcom and Cisco, represented 62% of the weighting of that
index. Eliminate the biggest companies from both of these indices and the
high P/E ratios are not nearly as problematic. The reality is that there
are many smaller companies that are currently attractively priced. It's
just a matter of time before the market recognizes them. In fact, 1999
could be the year when the leading stock market indices don't meet
investors' expectations, and good stock picking becomes more critical.
o Two other factors could positively impact stock prices during 1999:
(a) We are witnessing a technological revolution that, in terms of scope
and magnitude, significantly dwarfs the industrial revolution.
Computers are cheaper, faster and simpler to operate. Software is more
sophisticated and easier to understand. The Internet is
revolutionizing the way we engage in commerce and how we communicate.
All of this translates into a higher rate of productivity, which means
a superior rate of growth. The difference between 2 percent and 3
percent growth year in and year out can be the difference between
living standards doubling in one generation, versus taking two or
three generations to achieve the same progress.
(b) Over the last 41 years, there has been at least one thing investors
have been able to count on so far without fail: stocks will rise,
often sharply, in the calendar year before a presidential election
year.
o In a recently completed study, Fred Allvine, a management professor at
Georgia Tech, points out that since 1957, the S&P 500 Index has risen 10
times out of 10 during the third year of the four-year presidential cycle.
During that time, only five times each in the first and second years did
the S&P 500 show a gain. In the fourth year, the S&P 500 rose nine times
out of 10.
o Allvine's, 1980 study about stock market returns and the presidential cycle
does admit that such a relation is not an immutable law. It does conclude,
however, that it would be unwise for an investor to ignore the phase of the
election cycle in making market-timing decisions. The odds strongly favor
stock prices rising relative to trend over the two years prior to a
presidential election. *Condensed and edited from a January 9, 1999 Wall
Street Journal article penned by Thomas Granahan, as well as research
provided by Mark Boyar & Co., Inc.
FUND'S PERFORMANCE
- ------------------
o The Fund's total return from inception through December 31, 1998 was -2.46%
which compares favorably to its benchmark, the Russell 2000 Index, which
lost 11.74% during this period.
o A number of factors negatively impacted the Fund's performance since it
commenced operations on May 5, 1998.
(a) Large Cash Position
-------------------
It normally takes as much as a year for us to invest the cash of
a new account. Consequently, Boyar Value Fund's large cash
position was only able to garner money market returns.
<PAGE>
(b) Market Decline
--------------
As the summer progressed the stock market in general witnessed a
significant correction. Stock market pundits attributed the
downdraft to the scandal in the White House, the ongoing economic
crises in Asia and Latin America and the devaluation of Russia's
Ruble, among others.
(c) Small Cap Stocks Underperform
-----------------------------
As the market began to rally in September small-cap stocks, in
general, lagged their larger brethren. Boyar Value Fund has a
fair number of such holdings in its portfolio - these stocks
pared the Fund's overall return.
Investors would be wise to reduce their expectations when it comes to the
- --------------------------------------------------------------------------------
returns they might be anticipating from the stock market during the next few
- --------------------------------------------------------------------------------
years.
- ------
o The 20% plus returns captured by the leading stock market indices during
the past four years are clearly unsustainable. It is our expectation that
in the not too distant future these types of results will regress to the
mean of the past 65 years, which approximates 12%. In fact, it is not
inconceivable that stock market returns, as measured by the leading
indices, could even fall short of that number for a few years.
Boyar Value Fund's philosophy and goals:
- ----------------------------------------
o The Boyar Value Fund tends to buy the common shares of publicly traded
businesses that are selling in the market place at significant discounts to
our estimate of their intrinsic or private market value.
o Furthermore, most of the businesses that we invest in are either not widely
followed by the majority of Wall Street brokerage houses or may have
plummeted in value because they failed to meet analysts earnings
expectations.
o Purchasing out of favor companies may inhibit short-term performance since
it may take some time for these companies to right themselves. On the other
hand, it does create a "margin of safety" since most of these companies
have plummeted in value by such a margin that most of the downside risk has
been eliminated.
o Over an investment time horizon of three to five years, these undervalued
corporations often will be re-evaluated upward by the stock market or the
assets of the businesses may be acquired by a third party.
o By utilizing this long-term "Buy and Hold" strategy it allows capital to
compound without the return-eroding effect of commissions and capital gains
taxes. Such an orientation may sound stodgy, but we firmly believe this
approach is as important to investment success as picking the right stocks
at the right price and at the right time.
o Since Boyar Value Fund will buy equity positions in businesses regardless
of their market capitalization, it will be very difficult to compare its
performance to a particular index. Our goal is to return to investors over
a complete market cycle an absolute rate of return that is superior to the
stock market's total return over the past 60 years which approximates
10.65%.
If you have any questions do not hesitate to call (212) 995-8300.
Very truly yours,
/s/ Mark A. Boyar
Mark A. Boyar
Chief Investment Officer
<PAGE>
Comparison of the Change in Value of a $10,000 Investment in the
Boyar Value Fund, Inc., the Russell 2000 Index, the Russell 2000
Value Index and the Russell Midcap Value Index
12/98
-----
Boyar Value Fund, Inc. $9,754
Russell 2000 Index $8,826
Russell 2000 Value Index $8,591
Russell Midcap Value Index $9,597
------------------------
Boyar Value Fund, Inc.
Total Return
Since Inception* (2.46)%
------------------------
*Commencement of operations was May 5, 1998.
Past performance is not predictive of future performance.
<PAGE>
BOYAR VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
ASSETS
Investment securities:
At acquisition cost $ 1,357,859
===========
At market value (Note 1) $ 1,344,619
Interest receivable 1,384
Dividends receivable 540
Organization expenses, net (Note 1) 77,049
Other assets 8,530
-----------
TOTAL ASSETS 1,432,122
-----------
LIABILITIES
Dividends payable 529
Payable to affiliates (Note 3) 14,507
Other accrued expenses 1,259
-----------
TOTAL LIABILITIES 16,295
-----------
NET ASSETS $ 1,415,827
===========
NET ASSETS CONSIST OF:
Paid-in capital $ 1,429,067
Net unrealized depreciation on investments (13,240)
-----------
NET ASSETS $ 1,415,827
===========
Shares of beneficial interest outstanding (1,000,000,000
shares authorized, $0.001 par value) 145,634
===========
Net asset value, offering price, and redemption
price per share (Note 1) $ 9.72
===========
See accompanying notes to financial statements.
<PAGE>
BOYAR VALUE FUND, INC.
STATEMENT OF OPERATIONS
For the Period Ended December 31, 1998 (a)
INVESTMENT INCOME
Dividends $ 18,031
--------
EXPENSES
Accounting services fees (Note 3) 16,000
Directors' fees and expenses 15,500
Amortization of organization expenses (Note 1) 11,854
Transfer agent fees (Note 3) 9,600
Registration fees 9,004
Insurance expense 8,800
Administrative services fees (Note 3) 8,000
Custodian fees 5,666
Postage and supplies 4,496
Investment advisory fees (Note 3) 3,741
Management fees (Note 3) 3,741
Distribution expenses (Note 3) 1,871
Printing and filing of shareholder reports 500
Other expenses 380
--------
TOTAL EXPENSES 99,153
Fees waived and expenses reimbursed by the
Manager and the Adviser (Note 3) (86,060)
--------
NET EXPENSES 13,093
--------
NET INVESTMENT INCOME 4,938
--------
REALIZED AND UNREALIZED LOSSES ON INVESTMENTS
Net realized gains from security transactions --
Net change in unrealized appreciation/
depreciation on investments (13,240)
--------
NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS (13,240)
--------
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (8,302)
========
(a) Represents the period from the commencement of operations (May 5, 1998)
through December 31, 1998.
See accompanying notes to financial statements.
<PAGE>
BOYAR VALUE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended December 31, 1998 (a)
FROM OPERATIONS:
Net investment income $ 4,938
Net realized gains from security transactions --
Net change in unrealized appreciation/
depreciation on investments (13,240)
-----------
Net decrease in net assets from operations (8,302)
-----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (4,938)
-----------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 1,324,959
Net asset value of shares issued in
reinvestment of distributions to shareholders 4,409
Payments for shares redeemed (301)
-----------
Net increase in net assets from capital share transactions 1,329,067
-----------
TOTAL INCREASE IN NET ASSETS 1,315,827
NET ASSETS:
Beginning of period (Note 1) 100,000
-----------
End of period $ 1,415,827
===========
CAPITAL SHARE ACTIVITY:
Sold 135,214
Reinvested 453
Redeemed (33)
-----------
Net increase in shares outstanding 135,634
Shares outstanding, beginning of period (Note 1) 10,000
-----------
Shares outstanding, end of period 145,634
===========
(a) Represents the period from the commencement of operations (May 5, 1998)
through December 31, 1998.
See accompanying notes to financial statements.
<PAGE>
BOYAR VALUE FUND, INC.
FINANCIAL HIGHLIGHTS
Per Share Data for a Share Outstanding Throughout the Period
Ended December 31, 1998 (a)
Net asset value at beginning of period $ 10.00
-------------
Income from investment operations:
Net investment income 0.03
Net realized and unrealized losses on investments (0.28)
-------------
Total from investment operations (0.25)
-------------
Less distributions:
From net investment income (0.03)
-------------
Net asset value at end of period $ 9.72
=============
Total return (2.46%)
=============
Net assets at end of period $ 1,415,827
=============
Ratio of net expenses to average net assets (b) 1.75%(c)
Ratio of net investment income to average net assets 0.66%(c)
Portfolio turnover rate 0%
(a) Represents the period from the commencement of operations (May 5, 1998)
through December 31, 1998.
(b) Absent fees waived and expenses reimbursed by the Manager and the Adviser,
the ratio of expenses to average net assets would have been 13.19%(c) for
the period ended December 31, 1998 (Note 3).
(c) Annualized.
See accompanying notes to financial statements.
<PAGE>
BOYAR VALUE FUND, INC.
PORTFOLIO OF INVESTMENTS
December 31, 1998
Market
Shares Value
------ -----
COMMON STOCKS - 71.4%
CONSUMER, CYCLICAL - 36.3%
300 CBS Corp. $ 9,825
300 Dow Jones & Company, Inc. 14,438
1,300 Hilton Hotels Corp. 24,862
100 IMS Health Inc. 7,544
7,900 Loehmann's, Inc. (a) 15,059
2,100 Midas, Inc. 65,363
3,200 Mirage Resorts, Inc. (a) 47,800
33 Nielsen Media Research, Inc. 594
5,500 Olsten Corp. 40,563
3,000 Pier 1 Imports, Inc. 29,062
1,200 Playboy Enterprises, Inc. - Class B (a) 25,125
1,100 Reader's Digest Association, Inc. (The) - Class A 27,706
6,600 Spiegel, Inc. (a) 37,950
2,000 Time Warner Inc. 124,125
2,600 Toys "R" Us, Inc. (a) 43,875
-----------
513,891
-----------
CONSUMER, NON-CYCLICAL - 10.7%
3,400 Cross (A.T.) Co. - Class A 18,275
1,900 Seagram Company Ltd. (The) 72,200
900 Tupperware Corp. 14,794
1,800 Whitman Corp. 45,675
-----------
150,944
-----------
FINANCIAL SERVICES - 10.1%
500 Chase Manhattan Corp. (The) 34,031
1,200 Citigroup Inc. 59,400
1,200 CoVest Bancshares, Inc. 14,700
800 Lehman Brothers Holdings Inc. 35,250
-----------
143,381
-----------
INDUSTRIAL - 4.8%
1,900 Diebold, Inc. 67,806
-----------
TECHNOLOGY - 8.2%
1,700 Boeing Co. (The) 55,463
1,000 Motorola, Inc. 61,062
-----------
116,525
-----------
TELECOMMUNICATIONS - 1.3%
296 ALLTEL Corp. 17,705
-----------
TOTAL COMMON STOCKS (COST $1,023,492) $ 1,010,252
-----------
<PAGE>
BOYAR VALUE FUND, INC.
PORTFOLIO OF INVESTMENTS
December 31, 1998
Market
Shares Value
------ -----
MONEY MARKET FUND - 23.6%
334,367 Star Treasury Fund (Cost $334,367) $ 334,367
-----------
TOTAL INVESTMENT SECURITIES - 95.0%
(COST $1,357,859) $ 1,344,619
OTHER ASSETS IN EXCESS OF LIABILITIES - 5.0% 71,208
-----------
NET ASSETS - 100.0% $ 1,415,827
===========
(a) Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
BOYAR VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
Boyar Value Fund, Inc. (the Fund), is registered as a no-load, open-end,
diversified management investment company under the Investment Company Act of
1940 (the 1940 Act), and was incorporated on February 28, 1997 under the laws of
the State of Maryland. The Fund was capitalized on November 19, 1997, when the
initial 10,000 shares of the Fund were purchased at $10.00 per share. Except for
the initial purchase of shares, the Fund had no operations prior to the
commencement of operations on May 5, 1998.
The Fund seeks to provide long-term capital appreciation through investment in
equity securities which are believed by the Adviser to be intrinsically
undervalued.
The following is a summary of the Fund's significant accounting policies:
Securities valuation -- The Fund's portfolio securities are valued as of the
close of business of the regular session of the New York Stock Exchange
(normally 4:00 p.m., Eastern Time). Securities traded on a national stock
exchange or quoted by NASDAQ are valued at their closing sales price on the
principal exchange where the security is traded or, if not traded on a
particular day, at their closing bid price. Securities for which market
quotations are not readily available are valued at their fair value as
determined in good faith in accordance with consistently applied procedures
established by and under general supervision of the Board of Directors.
Share valuation -- The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding. The offering price and redemption price per share
of the Fund is equal to the net asset value per share.
Investment income and distributions to shareholders -- Interest income is
accrued as earned. Dividend income is recorded on the ex-dividend date.
Dividends arising from net investment income are declared and paid annually. Net
realized short-term capital gains, if any, may be distributed throughout the
year and net realized long-term capital gains, if any, are distributed at least
once each year. Income dividends and capital gain distributions are determined
in accordance with income tax regulations.
Organization expenses -- Expenses of organization have been capitalized and are
being amortized on a straight-line basis over five years.
Security transactions -- Security transactions are accounted for on trade date.
Securities sold are valued on a specific identification basis.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code applicable to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
Accordingly, no provision for income taxes has been made.
<PAGE>
BOYAR VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year at least 98% of its net investment income (earned during the
calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
Based upon the federal income tax cost of portfolio investments of $1,357,859 as
of December 31, 1998, the Fund had net unrealized depreciation of $13,240,
consisting of $129,466 of gross unrealized appreciation and $142,706 of gross
unrealized depreciation.
2. INVESTMENT TRANSACTIONS
Purchases, other than short-term investments, amounted to $1,023,495 for the
period ended December 31, 1998. There were no sales or maturities of investment
securities, other than short-term investments, during the period.
3. TRANSACTIONS WITH AFFILIATES
The business and affairs of the Fund are supervised under the direction of the
Board of Directors which is responsible for the overall management of the Fund.
Ladenburg Thalmann Fund Management Inc. (the Manager) is responsible for
managing the daily business operations of the Fund. Boyar Asset Management, Inc.
(the Adviser) provides continuous advisory services to the Fund and Ladenburg
Thalmann & Co. Inc. (LTCI) acts as distributor of the Fund's shares. The Fund
has employed Countrywide Fund Services, Inc. (CFS) to provide administration,
accounting and transfer agent services. Certain Directors and officers of the
Fund are also officers of the Manager, the Adviser, LTCI or CFS.
MANAGEMENT AGREEMENT AND INVESTMENT ADVISORY AGREEMENT
Pursuant to a Management Agreement with the Fund, the Manager, under the
supervision of the Board of Directors, oversees the daily operations of the Fund
and supervises the performance of administrative and professional services
provided by others, including the Adviser. As compensation for its services and
the related expenses borne by the Manager, the Fund pays the Manager a
management fee, computed and accrued daily and paid monthly, at an annual rate
of 0.50% of its average daily net assets.
Pursuant to an Investment Advisory Agreement with the Manager and the Fund, the
Adviser agrees to furnish continuous investment advisory services to the Fund.
For these services, the Fund pays the Adviser an investment advisory fee, which
is computed and accrued daily and paid monthly, at an annual rate of 0.50% of
its average daily net assets.
<PAGE>
BOYAR VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
The Manager currently intends to waive its management fees and the Adviser
currently intends to waive its investment advisory fees to the extent necessary
to limit the total operating expenses of the Fund to 1.75% of average daily net
assets. In accordance with the above limitation, the Manager voluntarily waived
its management fees of $3,741 and reimbursed the Fund for $78,578 of other
operating expenses, and the Adviser voluntarily waived its investment advisory
fees of $3,741 for the period ended December 31, 1998.
Certain organization expenses of the Fund were paid directly by the Manager
prior to the Fund's initial public offering. As of December 31, 1998, $8,793
remains due to the Manager for reimbursement of such expenses.
ADMINISTRATION AGREEMENT
Under the terms of the Administration Agreement between the Fund and CFS, CFS
supplies non-investment related statistical and research data, internal
regulatory compliance services and executive and administrative services for the
Fund. CFS supervises the preparation of tax returns, reports to shareholders of
the Fund, reports to and filings with the Securities and Exchange Commission and
state securities commissions, and materials for meetings of the Board of
Directors. For these services, CFS receives a monthly fee at an annual rate of
0.15% of the Fund's average daily net assets up to $50 million; 0.125% of such
assets from $50 million to $100 million; and 0.10% of such assets in excess of
$100 million, subject to a monthly minimum fee of $1,000.
TRANSFER AGENT AGREEMENT
Under the terms of the Transfer Agent, Dividend Disbursing, Shareholder Service
and Plan Agency Agreement between the Fund and CFS, CFS maintains the records of
each shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of the Fund's shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. For these services, CFS receives a monthly fee at an annual
rate of $18 per shareholder account, subject to a monthly minimum fee of $1,200.
In addition, the Fund pays out-of-pocket expenses including, but not limited to,
postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement between the Fund and CFS,
CFS calculates the daily net asset value per share and maintains the financial
books and records of the Fund. For these services, CFS receives a monthly fee,
based on current net assets, of $2,000 from the Fund. In addition, the Fund pays
certain out-of-pocket expenses incurred by CFS in obtaining valuations of the
Fund's portfolio securities.
SHAREHOLDER SERVICING AND DISTRIBUTION PLAN
The Fund has adopted a Shareholder Servicing and Distribution Plan (the Plan)
pursuant to Rule 12b-1 under the 1940 Act. The Plan provides that a monthly
service fee is calculated by the Fund at an annual rate of 0.25% of its average
daily net assets and is paid to LTCI, as distributor, to provide compensation
for ongoing services and/or maintenance of the Fund's shareholder accounts, not
otherwise required to be provided by the Adviser or CFS. For the period ended
December 31, 1998, the Fund incurred $1,871 of distribution expenses under the
Plan.
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors of
Boyar Value Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Boyar Value Fund, Inc. as of December 31, 1998,
and the related statements of operations and changes in net assets and the
financial highlights for the period from May 5, 1998 (commencement of
operations) to December 31, 1998. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1998, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Boyar
Value Fund, Inc. as of December 31, 1998, the results of its operations, the
changes in its net assets and the financial highlights for the period from May
5, 1998 (commencement of operations) to December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Cincinnati, Ohio
January 29, 1999
<PAGE>
BOYAR VALUE FUND, INC.
----------------------
PART C. OTHER INFORMATION
-----------------
Item 23. Exhibits
- -------- --------
(a) Articles of Incorporation*
(b) Bylaws*
(c) Incorporated by reference to Articles of Incorporation and
Bylaws
(d) Investment Advisory Agreement*
(e)(i) Underwriting Agreement*
(ii) Form of Dealer's Agreement*
(f) Inapplicable
(g) Custody Agreement
(h)(i) Management Agreement*
(ii) Transfer, Dividend Disbursing, Shareholder Service and Plan
Agency Agreement*
(iii) Administration Agreement*
(iv) Accounting Services Agreement*
(v) Administrative Services Agreement*
(i)(i) Opinion and Consent of Willkie Farr & Gallagher, counsel to
the Fund*
(ii) Opinion and Consent of Venable, Baetjer and Howard, LLP,
Maryland counsel to the Fund*
(j) Consent of Ernst & Young, LLP, Independent Accountants
(k) Inapplicable
(l) Purchase Agreement*
(m) Shareholder Servicing and Distribution Plan*
(n) Financial Data Schedule
(o) Inapplicable
- --------------------------------------
* Incorporated by reference to Registration Statement on Form N-1A or
subsequently filed Pre-Effective Amendment.
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant.
- -------- --------------------------------------------------------------
No person is directly or indirectly controlled by or under common
control with the Registrant.
Item 25. Indemnification
- -------- ---------------
Registrant, officers and directors of Ladenburg Thalmann Fund
Management Inc., Boyar Asset Management, Inc. and Ladenburg Thalmann &
Co. Inc. and of Registrant are covered by insurance policies
indemnifying them for liability incurred in connection with the
operation of Registrant. These policies provide insurance for any
"Wrongful Act" of an officer or director. Wrongful Act is defined as
breach of duty, neglect, error, misstatement, misleading statement,
omission or other act done or wrongfully attempted by an officer,
director or trustee in connection with the operation of Registrant.
Insurance coverage does not extend to (a) conflicts of interest or
gain in fact any profit or advantage to which one is not legally
entitled, (b) intentional non-compliance with any statute or
regulation or (c) commission of dishonest, fraudulent acts or
omissions. Insofar as it relates to Registrant, the coverage is
limited in amount and, in certain circumstances, is subject to a
deductible.
Under Article VIII of the Articles of Incorporation (the "Articles"),
the Directors and Officers of Registrant shall not have any liability
to Registrant or its stockholders for money damages, to the fullest
extent permitted by Maryland law. This limitation on liability applies
to events occurring at the time a person serves as a Director or
officer or Registrant whether or not such person is a Director or
officer at the time of any proceeding in which liability is asserted.
No provision of Article VIII shall protect or purport to protect any
Director or officer of Registrant against any liability to Registrant
or its stockholders 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.
Registrant shall indemnify and advance expenses to its currently
acting and its former Directors to the fullest extent that
indemnification of Directors and advancement of expenses to Directors
is permitted by the Maryland General Corporation law.
Registrant shall indemnify and advance expenses to its officers to the
same extent as its Directors and to such further extent as is
consistent with such law. The Board of Directors may, through a
by-law, resolution or agreement, make further provisions for
indemnification of directors, officers, employees and agents to the
fullest extent permitted by the Maryland General Corporation Law.
- 2 -
<PAGE>
Article VIII of the By-Laws further limits the liability of the
Directors by providing that any person who was or is a party or is
threatened to be made a party in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is a current or
former director or officer of Registrant, or is or was serving while a
director or officer of Registrant at the request of Registrant as a
director, officer, partner, trustee, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust, enterprise or
employee benefit plan, shall be indemnified by Registrant against
judgments, penalties, fines, excise taxes, settlements and reasonable
expenses (including attorneys' fees) actually incurred by such person
in connection with such action, suit or proceeding to the fullest
extent permissible under the Maryland General Corporation Law, the
1933 Act and the 1940 Act, as such statutes are now or hereafter in
force, except that such indemnity shall not protect any such person
against any liability to Registrant or any stockholder thereof to
which such person would otherwise by subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Item 26. Business and Other Connections of the Investment Adviser
- -------- --------------------------------------------------------
Boyar Asset Management, Inc. is wholly owned by Mark A. Boyar and acts
as investment adviser to Registrant. Boyar Asset Management, Inc.
renders investment advice to a wide variety of individual and
institutional clients. The list required by this Item 26 of officers
and directors of Boyar Asset Management, Inc., together with
information as to their other business, profession, vocation or
employment of a substantial nature during the past two years, is
incorporated by reference to Schedules A and D of Form ADV filed by
Boyar Asset Management, Inc. (SEC File No. 801- 19283).
Item 27. Principal Underwriters
- -------- ----------------------
(a) Ladenburg Thalmann & Co. Inc. acts as distributor for Registrant.
(b) For information relating to each director and officer of
Ladenburg Thalmann & Co. Inc., reference is made to Form BD (SEC
File No. 8-16354) filed by Ladenburg Thalmann & Co. Inc. under
the Securities Exchange Act of 1934.
- 3 -
<PAGE>
Item 28. 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 will be maintained by the Registrant at its
offices located at 590 Madison Avenue, New York, New York 10022, at
the offices of Registrant's investment adviser located at 35 East 21st
Street, New York, New York 10010, at the offices of Registrant's
custodian located at 425 Walnut Street, Cincinnati, Ohio 45202, or at
the offices of the Registrant's transfer agent located at 312 Walnut
Street, Cincinnati, Ohio 45202.
Item 29. Management Services Not Discussed in Parts A or B
- -------- -------------------------------------------------
Inapplicable
Item 30. Undertakings
- -------- ------------
Inapplicable
- 4 -
<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 below on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and State of New York on the 1st day of
March, 1999.
BOYAR VALUE FUND, INC.
By: /s/ Mark A. Boyar
-----------------------
Mark A. Boyar
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Mark A. Boyar Chairman and March 1, 1999
- ------------------------------ Chief Executive
Mark A. Boyar Officer
/s/ Jay R. Petschek President, March 1, 1999
- ------------------------------ Treasurer and
Jay R. Petschek Director
Director
- ------------------------------
Henry A. Alpert*
Director
- ------------------------------ By:/s/ John F. Splain
A.F. Petrocelli* John F. Splain
------------------
Director Attorney-in-Fact*
- ------------------------------ March 1, 1999
Jeffrey S. Silverman*
Director
- ------------------------------
Richard Finkelstein*
<PAGE>
INDEX TO EXHIBITS
(a) Articles of Incorporation*
(b) Bylaws*
(c) Incorporated by reference to Articles of Incorporation and Bylaws
(d) Investment Advisory Agreement*
(e)(i) Underwriting Agreement*
(ii) Form of Dealer's Agreement*
(f) Inapplicable
(g) Custody Agreement
(h)(i) Management Agreement*
(ii) Transfer, Dividend Disbursing, Shareholder Service and Plan Agency
Agreement*
(iii) Administration Agreement*
(iv) Accounting Services Agreement*
(v) Administrative Services Agreement*
(i)(i) Opinion and Consent of Willkie Farr & Gallagher, counsel to the Fund*
(ii) Opinion and Consent of Venable, Baetjer and Howard, LLP, Maryland
counsel to the Fund*
(j) Consent of Ernst & Young, LLP, Independent Accountants
(k) Inapplicable
(l) Purchase Agreement*
(m) Shareholder Servicing and Distribution Plan*
(n) Financial Data Schedule
(o) Inapplicable
- --------------------------------------
* Incorporated by reference to Registration Statement on Form N-1A or
subsequently filed Pre-Effective Amendment.
- 6 -
CUSTODY AGREEMENT
-----------------
This AGREEMENT, dated as of March 10, 1998, by and between the Boyar Value
Fund, Inc. (the "Fund"), a diversified management investment company organized
under the laws of the State of Maryland, and STAR BANK, N.A., a national banking
association (the "Custodian").
W I T N E S S E T H:
--------------------
WHEREAS, the Fund desires that its securities and cash be held and
administered by the Custodian pursuant to this Agreement; and
WHEREAS, the Fund is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act");
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Fund and the Custodian hereby agree as follows:
ARTICLE I
---------
DEFINITIONS
-----------
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
1.1 "AUTHORIZED PERSON" means any Officer or other person duly authorized
by resolution of the Board of Directors to give Oral Instructions and Written
Instructions on behalf of the Fund and named in Exhibit A hereto or in such
resolutions of the Board of Directors, certified by an Officer, as may be
received by the Custodian from time to time.
<PAGE>
1.2 "BOARD OF DIRECTORS" shall mean the Directors from time to time serving
under the Fund's Articles of Incorporation, as from time to time amended.
1.3 "BOOK-ENTRY SYSTEM" shall mean a federal book-entry system as provided
in Subpart O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of 31 CFR
Part 350, or in such book-entry regulations of federal agencies as are
substantially in the form of such Subpart O.
1.4 "BUSINESS DAY" shall mean any day recognized as a settlement day by the
New York Stock Exchange, Inc. and any other day for which the Fund computes the
net asset value of the Shares.
1.5 "FUND CUSTODY ACCOUNT" shall mean the account in the name of the Fund,
which is provided for in Section 3.2 below.
1.6 "NASD" shall mean The National Association of Securities Dealers, Inc.
1.7 "OFFICER" shall mean the Chairman, President, any Vice President, any
Assistant Vice President, the Secretary, any Assistant Secretary, the Treasurer,
or any Assistant Treasurer of the Fund.
1.8 "ORAL INSTRUCTIONS" shall mean instructions orally transmitted to and
accepted by the Custodian because such instructions are: (i) reasonably believed
by the Custodian to have been given by an Authorized Person, (ii) recorded and
kept among the records of the Custodian made in the ordinary course of business
and (iii) orally confirmed by the Custodian. The Fund shall cause all Oral
Instructions to be confirmed by Written
- 2 -
<PAGE>
Instructions prior to the end of the next Business Day. If such Written
Instructions confirming Oral Instructions are not received by the Custodian
prior to a transaction, it shall in no way affect the validity of the
transaction or the authorization thereof by the Fund. If Oral Instructions vary
from the Written Instructions which purport to confirm them, the Custodian shall
notify the Fund of such variance but such Oral Instructions will govern unless
the Custodian has not yet acted.
1.9 "PROPER INSTRUCTIONS" shall mean Oral Instructions or Written
Instructions. Proper Instructions may be continuing Written Instructions when
deemed appropriate by both parties.
1.10 "SECURITIES DEPOSITORY" shall mean Depository Trust Company and
(provided that Custodian shall have received a copy of a resolution of the Board
of Directors, certified by an Officer, specifically approving the use of such
clearing agency as a depository for the Fund) any other clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities and Exchange Act of 1934, as amended (the "1934 Act"), which acts as
a system for the central handling of Securities where all Securities of any
particular class or series of an issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of the Securities.
- 3 -
<PAGE>
1.11 "SECURITIES" shall include, without limitation, common and preferred
stocks, bonds, call options, put options, debentures, notes, bank certificates
of deposit, bankers' acceptances, mortgage-backed securities or other
obligations, and any certificates, receipts, warrants or other instruments or
documents representing rights to receive, purchase or subscribe for the same, or
evidencing or representing any other rights or interests therein, or any similar
property or assets that the Custodian has the facilities to clear and to
service.
1.12 "SHARES" shall mean, with respect to a Fund, the shares issued by the
Fund.
1.13 "SUB-CUSTODIAN" shall mean and include (i) any branch of a "U.S.
Bank," as that term is defined in Rule 17f-5 under the 1940 Act, (ii) any
"Eligible Foreign Custodian," as that term is defined in Rule 17f-5 under the
1940 Act, having a contract with the Custodian which the Custodian has
determined will provide reasonable care of assets of the Fund based on the
standards specified in Section 3.3 below. Such contract shall include provisions
that provide: (i) for indemnification or insurance arrangements (or any
combination of the foregoing) such that the Fund will be adequately protected
against the risk of loss of assets held in accordance with such contract; (ii)
that the Fund's assets will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the Sub-Custodian or its
creditors except a claim of payment for their safe custody or administration, in
the case of cash deposits, liens or rights in favor of creditors of the
Sub-Custodian arising under
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<PAGE>
bankruptcy, insolvency, or similar laws; (iii) that beneficial ownership for the
Fund's assets will be freely transferable without the payment of money or value
other than for safe custody or administration; (iv) that adequate records will
be maintained identifying the assets as belonging to the Fund or as being held
by a third party for the benefit of the Fund; (v) that the Fund's independent
public accountants will be given access to those records or confirmation of the
contents of those records; and (vi) that the Fund will receive periodic reports
with respect to the safekeeping of the Fund's assets, including, but not limited
to, notification of any transfer to or from a Fund's account or a third party
account containing assets held for the benefit of the Fund. Such contract may
contain, in lieu of any or all of the provisions specified above, such other
provisions that the Custodian determines will provide, in their entirety, the
same or a greater level of care and protection for Fund assets as the specified
provisions, in their entirety.
1.14 "WRITTEN INSTRUCTIONS" shall mean (i) written communications actually
received by the Custodian and signed by an Authorized Person, or (ii)
communications by telex or any other such system from one or more persons
reasonably believed by the Custodian to be Authorized Persons, or (iii)
communications between electro-mechanical or electronic devices provided that
the use of such devices and the procedures for the use thereof shall have been
approved by resolutions of the Board of Directors, a copy of which, certified by
an Officer, shall have been delivered to the Custodian.
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<PAGE>
ARTICLE II
----------
APPOINTMENT OF CUSTODIAN
------------------------
2.1 APPOINTMENT. The Fund hereby constitutes and appoints the Custodian as
custodian of all Securities and cash owned by or in the possession of the Fund
at any time during the period of this Agreement.
2.2 ACCEPTANCE. The Custodian hereby accepts appointment as such custodian
and agrees to perform the duties thereof as hereinafter set forth.
2.3 DOCUMENTS TO BE FURNISHED. The following documents, including any
amendments thereto, will be provided contemporaneously with the execution of the
Agreement to the Custodian by the Fund:
a. A copy of the Articles of Incorporation of the Fund certified by
the Secretary;
b. A copy of the Bylaws of the Fund certified by the Secretary;
c. A copy of the resolution of the Board of Directors of the Fund
appointing the Custodian, certified by the Secretary;
d. A copy of the then current Prospectus of the Fund; and
e. A certification of the Chairman and Secretary of the Fund setting
forth the names and signatures of the current Officers of the
Fund and other Authorized Persons.
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<PAGE>
2.4 NOTICE OF APPOINTMENT OF DIVIDEND AND TRANSFER AGENT. The Fund agrees
to notify the Custodian in writing of the appointment, termination or change in
appointment of any Dividend and Transfer Agent of the Fund.
ARTICLE III
-----------
CUSTODY OF CASH AND SECURITIES
------------------------------
3.1 SEGREGATION. All Securities and non-cash property held by the Custodian
for the account of the Fund (other than Securities maintained in a Securities
Depository or Book-Entry System) shall be physically segregated from other
Securities and non-cash property in the possession of the Custodian and shall be
identified as subject to this Agreement.
3.2 FUND CUSTODY ACCOUNTS. The Custodian shall open and maintain in its
trust department a custody account in the name of the Fund coupled with the name
of the Fund, subject only to draft or order of the Custodian, in which the
Custodian shall enter and carry all Securities, cash and other assets of such
Fund which are delivered to it.
3.3 APPOINTMENT OF AGENTS. (a) In its discretion, the Custodian may appoint
one or more Sub-Custodians to act as Securities Depositories or as
sub-custodians to hold Securities and cash of the Funds and to carry out such
other provisions of this Agreement as it may determine, provided, however, that
the appointment of any such agents and maintenance of any Securities and cash of
the Fund shall be at the Custodian's expense and shall not relieve the Custodian
of any of its obligations or liabilities under this Agreement.
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<PAGE>
(b) If, after the initial approval of Sub-Custodians by the Board of
Directors in connection with this Agreement, the Custodian wishes to appoint
other Sub-Custodians to hold property of the Fund, it will so notify the Fund
and provide it with information reasonably necessary to determine any such new
Sub-Custodian's eligibility under Rule 17f-5 under the 1940 Act, including a
copy of the proposed agreement with such Sub-Custodian. The Fund shall at the
meeting of the Board of Directors next following receipt of such notice and
information give a written approval or disapproval of the proposed action.
(c) The Agreement between the Custodian and each Sub-Custodian acting
hereunder shall contain the required provisions set forth in Rule
17f-5(a)(1)(iii) under the 1940 Act.
(d) At the end of each calendar quarter, the Custodian shall provide
written reports notifying the Board of Directors of the placement of the
Securities and cash of the Fund with a particular Sub-Custodian and of any
material changes in the Fund's arrangements. The Custodian shall promptly take
such steps as may be required to withdraw assets of the Fund from any
Sub-Custodian that has ceased to meet the requirements of Rule 17f-5 under the
1940 Act.
(e) With respect to its responsibilities under this Section 3.3, the
Custodian hereby warrants to the Fund that it agrees to exercise reasonable
care, prudence and diligence such as a person having responsibility for the
safekeeping of property of the Fund. The Custodian further warrants that the
Fund's assets will be subject to reasonable care, based on the standards
applicable
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<PAGE>
to custodians in the relevant market, if maintained with each Sub-Custodian,
after considering all factors relevant to the safekeeping of such assets,
including, without limitation: (i) the Sub-Custodian's practices, procedures,
and internal controls, for certificated securities (if applicable), the method
of keeping custodial records, and the security and data protection practices;
(ii) whether the Sub-Custodian has the requisite financial strength to provide
reasonable care for Fund assets; (iii) the Sub-Custodian's general reputation
and standing and, in the case of a Securities Depository, the Securities
Depository's operating history and number of participants; and (iv) whether the
Fund will have jurisdiction over and be able to enforce judgments against the
Sub-Custodian, such as by virtue of the existence of any offices of the
Sub-Custodian in the United States or the Sub-Custodian's consent to service of
process in the United States.
(f) The Custodian shall establish a system to monitor the appropriateness
of maintaining the Fund's assets with a particular Sub-Custodian and the
contract governing the Fund's arrangements with such Sub-Custodian.
3.4 DELIVERY OF ASSETS TO CUSTODIAN. The Fund shall deliver, or cause to be
delivered, to the Custodian all of the Fund's Securities, cash and other assets,
including (a) all payments of income, payments of principal and capital
distributions received by the Fund with respect to such Securities, cash or
other assets owned by the Fund at any time during the period of this Agreement,
and (b) all cash received by
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<PAGE>
the Fund for the issuance, at any time during such period, of Shares. The
Custodian shall not be responsible for such Securities, cash or other assets
until actually received by it.
3.5 SECURITIES DEPOSITORIES AND BOOK-ENTRY SYSTEMS. The Custodian may
deposit and/or maintain Securities of the Fund in a Securities Depository or in
a Book-Entry System, subject to the following provisions:
(a) Prior to a deposit of Securities of the Fund in any Securities
Depository or Book-Entry System, the Fund shall deliver to the
Custodian a resolution of the Board of Directors, certified by an
Officer, authorizing and instructing the Custodian on an on-
going basis to deposit in such Securities Depository or
Book-Entry System all Securities eligible for deposit therein and
to make use of such Securities Depository or Book-Entry System to
the extent possible and practical in connection with its
performance hereunder, including, without limitation, in
connection with settlements of purchases and sales of Securities,
loans of Securities, and deliveries and returns of collateral
consisting of Securities.
(b) Securities of the Fund kept in a Book-Entry System or Securities
Depository shall be kept in an account ("Depository Account") of
the Custodian in such Book-Entry System or Securities Depository
which includes only assets held by the Custodian as a
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<PAGE>
fiduciary, custodian or otherwise for customers.
(c) The records of the Custodian with respect to Securities of the
Fund maintained in a Book-Entry System or Securities Depository
shall, by book-entry, identify such Securities as belonging to
the Fund.
(d) If Securities purchased by the Fund are to be held in a
Book-Entry System or Securities Depository, the Custodian shall
pay for such Securities upon (i) receipt of advice from the
Book-Entry System or Securities Depository that such Securities
have been transferred to the Depository Account, and (ii) the
making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of such Fund. If
Securities sold by the Fund are held in a Book-Entry System or
Securities Depository, the Custodian shall transfer such
Securities upon (i) receipt of advice from the Book-Entry System
or Securities Depository that payment for such Securities has
been transferred to the Depository Account, and (ii) the making
of an entry on the records of the Custodian to reflect such
transfer and payment for the account of such Fund.
(e) The Custodian shall provide the Fund with copies of any report
(obtained by the Custodian from a Book-Entry System or Securities
Depository in which Securities of the Fund are kept) on the
internal accounting controls
- 11 -
<PAGE>
and procedures for safeguarding Securities deposited in such
Book-Entry System or Securities Depository.
(f) Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to
the Fund resulting (i) from the use of a Book-Entry System or
Securities Depository by reason of any negligence or willful
misconduct on the part of Custodian or any Sub-Custodian
appointed pursuant to Section 3.3 above or any of its or their
employees, or (ii) from failure of Custodian or any such
Sub-Custodian to enforce effectively such rights as it may have
against a Book-Entry System or Securities Depository. At its
election, the Fund shall be subrogated to the rights of the
Custodian with respect to any claim against a Book- Entry System
or Securities Depository or any other person from any loss or
damage to the Fund arising from the use of such Book-Entry System
or Securities Depository, if and to the extent that the Fund has
not been made whole for any such loss or damage.
3.6 DISBURSEMENT OF MONEYS FROM FUND CUSTODY ACCOUNT. Upon receipt of
Proper Instructions, the Custodian shall disburse moneys from the Fund Custody
Account but only in the following cases:
(a) For the purchase of Securities for the Fund but only in
accordance with Section 4.1 of this Agreement and only
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<PAGE>
(i) in the case of Securities (other than options on Securities,
futures contracts and options on futures contracts), against the
delivery to the Custodian (or any Sub-Custodian appointed
pursuant to Section 3.3 above) of such Securities registered as
provided in Section 3.9 below or in proper form for transfer, or
if the purchase of such Securities is effected through a
Book-Entry System or Securities Depository, in accordance with
the conditions set forth in Section 3.5 above; (ii) in the case
of options on Securities, against delivery to the Custodian (or
such Sub-Custodian) of such receipts as are required by the
customs prevailing among dealers in such options; (iii) in the
case of futures contracts and options on futures contracts,
against delivery to the Custodian (or such Sub-Custodian) of
evidence of title thereto in favor of the Fund or any nominee
referred to in Section 3.9 below; and (iv) in the case of
repurchase or reverse repurchase agreements entered into between
the Fund and a bank which is a member of the Federal Reserve
System or between the Fund and a primary dealer in U.S.
Government securities, against delivery of the purchased
Securities either in certificate form or through an entry
crediting the Custodian's account at a Book-Entry System or
Securities Depository with such Securities;
- 13 -
<PAGE>
(b) In connection with the conversion, exchange or surrender, as set
forth in Section 3.7(f) below, of Securities owned by the Fund;
(c) For the payment of any dividends or capital gain distributions
declared by the Fund;
(d) In payment of the redemption price of Shares as provided in
Section 5.1 below;
(e) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the
account of the Fund: interest; taxes; administration, investment
advisory, accounting, auditing, transfer agent, custodian,
trustee and legal fees; and other operating expenses of the Fund;
in all cases, whether or not such expenses are to be in whole or
in part capitalized or treated as deferred expenses;
(f) For transfer in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered
under the 1934 Act and a member of the NASD, relating to
compliance with rules of The Options Clearing Corporation and of
any registered national securities exchange (or of any similar
organization or organizations) regarding escrow or other
arrangements in connection with transactions by the Fund;
(g) For transfer in accordance with the provision of any agreement
among the Fund, the Custodian, and a futures
- 14 -
<PAGE>
commission merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Commodity Futures
Trading Commission and/or any contract market (or any similar
organization or organizations) regarding account deposits in
connection with transactions by the Fund;
(h) For the funding of any uncertificated time deposit or other
interest-bearing account with any banking institution (including
the Custodian), which deposit or account has a term of one year
or less; and
(i) For any other proper purpose, but only upon receipt, in addition
to Proper Instructions, of a copy of a resolution of the Board of
Directors, certified by an Officer, specifying the amount and
purpose of such payment, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom such
payment is to be made.
In the event that any payment made under this Section 3.6 exceeds the funds
available in the Fund Custody Account, the Custodian may, in its discretion,
advance the Fund an amount equal to such excess and such advance shall be deemed
a loan from the Custodian to the Fund, payable on demand, bearing interest at
the rate of interest customarily charged by the Custodian on similar loans.
3.7 DELIVERY OF SECURITIES FROM FUND CUSTODY ACCOUNT. Upon receipt of
Proper Instructions, the Custodian shall release and deliver Securities from the
Fund Custody Account but only in the
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<PAGE>
following cases:
(a) Upon the sale of Securities for the account of the Fund but only
against receipt of payment therefor in cash, by certified or
cashiers check or bank credit;
(b) In the case of a sale effected through a Book-Entry System or
Securities Depository, in accordance with the provisions of
Section 3.5 above;
(c) To an offeror's depository agent in connection with tender or
other similar offers for Securities of the Fund; provided that,
in any such case, the cash or other consideration is to be
delivered to the Custodian;
(d) To the issuer thereof or its agent (i) for transfer into the name
of the Fund, the Custodian or any Sub-Custodian appointed
pursuant to Section 3.3 above, or of any nominee or nominees of
any of the foregoing, or (ii) for exchange for a different number
of certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such case,
the new Securities are to be delivered to the Custodian;
(e) To the broker selling Securities, for examination in accordance
with the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the issuer of such Securities, or pursuant to provisions for
conversion contained in such
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<PAGE>
Securities, or pursuant to any deposit agreement, including
surrender or receipt of underlying Securities in connection with
the issuance or cancellation of depository receipts; provided
that, in any such case, the new Securities and cash, if any, are
to be delivered to the Custodian;
(g) Upon receipt of payment therefor pursuant to any repurchase or
reverse repurchase agreement entered into by the Fund;
(h) In the case of warrants, rights or similar Securities, upon the
exercise thereof, provided that, in any such case, the new
Securities and cash, if any, are to be delivered to the
Custodian;
(i) For delivery in connection with any loans of Securities of the
Fund, but only against receipt of such collateral as the Fund
shall have specified to the Custodian in Proper Instructions;
(j) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against
receipt by the Custodian of the amounts borrowed;
(k) Pursuant to any authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Fund;
(l) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a
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<PAGE>
broker-dealer registered under the 1934 Act and a member of the
NASD, relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange (or of any similar organization or organizations)
regarding escrow or other arrangements in connection with
transactions by the Fund;
(m) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian, and a futures commission merchant
registered under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures Trading
Commission and/or any contract market (or any similar
organization or organizations) regarding account deposits in
connection with transactions by the Fund; or
(n) For any other proper corporate purpose, but only upon receipt, in
addition to Proper Instructions, of a copy of a resolution of the
Board of Directors, certified by an Officer, specifying the
Securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such Securities shall be made.
3.8 ACTIONS NOT REQUIRING PROPER INSTRUCTIONS. Unless otherwise instructed
by the Fund, the Custodian shall with respect to all Securities held for the
Fund:
(a) Subject to Section 7.4 below, collect on a timely basis
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<PAGE>
all income and other payments to which the Fund is entitled
either by law or pursuant to custom in the securities business;
(b) Present for payment and, subject to Section 7.4 below, collect on
a timely basis the amount payable upon all Securities which may
mature or be called, redeemed, or retired, or otherwise become
payable;
(c) Endorse for collection, in the name of the Fund, checks, drafts
and other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary form for
Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or certificates
of ownership under the federal income tax laws or the laws or
regulations of any other taxing authority now or hereafter in
effect, and prepare and submit reports to the Internal Revenue
Service ("IRS") and to the Fund at such time, in such manner and
containing such information as is prescribed by the IRS;
(f) Hold for the Fund, either directly or, with respect to Securities
held therein, through a Book-Entry System or Securities
Depository, all rights and similar securities issued with respect
to Securities of the Fund; and
(g) In general, and except as otherwise directed in Proper
Instructions, attend to all non-discretionary details in
connection with the sale, exchange, substitution,
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<PAGE>
purchase, transfer and other dealings with Securities and assets
of the Fund.
3.9 REGISTRATION AND TRANSFER OF SECURITIES. All Securities held for the
Fund that are issued or issuable only in bearer form shall be held by the
Custodian in that form, provided that any such Securities shall be held in a
Book-Entry System if eligible therefor. All other Securities held for the Fund
may be registered in the name of the Fund, the Custodian, or any Sub-Custodian
appointed pursuant to Section 3.3 above, or in the name of any nominee of any of
them, or in the name of a Book-Entry System, Securities Depository or any
nominee of either thereof. The Fund shall furnish to the Custodian appropriate
instruments to enable the Custodian to hold or deliver in proper form for
transfer, or to register in the name of any of the nominees hereinabove referred
to or in the name of a Book-Entry System or Securities Depository, any
Securities registered in the name of the Fund.
3.10 RECORDS. (a) The Custodian shall maintain complete and accurate
records with respect to Securities, cash or other property held for the Fund,
including (i) journals or other records of original entry containing an itemized
daily record in detail of all receipts and deliveries of Securities and all
receipts and disbursements of cash; (ii) ledgers (or other records) reflecting
(A) Securities in transfer, (B) Securities in physical possession, (C) moneys
and Securities borrowed and moneys and Securities loaned (together with a record
of the
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<PAGE>
collateral therefor and substitutions of such collateral), (D) dividends and
interest received, and (E) dividends receivable and interest receivable; and
(iii) canceled checks and bank records related thereto. The Custodian shall keep
such other books and records of the Fund as the Fund shall reasonably request,
or as may be required by the 1940 Act, including, but not limited to, Section 31
of the 1940 Act and Rule 31a-2 promulgated thereunder.
(b) All such books and records maintained by the Custodian shall (i) be
maintained in a form acceptable to the Fund and in compliance with rules and
regulations of the Securities and Exchange Commission, (ii) be the property of
the Fund and at all times during the regular business hours of the Custodian be
made available upon request for inspection by duly authorized officers,
employees or agents of the Fund and employees or agents of the Securities and
Exchange Commission, and (iii) if required to be maintained by Rule 31a-1 under
the 1940 Act, be preserved for the periods prescribed in Rule 31a-2 under the
1940 Act.
3.11 FUND REPORTS BY CUSTODIAN. The Custodian shall furnish the Fund with a
daily activity statement and a summary of all transfers to or from the Fund
Custody Account on the day following such transfers. At least monthly and from
time to time, the Custodian shall furnish the Fund with a detailed statement of
the Securities and moneys held by the Custodian and the Sub-Custodians including
an identification of the entity having possession of the Securities and moneys
for the Fund under this Agreement.
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<PAGE>
3.12 OTHER REPORTS BY CUSTODIAN. The Custodian shall provide the Fund with
such reports, as the Fund may reasonably request from time to time, on the
internal accounting controls and procedures for safeguarding Securities, which
are employed by the Custodian or any Sub-Custodian appointed pursuant to Section
3.3 above.
3.13 PROXIES AND OTHER MATERIALS. The Custodian shall cause all proxies
relating to Securities which are not registered in the name of the Fund, to be
promptly executed by the registered holder of such Securities, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Fund such proxies, all proxy soliciting materials and
all notices relating to such Securities.
3.14 INFORMATION ON CORPORATE ACTIONS. The Custodian shall promptly deliver
to the Fund all information received by the Custodian and pertaining to
Securities being held by the Fund with respect to optional tender or exchange
offers, calls for redemption or purchase, or expiration of rights as described
in the Standards of Service Guide attached as Exhibit B. If the Fund desires to
take action with respect to any tender offer, exchange offer or other similar
transaction, the Fund shall notify the Custodian at least five Business Days
prior to the date on which the Custodian is to take such action. The Fund will
provide or cause to be provided to the Custodian all relevant information for
any Security which has unique put/option provisions at least five Business Days
prior to the beginning
- 22 -
<PAGE>
date of the tender period.
ARTICLE IV
----------
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
--------------------------------------------
4.1 PURCHASE OF SECURITIES. Promptly upon each purchase of Securities for
the Fund, Written Instructions shall be delivered to the Custodian, specifying
(a) the name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any) or other units purchased, (c) the date of purchase and
settlement, (d) the purchase price per unit, (e) the total amount payable upon
such purchase, and (f) the name of the person to whom such amount is payable.
The Custodian shall upon receipt of such Securities purchased by such Fund pay
out of the moneys held for the account of the Fund the total amount specified in
such Written Instructions to the person named therein. The Custodian shall not
be under any obligation to pay out moneys to cover the cost of a purchase of
Securities for the Fund, if in the Fund Custody Account there is insufficient
cash available to the Fund for which such purchase was made.
4.2 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED. In
any and every case where payment for the purchase of Securities for the Fund is
made by the Custodian in advance of receipt of the Securities purchased but in
the absence of specified Written Instructions to so pay in advance, the
Custodian shall be liable to the Fund for such Securities to the same extent as
if the Securities had been received by the Custodian.
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<PAGE>
4.3 SALE OF SECURITIES. Promptly upon each sale of Securities by the Fund,
Written Instructions shall be delivered to the Custodian, specifying (a) the
name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any), or other units sold, (c) the date of sale and settlement, (d)
the sale price per unit, (e) the total amount payable upon such sale, and (f)
the person to whom such Securities are to be delivered. Upon receipt of the
total amount payable to the Fund as specified in such Written Instructions, the
Custodian shall deliver such Securities to the person specified in such Written
Instructions. Subject to the foregoing, the Custodian may accept payment in such
form as shall be satisfactory to it, and may deliver Securities and arrange for
payment in accordance with the customs prevailing among dealers in Securities.
4.4 DELIVERY OF SECURITIES SOLD. Notwithstanding Section 4.3 above or any
other provision of this Agreement, the Custodian, when instructed to deliver
Securities against payment, shall be entitled, if in accordance with generally
accepted market practice, to deliver such Securities prior to actual receipt of
final payment therefor. In any such case, the Fund shall bear the risk that
final payment for such Securities may not be made or that such Securities may be
returned or otherwise held or disposed of by or through the person to whom they
were delivered, and the Custodian shall have no liability for any for
- 24 -
<PAGE>
the foregoing.
4.5 PAYMENT FOR SECURITIES SOLD, ETC. In its sole discretion and from time
to time, the Custodian may credit the Fund Custody Account, prior to actual
receipt of final payment thereof, with (i) proceeds from the sale of Securities
which it has been instructed to deliver against payment, (ii) proceeds from the
redemption of Securities or other assets of the Fund, and (iii) income from
cash, Securities or other assets of the Fund. Any such credit shall be
conditional upon actual receipt by Custodian of final payment and may be
reversed if final payment is not actually received in full. The Custodian may,
in its sole discretion and from time to time, permit the Fund to use funds so
credited to the Fund Custody Account in anticipation of actual receipt of final
payment. Any such funds shall be repayable immediately upon demand made by the
Custodian at any time prior to the actual receipt of all final payments in
anticipation of which funds were credited to the Fund Custody Account.
4.6 ADVANCES BY CUSTODIAN FOR SETTLEMENT. The Custodian may, in its sole
discretion and from time to time, advance funds to the Fund to facilitate the
settlement of a Fund's transactions in the Fund Custody Account. Any such
advance shall be repayable immediately upon demand made by Custodian.
- 25 -
<PAGE>
ARTICLE V
---------
REDEMPTION OF FUND SHARES
-------------------------
5.1 TRANSFER OF FUNDS. From such funds as may be available for the purpose
in the Fund Custody Account, and upon receipt of Proper Instructions specifying
that the Fund is required to redeem Shares of the Fund, the Custodian shall wire
each amount specified in such Proper Instructions to or through such bank as the
Fund may designate with respect to such amount in such Proper Instructions.
5.2 NO DUTY REGARDING PAYING BANKS. The Custodian shall not be under any
obligation to effect payment or distribution by any bank designated in Proper
Instructions given pursuant to Section 5.1 above of any amount paid by the
Custodian to such bank in accordance with such Proper Instructions.
ARTICLE VI
----------
SEGREGATED ACCOUNTS
-------------------
Upon receipt of Proper Instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of the Fund, into
which account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account,
(a) in accordance with the provisions of any agreement among the
Fund, the Custodian and a broker-dealer registered under the 1934
Act and a member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing Trust and of
any
- 26 -
<PAGE>
registered national securities exchange (or the Commodity Futures
Trading Commission or any registered contract market), or of any
similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund,
(b) for purposes of segregating cash or Securities in connection with
securities options purchased or written by the Fund or in
connection with financial futures contracts (or options thereon)
purchased or sold by the Fund,
(c) which constitute collateral for loans of Securities made by the
Fund,
(d) for purposes of compliance by the Fund with requirements under
the 1940 Act for the maintenance of segregated accounts by
registered investment companies in connection with reverse
repurchase agreements and when-issued, delayed delivery and firm
commitment transactions, and
(e) for other proper corporate purposes, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution
of the Board of Directors, certified by an Officer, setting forth
the purpose or purposes of such segregated account and declaring
such purposes to be proper corporate purposes.
The segregated account established under this Article VI
- 27 -
<PAGE>
shall be established and maintained for the Fund only.
ARTICLE VII
-----------
CONCERNING THE CUSTODIAN
------------------------
7.1 STANDARD OF CARE. The Custodian shall be held to the exercise of
reasonable care in carrying out its obligations under this Agreement, and shall
be without liability to the Fund for any loss, damage, cost, expense (including
attorneys' fees and disbursements), liability or claim unless such loss, damage,
cost, expense, liability or claim arises from negligence, bad faith or willful
misconduct on its part or on the part of any Sub-Custodian appointed pursuant to
Section 3.3 above. The Custodian shall be entitled to rely on and may act upon
advice of counsel on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. The Custodian shall
promptly notify the Fund of any action taken or omitted by the Custodian
pursuant to advice of counsel. The Custodian shall not be under any obligation
at any time to ascertain whether the Fund is in compliance with the 1940 Act,
the regulations thereunder, the provisions of the Fund's charter documents or
by-laws, or its investment objectives and policies as then in effect.
7.2 ACTUAL COLLECTION REQUIRED. The Custodian shall not be liable for, or
considered to be the custodian of, any cash belonging to the Fund or any money
represented by a check, draft or other instrument for the payment of money,
until the Custodian or its agents actually receive such cash or collect on such
- 28 -
<PAGE>
instrument.
7.3 NO RESPONSIBILITY FOR TITLE, ETC. So long as and to the extent that it
is in the exercise of reasonable care, the Custodian shall not be responsible
for the title, validity or genuineness of any property or evidence of title
thereto received or delivered by it pursuant to this Agreement.
7.4 LIMITATION ON DUTY TO COLLECT. Custodian shall not be required to
enforce collection, by legal means or otherwise, of any money or property due
and payable with respect to Securities held for the Fund if such Securities are
in default or payment is not made after due demand or presentation.
7.5 RELIANCE UPON DOCUMENTS AND INSTRUCTIONS. The Custodian shall be
entitled to rely upon any certificate, notice or other instrument in writing
received by it and reasonably believed by it to be genuine. The Custodian shall
be entitled to rely upon any Oral Instructions and any Written Instructions
actually received by it pursuant to this Agreement.
7.6 EXPRESS DUTIES ONLY. The Custodian shall have no duties or obligations
whatsoever except such duties and obligations as are specifically set forth in
this Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian.
7.7 COOPERATION. The Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Fund to keep the books of
account of the Fund and/or compute the value of the assets of the Fund. The
Custodian shall take all such reasonable actions as the Fund may from time to
- 29 -
<PAGE>
time request to enable the Fund to obtain, from year to year, favorable opinions
from the Fund's independent accountants with respect to the Custodian's
activities hereunder in connection with (a) the preparation of the Fund's
reports on Form N-1A and Form N-SAR and any other reports required by the
Securities and Exchange Commission, and (b) the fulfillment by the Fund of any
other requirements of the Securities and Exchange Commission.
ARTICLE VIII
------------
INDEMNIFICATION
---------------
8.1 INDEMNIFICATION BY FUND. The Fund shall indemnify and hold harmless the
Custodian and any Sub-Custodian appointed pursuant to Section 3.3 above, and any
nominee of the Custodian or of such Sub-Custodian, from and against any loss,
damage, cost, expense (including attorneys' fees and disbursements), liability
(including, without limitation, liability arising under the Securities Act of
1933, the 1934 Act, the 1940 Act, and any state or foreign securities and/or
banking laws) or claim arising directly or indirectly (a) from the fact that
Securities are registered in the name of any such nominee, or (b) from any
action or inaction by the Custodian or such Sub-Custodian (i) at the request or
direction of or in reliance on the advice of the Fund, or (ii) upon Proper
Instructions, or (c) generally, from the performance of its obligations under
this Agreement or any sub-custody agreement with a Sub-Custodian appointed
pursuant to Section 3.3 above, provided that neither the Custodian nor any such
Sub-Custodian shall be indemnified and held harmless from
- 30 -
<PAGE>
and against any such loss, damage, cost, expense, liability or claim arising
from the Custodian's or such Sub-Custodian's negligence, bad faith or willful
misconduct.
8.2 INDEMNIFICATION BY CUSTODIAN. The Custodian shall indemnify and hold
harmless the Fund from and against any loss, damage, cost, expense (including
attorneys' fees and disbursements), liability (including without limitation,
liability arising under the Securities Act of 1933, the 1934 Act, the 1940 Act,
and any state or foreign securities and/or banking laws) or claim arising from
the negligence, bad faith or willful misconduct of the Custodian or any
Sub-Custodian appointed pursuant to Section 3.3 above, or any nominee of the
Custodian or of such Sub-Custodian.
8.3 INDEMNITY TO BE PROVIDED. If the Fund requests the Custodian to take
any action with respect to Securities, which may, in the opinion of the
Custodian, result in the Custodian or its nominee becoming liable for the
payment of money or incurring liability of some other form, the Custodian shall
not be required to take such action until the Fund shall have provided indemnity
therefor to the Custodian in an amount and form satisfactory to the Custodian.
8.4 SECURITY. If the Custodian advances cash or Securities to the Fund for
any purpose, either at the Fund's request or as otherwise contemplated in this
Agreement, or in the event that the Custodian or its nominee incurs, in
connection with its performance under this Agreement, any loss, damage, cost,
expense (including attorneys' fees and disbursements), liability or claim
- 31 -
<PAGE>
(except such as may arise from its or its nominee's negligence, bad faith or
willful misconduct), then, in any such event, any property at any time held for
the account of such Fund shall be security therefor, and should the Fund fail
promptly to repay or indemnify the Custodian, the Custodian shall be entitled to
utilize available cash of such Fund and to dispose of other assets of such Fund
to the extent necessary to obtain reimbursement or indemnification.
ARTICLE IX
----------
FORCE MAJEURE
-------------
Neither the Custodian nor the Fund shall be liable for any failure or delay
in performance of its obligations under this Agreement arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control,
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes; acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation; provided, however, that the Custodian in the event of a failure
or delay (i) shall not discriminate against the Fund in favor of any other
customer of the Custodian in making computer time and personnel available to
input or process
- 32 -
<PAGE>
the transactions contemplated by this Agreement and (ii) shall use its best
efforts to ameliorate the effects of any such failure or delay.
ARTICLE X
---------
EFFECTIVE PERIOD; TERMINATION
-----------------------------
10.1 EFFECTIVE PERIOD. This Agreement shall become effective as of its
execution and shall continue in full force and effect until terminated as
hereinafter provided.
10.2 TERMINATION. Either party hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than sixty (60) days after the date of the
giving of such notice. If a successor custodian shall have been appointed by the
Board of Directors, the Custodian shall, upon receipt of a notice of acceptance
by the successor custodian, on such specified date of termination (a) deliver
directly to the successor custodian all Securities (other than Securities held
in a Book-Entry System or Securities Depository) and cash then owned by the Fund
and held by the Custodian as custodian, and (b) transfer any Securities held in
a Book-Entry System or Securities Depository to an account of or for the benefit
of the Fund at the successor custodian, provided that the Fund shall have paid
to the Custodian all fees, expenses and other amounts to the payment or
reimbursement of which it shall then be entitled. Upon such delivery and
transfer, the Custodian shall be relieved of all obligations under this
Agreement. The Fund may at any time
- 33 -
<PAGE>
immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for the Custodian by regulatory authorities or upon the
happening of a like event at the direction of an appropriate regulatory agency
or court of competent jurisdiction.
10.3 FAILURE TO APPOINT SUCCESSOR CUSTODIAN. If a successor custodian is
not designated by the Fund on or before the date of termination specified
pursuant to Section 10.1 above, then the Custodian shall have the right to
deliver to a bank or corporation company of its own selection, which (a) is a
"bank" as defined in the 1940 Act and (b) has aggregate capital, surplus and
undivided profits as shown on its then most recent published report of not less
than $25 million, all Securities, cash and other property held by Custodian
under this Agreement and to transfer to an account of or for the Fund at such
bank or trust company all Securities of the Fund held in a Book-Entry System or
Securities Depository. Upon such delivery and transfer, such bank or trust
company shall be the successor custodian under this Agreement and the Custodian
shall be relieved of all obligations under this Agreement.
ARTICLE XI
----------
COMPENSATION OF CUSTODIAN
-------------------------
The Custodian shall be entitled to compensation as agreed upon from time to
time by the Fund and the Custodian. The fees and other charges in effect on the
date hereof and applicable to the Fund are set forth in Exhibit C attached
hereto.
- 34 -
<PAGE>
ARTICLE XII
-----------
NOTICES
-------
Unless otherwise specified herein, all demands, notices, instructions, and
other communications to be given hereunder shall be in writing and shall be sent
or delivered to the recipient at the address set forth after its name
hereinbelow:
To the Fund:
------------
Boyar Value Fund, Inc.
590 Madison Avenue
New York, New York 10022
Telephone: (212) 409-2000
Facsimile: (212)
To Custodian:
-------------
Star Bank, N.A.
425 Walnut Street, M.L. 6118
Cincinnati, Ohio 45202
Attention: Mutual Fund Custody Services
Telephone: (513) 632-3016
Facsimile: (513) 632-4448
or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XII. Writing shall include
transmissions by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
ARTICLE XIV
-----------
MISCELLANEOUS
-------------
14.1 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
14.2 REFERENCES TO CUSTODIAN. The Fund shall not circulate any printed
matter which contains any reference to Custodian
- 36 -
<PAGE>
without the prior written approval of Custodian, excepting printed matter
contained in the prospectus or statement of additional information for the Fund
and such other printed matter as merely identifies Custodian as custodian for
the Fund. The Fund shall submit printed matter requiring approval to Custodian
in draft form, allowing sufficient time for review by Custodian and its counsel
prior to any deadline for printing.
14.3 NO WAIVER. No failure by either party hereto to exercise, and no delay
by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise of any other right, and the remedies provided herein are
cumulative and not exclusive of any remedies provided at law or in equity.
14.4 AMENDMENTS. This Agreement cannot be changed orally and no amendment
to this Agreement shall be effective unless evidenced by an instrument in
writing executed by the parties hereto.
14.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
14.6 SEVERABILITY. If any provision of this Agreement shall be invalid,
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of
- 36 -
<PAGE>
the remaining provisions shall not be affected or impaired thereby.
14.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns; PROVIDED, HOWEVER, that this Agreement shall not be assignable by
either party hereto without the written consent of the other party hereto.
14.8 HEADINGS. The headings of sections in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed and delivered in its name and on its behalf by its representatives
thereunto duly authorized, all as of the day and year first above written.
ATTEST: BOYAR VALUE FUND, INC.
/s/ John F. Splain By: /s/ Mark A. Boyar
- ----------------------------- ------------------------------
Secretary Chairman
ATTEST: STAR BANK, N.A.
/s/ Lynnette C. Gibson By: /s/ Marsha A. Croxton
- ----------------------------- ------------------------------
Senior Vice President
- 37 -
<PAGE>
EXHIBIT A
---------
AUTHORIZED PERSONS
------------------
Set forth below are the names and specimen signatures of the persons
authorized by the Fund to administer the Fund Custody Account.
Authorized Persons Specimen Signatures
------------------ -------------------
Chairman: Mark A. Boyar
---------------------------
President/Treasurer:
Jay R. Petschek ---------------------------
Secretary: John F. Splain /s/ John F. Splain
---------------------------
Vice President: Robert G. Dorsey /s/ Robert G. Dorsey
---------------------------
Assistant Secretary: Tina D. Hosking /s/ Tina D. Hosking
---------------------------
Assistant Treasurer: Mark J. Seger /s/ Mark J. Seger
---------------------------
Transfer Agent/Fund Accountant Employees:
Christina Kelso /s/ Christina H. Kelso
---------------------------
M. Kathleen Leugers /s/ M. K.Leugers
---------------------------
Gary H. Goldschmidt /s/ G. H. Goldschmidt
---------------------------
- 38 -
<PAGE>
EXHIBIT A
---------
AUTHORIZED PERSONS
------------------
Set forth below are the names and specimen signatures of the persons
authorized by the Fund to administer the Fund Custody Account.
Authorized Persons Specimen Signatures
------------------ -------------------
Chairman and
Chief Executive Officer: Mark A. Boyar /s/ Mark A. Boyar
---------------------------
President/Treasurer: Jay R. Petschek /s/ Jay Petschek
---------------------------
Adviser Employees:
---------------------------
---------------------------
Administrator Employees:
Robert G. Dorsey
---------------------------
John F. Splain
---------------------------
Mark J. Seger
---------------------------
Christina Kelso
---------------------------
M. Kathleen Leugers
---------------------------
<PAGE>
EXHIBIT B
---------
Star Bank, N.A.
Standards of Service Guide
Star Bank, N.A. is committed to providing superior quality service to all
customers and their agents at all times. We have compiled this guide as a tool
for our clients to determine our standards for the processing of security
settlements, payment collection, and capital change transactions. Deadlines
recited in this guide represent the times required for Star Bank to guarantee
processing. Failure to meet these deadlines will result in settlement at our
client's risk. In all cases, Star Bank will make every effort to compete all
processing on a timely basis.
Star Bank is a direct participant of the Depository Trust Company, a direct
member of the Federal Reserve Bank of Cleveland, and utilizes the Bankers Trust
Company as its agent for ineligible and foreign securities.
For corporate reorganizations, Star Bank utilizes SEI's Reorg Source,
Financial Information, Inc., XCITEK, DTC Important Notices, and the WALL STREET
JOURNAL.
For bond calls and mandatory puts, Star Bank utilizes SEI's Bond source,
Kenny Information Systems, Standard & Poor's Corporation, and DTC Important
Notices. Star Bank will not notify clients of optional put opportunities.
Any securities delivered free to Star Bank or its agents must be received
three (3) business days prior to any payment or settlement in order for the Star
Bank standards of service to apply.
Should you have any questions regarding the information contained in this
guide, please feel free to contact your account representative.
THE INFORMATION CONTAINED IN THIS STANDARDS OF SERVICE GUIDE IS
SUBJECT TO CHANGE. SHOULD ANY CHANGES BE MADE STAR BANK WILL
PROVIDE YOU WITH AN UPDATED COPY OF ITS STANDARDS OF SERVICE
GUIDE.
<PAGE>
<TABLE>
<CAPTION>
STAR BANK SECURITY SETTLEMENT STANDARDS
- -------------------------------------------------------------------------------------------------------------------------------
TRANSACTION TYPE INSTRUCTIONS DEADLINES* DELIVERY INSTRUCTIONS
- ---------------- ----------------------- ---------------------
<S> <C> <C>
DTC 1:30 P.M. on Settlement Date DTC Participant #2219
Agent Bank ID 27895
Institutional #__________
For Account #____________
Federal Reserve Book Entry 12:30 P.M. on Settlement Date Federal Reserve Bank of Cinti/Trust
for Star Bank, N.A. ABA# 042000013
For Account #_____________
Federal Reserve Book Entry 1:00 P.M. on Settlement Date Federal Reserve Bank of Cinti/Spec
(Repurchase Agreement for Star Bank, N.A. ABA# 042000013
Collateral Only) For Account #_____________
PTC Securities 12:00 P.M. on Settlement Date PTC For Account BTRST/CUST
(GNMA Book Entry) Sub Account: Star Bank, N.A. #090334
Physical Securities 9:30 A.M. EST on Settlement Date Bankers Trust Company
(for Deliveries, by 4:00 P.M. on Settlement Date 16 Wall Street 4th Floor, Window 43
minus 1) for Star Bank Account #090334
CEDEL/EURO-CLEAR 11:00 A.M. on Settlement Date minus 2 Eurclear Via Cedel Bridge
In favor of Bankers Trust Comp
Cedel 53355
For Star Bank Account #501526354
Cash Wire Transfer 3:00 P.M. Star Bank, N.A. Cinti/Trust ABA# 042000013
Credit Account #9901877
Further Credit to _________________
Account #__________________________
</TABLE>
*All times listed are Eastern Standard Time.
<PAGE>
STAR BANK PAYMENT STANDARDS
- --------------------------------------------------------------------------------
SECURITY TYPE INCOME PRINCIPAL
- --------------------------------------------------------------------------------
Equities Payable Date
Municipal Bonds* Payable Date Payable Date
Corporate Bonds* Payable Date Payable Date
Federal Reserve Bank Book Entry* Payable Date Payable Date
PTC GNMA's (P&I) Payable Date + 1 Payable Date + 1
CMOs*
DTC Payable Date + 1 Payable Date + 1
Bankers Trust Payable Date + 1 Payable Date + 1
SBA Loan Certificates When Received When Received
Unit Investment Trust Certificates* Payable Date Payable Date
Certificates of Deposit* Payable Date Payable Date
Limited Partnerships When Received When Received
Foreign Securities When Received When Received
*Variable Rate Securities
Federal Reserve Bank Book Entry Payable Date Payable Date
DTC Payable Date + 1 Payable Date + 1
Bankers Trust Payable Date + 1 Payable Date + 1
NOTE: If a payable date falls on a weekend or bank holiday, payment will be
made on the immediately following business day.
<PAGE>
STAR BANK CORPORATE REORGANIZATION STANDARDS
<TABLE>
<CAPTION>
TYPE OF ACTION NOTIFICATION TO CLIENT DEADLINE FOR CLIENT INSTRUCTIONS TRANSACTION
TO STAR BANK POSTING
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rights, Warrants, Later of 10 business days prior to expiration 5 business days prior to expiration Upon receipt
and Optional Mergers or receipt of notice
Mandatory Puts with Later of 10 business days prior to expiration 5 business days prior to expiration Upon receipt
Option to Retain or receipt of notice
Class Actions 10 business days prior to expiration date 5 business days prior to expiration Upon receipt
Voluntary Tenders, Later of 10 business days prior to expiration 5 business days prior to expiration Upon receipt
Exchanges, or receipt of notice
and Conversions
Mandatory Puts, Defaults, At posting of funds or securities received None Upon receipt
Liquidations, Bankruptcies,
Stock Splits, Mandatory
Exchanges
Full and Partial Calls Later of 10 business days prior to expiration None Upon receipt
or receipt of notice
</TABLE>
NOTE:Fractional shares/par amounts resulting from any of the above will be sold.
<PAGE>
EXHIBIT C
STAR BANK, N.A.
Boyar Value Fund, Inc. Domestic Custody Fee Schedule
Star Bank, N.A., as Custodian, will receive monthly compensation for services
according to the terms of the following Schedule:
I. Portfolio Transaction Fees:
---------------------------
(a) For each repurchase agreement trade not
executed by Star Bank, N.A. $ 7.00
(b) For each portfolio transaction processed
through DTC or Federal Reserve $ 9.00
(c) For each portfolio transaction processed
through our New York custodian $25.00
(d) For each GNMA/Amortized Security Purchase $16.00
(e )For each GNMA Prin/Int Paydown, GNMA Sales $ 9.00
(f) For each option/future contract written,
exercised or expired $25.00
(g) For each Cedel/Euroclear transaction $80.00
(h) For each Disbursement (Fund expenses only) $ 5.00
A transaction is a purchase/sale of a security, free receipt/free delivery
(excludes initial conversion), maturity, tender or exchange.
II. Market Value Fee
----------------
Based upon an annual rate of: MILLION
-------
.0003 (3.0 Basis Points) on First $20
.0002 (2.0 Basis Points) on Next $20
.00015 (1.5 Basis Points) on Balance
III. Monthly Minimum Fee - Per Fund $300.00
------------------------------
IV. Out-of-pocket Expenses
----------------------
The only out-of-pocket expenses charged to your account will be shipping
fees or transfer fees.
V. Earnings Credits
----------------
On a monthly basis any earnings credits generated from uninvested custody
balances will be applied against any cash management service fees
generated. Earnings credits are based on the average yield on the 91 day
U.S. Treasury Bill for the preceding thirteen weeks less the 10% reserve.
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" in the prospectus and under the caption
"Auditors and Counsel" in the Statement of Additional Information, both included
in Post-Effective Amendment No. 1 to the Registration Statement (Form N-1A No.
333-29253) of Boyar Value Fund, Inc. and to the use of our report dated January
29, 1999, included therein.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Cincinnati, Ohio
February 25, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001041003
<NAME> BOYAR VALUE FUND, INC.
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> MAY-05-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,357,859
<INVESTMENTS-AT-VALUE> 1,344,619
<RECEIVABLES> 1,924
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 85,579
<TOTAL-ASSETS> 1,432,122
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,295
<TOTAL-LIABILITIES> 16,295
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,429,067
<SHARES-COMMON-STOCK> 145,634
<SHARES-COMMON-PRIOR> 10,000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (13,240)
<NET-ASSETS> 1,415,827
<DIVIDEND-INCOME> 18,031
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 13,093
<NET-INVESTMENT-INCOME> 4,938
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (13,240)
<NET-CHANGE-FROM-OPS> (8,302)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,938
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 135,214
<NUMBER-OF-SHARES-REDEEMED> 33
<SHARES-REINVESTED> 453
<NET-CHANGE-IN-ASSETS> 1,315,827
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,482
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 99,153
<AVERAGE-NET-ASSETS> 1,139,029
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> (.28)
<PER-SHARE-DIVIDEND> .03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.72
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
