UNITED STATES
Securities and Exchange Commission
Washington, DC. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-effective Amendment No. 2
and
THE INVESTMENT COMPANY ACT OF 1940 X
Pre-effectice Amendment No. 2
The O'Higgins Fund (Exact Name of Registrant as Specified in Charter)
1375 Anthony Wayne Dr, Wayne PA. 19087 (Address of Principal Executive Offices)
610-688-6839 (Registrants Telephone Number)
Bernard B. Klawans 1375 Anthony Wayne Dr Wayne PA. 19087
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this registration.
It is proposed that this filing will become effective
[x] On January 30, 1998
The Registrant hereby amends this Registration Statement on such date or dates
that may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(A) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission acting to section 8(A) may determine.
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<PAGE>
Cross Reference Sheet
INFORMATION REQUIRED CAPTIONS IN FILING
Part A: IN A PROSPECTUS
Item 1. Cover Page Cover Page
Item 2. Synopsis Fund Expenses
Item 3. Condensed Financial Information Fund Expenses
Item 4. General Description of Registrant The Fund
Item 5. Management of the Fund Management of the Fund
Item 6. Capital Stock and other Securities Capitalization
Item 7. Purchase of Securities being Offered Share Purchase - Reinvestments
Item 8. Redemption or Repurchase Redemption of Shares
Item 9. Legal Proceedings Litigation
Part B: STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History The Fund
Item 13. Investment Objectives and Policies Objective and Policies
Item 14. Management of the Registrant Officers & Directors of the Fund
Item 15. Control Persons & Principal Holders Not Applicable
of Securities
Item 16. Investment Advisory and Other Ser- Investment Adviser
vices
Item 17. Brokerage Allocation Brokerage
Item 18. Capital Stock & Other Securities Capitalization
Item 19. Purchase, Redemption & Pricing of Purchase of Shares
Securities Being Offered
Item 19. Purchase, Redemption & Pricing of Redemption of Shares
Securities Being Offered
Item 19. Purchase, Redemption & Pricing of Pricing of Shares
Securities Being Offered
Item 20. Tax Status Tax Status
Item 21. Underwriters Not Applicable
Item 22. Calculation of Yield Quotations of Not Applicable
Money Market Funds
Item 23. Financial Statements Financial Statements
Part C: OTHER INFORMATION
Item 24. Financial Statements & Exhibits Financial Statements & Exhibits
Item 25. Persons Controlled by/or under Control Persons
Common Control
Item 26. Number of Holders of Securities Number of Shareholders
Item 27. Indemnifications Indemnification
Item 28. Business & Other Connections of Activities of Investment Advisor
Advisor
Item 29 Principal Underwriters Principal Underwriter
Item 30. Location of Accounts & Records Location of Accounts & Records
Item 31. Management Services Not Applicable
Item 32. Undertakings Not Applicable
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PROSPECTUS
The O'HIGGINS FUND
1375 ANTHONY WAYNE DR.
WAYNE, PA. 19087
610-688-6839
800-548-1942
January 30, 1998
THE FUND AND INVESTMENT OBJECTIVES
The O'Higgins Fund (the Fund) is an open-end non-diversified management
investment company that seeks capital appreciation through application of a
proprietary 28 year back-tested asset allocation model. Use of this model
results in almost 100% commitments either to selected securities in the S&P 100
list or a mix of short-term US Treasury Notes and/or long-term US Zero Coupon
Bonds. Current income from investments is a subordinate consideration.
FUND SHARE PURCHASE
Capital shares of the Fund may only be purchased directly from the Fund at net
asset value as next determined after receipt of order. The Board of Directors
has established $1,000 as the minimum initial purchase and $100 for subsequent
purchases.
ADDITIONAL INFORMATION
This Prospectus, which should be held for future reference, is designed to set
forth concisely the information that you should know before you invest. A
"Statement of Additional Information" containing more information about the Fund
has been filed with the Securities and Exchange Commission. Such Statement is
dated January 30, 1998 and has been incorporated by reference into the Prospec-
tus. A copy of the Statement may be obtained without charge, by writing to the
Fund or by calling the telephone numbers shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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FUND EXPENSES
This table illustrates all expenses and fees that a shareholder of The
O'Higgins Fund is expected to incur for the startup year 1998.
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
IRA Trustee Fees None
Annualized Fund Operating Expenses:
Management Fees 1.0%
12b-1 Fees None
Other Expenses (Estimated) 0.5%
Total Operating Expenses 1.5%
The following table is given to assist investors in understanding the various
costs and expenses that an investor in the Fund will bear directly and in-
directly. It illustrates the expenses paid on a $1,000 investment over vari-
ous time periods assuming a) 5% annual rate of return and b) redemption at the
end of each time period. This example should not be considered a representa-
tion of future expenses or performance. Actual expenses may be greater or less
than those shown.
1 Year 3 Years 5 Years 10 Years
$15 $48 $84 $189
Note: Operational experience with the Valley Forge Fund suggests that the exp-
ense ratio of 1.5% will not be exceeded. The Fund Adviser may waive
management fees and if this should occur, the Fund will disclose the
amounts involved.
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THE FUND
The O'Higgins Fund, Inc. (also referred to as the "Fund") was incorporated in
Pennsylvania on January 1, 1998. The Fund's registered office is in Wayne, PA.
Mail may be addressed to 1375 Anthony Wayne Dr. Wayne, PA. 19087.
OBJECTIVE AND POLICIES
Objective: The O'Higgins Fund is an open-end non-diversified investment manage-
ment company that seeks capital appreciation through application of a proprie-
tary 28 year back-tested allocation model. Use of this model results in almost
100% investments either to selected securities in the S&P 100 list or a mix of
short-term US Treasury Notes and/or long-term US Zero Coupon Bonds. Current
income from investments is a subordinate consideration.
Risk Assessment: Risks associated with the Fund's performance will be those due
to broad market declines and business risks from difficulties which occur to
particular companies while in the Fund's portfolio or the effect of interest
rates on our debt security holdings. The Fund's approach of either being in
stocks or US Treasury Notes and/or US Zero Coupons could impact total returns or
principal by being in the wrong type of security at the wrong time. Also, the
methodology to be used that has worked well in theory in past markets is untried
in future markets. It therefore must be realized that there is no assurance the
method will approximate past calculated favorable performance.
Security Selection Criteria: Criteria used by the Adviser in purchases of sec-
urities will be based on a previously determined number of the securities in the
Standard and Poors 100 list that had the highest yields the previous year or
short-term US Treasury Bills and/or long-term US Zero Coupon Bonds depending
upon periodic reviews of a publicly available indicator which will be describ-
ed in depth in a forthcoming book by Michael B. O'Higgins, author of "Beating
the Dow." All securities including stocks, US Treasury Notes and/or US Zero
Coupon Bonds will be selected in the pursuit of capital appreciation.
Portfolio Turnover Policy: Portfolio turnover depends upon the indications of
the publicly available indicator we will use. Accordingly, the turnover rate
should not exceed 200% wherein turnover is computed by dividing the lesser of
the Fund's total purchases or sales of securities within the period by the av-
erage monthly portfolio value of the Fund during such period. If this occurs,
brokerage expenses and the effect of capital gains taxes on shareholder divi-
dends could be expected to be higher than those expected from the average mutual
fund with lower turnover.
Non-diversification Policy: The Fund is classified as being non-diversified
which means that it may invest a relatively high percentage of its assets in the
obligations of a limited number of issues. The Fund, therefore, may be more
susceptible than a more widely diversified fund to any single economic, politi-
cal, or regulatory occurrence. The policy of the Fund, in the hope of achiev-
ing its objective as stated above, is, therefore, one of selective investments
rather than broad diversification. The Fund seeks only enough diversification
to maintain its federal non-taxable status under Sub-Chapter M of the Internal
Revenue Code.
INVESTMENT RESTRICTIONS
By-laws of the Fund provide the following fundamental investment restrictions;
The Fund may not, except by the approval of a majority of the outstanding
shares; i.e. A) 67% or more of the voting securities present at a duly called
meeting, if the holders of more than 50% of the outstanding voting securities
are present or represented by proxy, or B) of more than 50% of the outstanding
voting securities, whichever is less:
a) Act as underwriter for securities of other issuers except insofar as the
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Fund may be deemed an underwriter in selling its own portfolio securities.
b) Borrow money or purchase securities on margin, but may obtain such short
term credit as may be necessary for clearance of purchases and sales of se-
curities for temporary or emergency purposes in an amount not exceeding 5%
of the value of its total assets.
c) Sell securities short.
d) Invest in securities of other investment companies except as part of a mer-
ger, consolidation , or purchase of assets approved by the Fund's share-
holders.
e) Invest over 25% of its assets at the time of purchase in any one industry.
f) Make investments in commodities, commodity contracts or real estate although
the Fund may purchase and sell securities of companies which deal in real
estate or interests therein.
g) Make loans. The purchase of a portion of a readily marketable issue of pub-
licly distributed bonds, debentures or other debt securities will not be
considered the making of a loan.
h) Acquire more than 10% of the securities of any class of another issuer,
treating all preferred securities of an issuer as a single class and all
debt securities as a single class, or acquire more than 10% of the voting
securities of another issuer.
i) Invest in companies for the purpose of acquiring control.
j) The Fund may not purchase or retain securities of any issuer if those offi-
cers and directors of the Fund or its Investment Adviser owning individual-
ly more than 1/2 of 1% of any class of security or collectively own more
than 5% of such class of securities of such issuer.
k) Pledge, mortgage or hypothecate any of its assets.
l) Invest in securities which may be subject to registration under the Securi-
ties Act of 1933 prior to sale to the public or which are not at the time of
purchase readily salable.
m) Invest more than 5% of the total Fund assets, taken at market value at the
time of purchase, in securities of companies with less than three years'
continuous operation, including the operations of any predecessor.
n) Issue senior securities.
INVESTMENT ADVISER
The Valley Forge Management Corp. (VFMC) is a Pennsylvania corporation that acts
as an Investment Adviser to the Fund. Mr. Bernard B. Klawans is the sole owner,
director and officer of the Investment Adviser and is also President of the
Fund. He has had over 26 years of day to day operational experience in running
a federally registered mutual fund, the Valley Forge Fund, Inc.
On January 1, 1998 the shareholders of the Fund approved a management and ad-
visory contract with VFMC. This Agreement will continue on a year to year basis
provided that approval is voted on at least annually by specific approval of the
Board of Directors of the Fund or by vote of the holders of a majority of the
outstanding voting securities of the Fund. In either event, it must also be
approved by a majority of Directors of the Fund who are neither parties to the
agreement or interested persons as defined in the Investment Company Act of 1940
at a meeting called for the purpose of voting on such approval.
Under the Agreement, the Valley Forge Management Corp. will furnish investment
direction on the basis of an ongoing review using the new methodology to deter-
mine when and what securities will be purchased or disposed by designated Fund
personnel. The Agreement may be terminated at any time, without payment of pen-
alty, by the Board of Directors or by vote of a majority of the outstanding
voting securities of the Fund on not more than 60 days written notice to the
Valley Forge Management Corp. In the event of its assignment, the Agreement
will terminate automatically. For these services, the Fund has agreed to pay to
the Valley Forge Management Corp. a fee of 1% per year on the net assets of the
Fund. All fees are computed on the average daily closing net asset value of the
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<PAGE>
Fund and are payable monthly. This fee is higher than the fee paid most other
funds. Not withstanding, the Investment Adviser may elect to forgo fees during
the first year of operation.
The Investment Adviser is required, by contract, to render research, statistical
and advisory services to the Fund; to make specific recommendations based on the
Fund's investment requirements; and to pay salaries of the Fund's employees who
may be officers or directors or employees of the Investment Adviser. Excepting
these items, the Fund pays all other fees and expenses incurred in conducting
its business affairs. The Investment Adviser paid the initial organizational
costs of the Fund and will reimburse the Fund for any and all losses incurred
because of purchase reneges.
A contract agreement has been agreed upon between the Valley Forge Management
Corp. and the FTC Limited a company wholly owned by Mr. O'Higgins for use of his
methodology to establish and maintain the portfolio. The contract gives FTC
Limited 50% of all management fees paid by the Fund in the form of a royalty and
may be terminated only by mutual agreement of both parties. Neither O'Higgins
nor FTC Limited will be associated with the Fund or the Investment Adviser in
any way except through promotional marketing efforts. He is in the process of
patenting this methodology which will be described in detail in a new book to be
published by the end of 1998.
CAPITALIZATION
Description of Common Stock: The authorized capitalization of the Fund consists
of 100,000,000 shares of common stock of $0.01 par value per share. Each share
has equal dividend, distribution and liquidation rights with no conversion or
pre-emptive rights. All shares issued are fully paid and non-accessible.
Voting Rights: Each shareholder has one vote for each share held. Voting
rights are non-cumulative, which means that holders of a majority of shares can
elect all directors of the Fund if they so choose.
Major Shareholders: Bernard B. Klawans, as of the date of this Prospectus, owns
all outstanding shares of the Fund.
SHARE PURCHASE - REINVESTMENTS
The offering price of the shares offered by the Fund is at the net asset value
per share next determined after receipt of the purchase order by the Fund and is
computed in the manner described under the caption "PRICING OF SHARES" in this
Prospectus. The Fund reserves the right at its sole discretion to terminate the
offering of its shares made by this Prospectus at any time and to reject pur-
chase applications when, in the judgment of management such termination or re-
jection is in the best interests of the Fund.
Initial Investments: Initial purchase of shares of the Fund may be made only by
application submitted to the Fund. For the convenience of investors, a Share
Purchase Application form is provided with this Prospectus. The minimum initial
purchase of shares is $1,000 which is due and payable 3 business days after the
purchase date. The Fund will be registered in Pennsylvania and therefore re-
stricted to Pennsylvania residents at the time of purchase. There will be no
solicitation of out of the state of Pennsylvania potential shareholders until
registration under the Blue Sky laws of the state of residence have been met.
Any losses incurred because of purchase reneges will be reimbursed by the In-
vestment Adviser.
Subsequent Purchases: Subsequent purchases may be made by mail or by phone and
are due and payable three business days after the purchase date. The minimum is
$100. No account will be allowed to exceed $500,000 at the time of purchase.
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<PAGE>
Reinvestments: The Fund will automatically retain and reinvest dividends & cap-
ital gains distributions and use same for the purchase of additional shares for
the shareholder at net asset value as of the close of business on the distribu-
tion date. A shareholder may at any time by letter or forms supplied by the
Fund direct the Fund to pay dividends and/or capital gains distributions, if
any, to such shareholders in cash or request any other information they desire
about the Fund either by US mail or by phone.
REDEMPTION OF SHARES
The Fund will redeem all or any part of the shares of any shareholder who ten-
ders a request for redemption (if certificates have not been issued) or certifi-
cates with respect to shares for which certificates have been issued. In either
case, proper endorsements guaranteed either by a national bank or a member firm
of the New York Stock Exchange will be required unless the shareholder is known
to management. The redemption price is the net asset value per share next de-
termined after notice is received by the Fund for redemption of shares. The
proceeds received by the shareholder may be more or less than his cost of such
shares, depending upon the net asset value per share at the time of redemption
and the difference should be treated by the shareholder as a capital gain or
loss for federal income tax purposes.
Payment by the Fund will ordinarily be made within three business days after
tender. The Fund may suspend the right of redemption or postpone the date of
payment if: The New York Stock Exchange is closed for other than customary week-
end or holiday closings, or when trading on the New York Stock Exchange is re-
stricted as determined by the Securities and Exchange Commission or when the
Securities and Exchange Commission has determined that an emergency exists, mak-
ing disposal of fund securities or valuation of net assets not reasonably prac-
ticable. The Fund intends to make payments in cash, however, the Fund reserves
the right to make payments in kind.
PRICING OF SHARES
The net asset value of the Fund's shares is determined as of the close of busi-
ness of the New York Stock Exchange on each business day of which that Exchange
is open (presently 4:00 p.m.) Monday through Friday exclusive of Washington's
Birthday, Good Friday, Memorial Day, July 4th, Labor Day, Thanksgiving, Christ-
mas & New Year's Day. The price is determined by dividing the value of its se-
curities, plus any cash and other assets less all liabilities, excluding capital
surplus, by the number of shares outstanding. The market value of securities
listed on a national exchange is determined to be the last recent sales price on
such exchange. Listed securities that have not recently traded and over-the-
counter securities are valued at the last bid price in such market.
Short term paper (debt obligations that mature in less than 60 days) are valued
at amortized cost which approximates market value. Other assets are valued at
fair value as determined in good faith by the Board of Directors.
fair value as determined in good faith by the Board of Directors.
RETIREMENT PLANS - IRA
People who earn compensation and are not active participants (and who don't have
a spouse who is an active participant) in an employee maintained retirement plan
may establish IRA's using Fund shares. Annual contributions, limited to the
lesser of $2,000 or 100% of compensation, are tax deductible from gross income.
This IRA deduction is also retained for individual taxpayers and married couples
with adjusted gross incomes within certain specified limits. All individuals
may make nondeductible IRA contributions to separate accounts to the extent that
they are not eligible for a deductible contribution.
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<PAGE>
Earnings under the IRA are reinvested and are tax-deferred until withdrawals be-
gin. The maximum annual contribution may be increased to $4,000 if you have a
spouse who earns no compensation during the taxable year. A separate and inde-
pendent Spousal IRA must be maintained.
You may begin to make non-penalty withdrawals as early as age 59 1/2 or as late
as age 70 1/2. In the event of death or disability, withdrawals may be made be-
fore age 59 1/2 without penalty.
A Disclosure Statement is required by U.S. Treasury Regulations. This Statement
describes the general provisions of the IRA and is forwarded to all prospective
IRA's. There is no charge to open and maintain an O'Higgins Fund IRA. This
policy may be changed by the Board of Directors if they deem it to be in the
best interests of all shareholders. All IRA's may be revoked within 7 days of
their establishment with no penalty.
MMANAGEMENT OF THE FUND
Shareholders meet annualy to elect all members of the Board of Directors, se-
lect an independent auditor, and vote on any other items deemed pertinent by the
incumbent Board. The Directors are in turn responsible for determining that the
Fund operates in accordance with its stated objectives, policies, and investment
restrictions. They also appoint officers to run the Fund and select an Invest-
ment Adviser to provide investment advice. The Board meets six times a year to
review Fund progress and status.
CUSTODIAN & TRANSFER AGENT
The Fund acts as its own custodian and transfer agent.
REPORTS TO SHAREHOLDERS
The Fund sends all shareholders annual reports containing certified financial
statements and other periodic reports, at least semi-annually, containing unau-
dited financial statements.
AUDITORS
Landsburg, Platt, Raschiatore & Dalton, Certified Public Accountants, Philadel-
phia, PA. have been selected as the independent accountant and auditor of the
Fund. Landsburg, Platt, Raschiatore and Dalton has no direct or indirect finan-
cial interest in the Fund or the Adviser.
LITIGATION
As of the date of this prospectus, there was no pending or threatened litigation
involving the Fund in any capacity whatsoever.
ADDITIONAL INFORMATION
This Prospectus omits certain information contained in the registration state-
ment on file with the Securities & Exchange Commission. The registration state-
ment may be inspected without charge at the principal office of the Commission
in Washington, D.C. and copies of all or part thereof may be obtained upon pay-
ment of the fee prescribed by the Commission. Shareholders may also direct in-
quiries to the Fund by phone or at the address given on pg 1 of this Prospectus.
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<PAGE>
SHARE PURCHASE APPLICATION
A) Please fill out one of the following four types of accounts:
1) *** Individual Accounts
______________________ __ ___________________ ______________________
First Name MI Last Name Social Security Number
2) *** Joint Accounts
______________________ __ ___________________ ______________________
First Name MI Last Name Social Security Number
______________________ __ ___________________ ______________________
First Name MI Last Name Social Security Number
3) *** Custodial Accounts
______________________ __ ___________________
Custodian's First Name MI Custo Last Name
______________________ __ ____________________ ______________________
Minor's First Name MI Minor's Last Name Minor's Soc Sec #
4) *** All Other Accounts
_______________________________________________ ______________________
Name of Account Tax Identification #
_______________________________________________
(Use this second line if you need it)
B) Biographical and other information about the new account:
Number & Street _________________________________________________________
City________________________________ St_____ Zip_____________________
Citizen of__________________ Home Phone____________ Bus Phone____________
Signature of Owner, Trustee or Custodian: ____________________________
Signature of Joint Owner (if joint account): ____________________________
Amount of Investment $____________ Please make payment to The O'Higgins Fund
Dividend Direction: Reinvest all distributions____ Pay in Cash____
All applications are accepted in Pennsylvania and under Pennsylvania Laws
C) Payer's request for Taxpayer identification number:
Part 1.- Taxpayer Identification Number Part II - Backup Withholding:
Check if you are NOT subject to
Social Security # ____________________ backup withholding under the
or provisions of section 3406(a)
(1) (C) of the Internal
Employer ID # ____________________ Revenue Code ________
Certification - Under the penality of perjury, I certify that the information
provided on this form is true, correct and complete.
Signature ___________________________________ Date _______________________
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<PAGE>
INVESTMENT ADVISER PROSPECTUS
VALLEY FORGE MANAGEMENT CORP. The O'HIGGINS FUND, INC.
1375 Anthony Wayne Drive 1375 Anthony Wayne Drive
Wayne, Pa. 19087 Wayne, Pa. 19087
610-688-6839
800-548-1942
January 30, 1998
TABLE OF CONTENTS
FUND EXPENSES ...................... 2 The Fund seeks capital apprecia-
THE FUND ........................... 3 tion through application of a pro-
OBJECTIVE & POLICIES prietary 28 year back tested allo-
Objective ........................ 3 cation model developed by Michael
Risk Assessment ...................3 O'Higgins. Application of this
Security Selection Criteria ...... 3 model results in almost 100% com-
Portfolio Turnover Policy ........ 3 mitments either to selected secur-
Nondiversification Policy ........ 3 in the S&P 100 list or a mix of
INVESTMENT RESTRICTIONS ............ 3 short-term US Treasury Notes and
INVESTMENT ADVISER ................. 4 long-term Zero Coupon Bonds. Cur-
CAPITALIZATION rent income from investments is a
Description of Common Stock ...... 5 subordinate consideration.
Voting Rights .................... 5
Major Shareholders ............... 5
SHARE PURCHASE - REINVESTMENTS
Initial Investments .............. 5
Subsequent Purchases ............. 5
Reinvestments .................... 5
REDEMPTION OF SHARES ............... 6
PRICING OF SHARES .................. 6
RETIREMENT ACCOUNT - IRA ........... 6
MANAGEMENT OF THE FUND ............. 7
CUSTODIAN & TRANSFER AGENT ......... 7
REPORTS TO SHAREHOLDERS ............ 7
AUDITORS ........................... 7
LITIGATION ......................... 7
ADDITIONAL INFORMATION ............. 7
SHARE PURCHASE APPLICATION ......... 8
TAX ID APPLICATION FORM .............8
<PAGE>
The O'HIGGINS FUND, INC.
1375 Anthony Wayne Drive
Wayne, PA 19087
610-688-6839
800-548-1942
Part B
STATEMENT OF ADDITIONAL INFORMATION
January 30, 1998
This Statement is not a prospectus, but should be read in conjunction with the
Fund's current prospectus dated January 30, 1998. To obtain the Prospectus,
please write the Fund or call either of the telephone numbers that are shown
above.
TABLE OF CONTENTS
THE FUND ................................ 2
OBJECTIVE & POLICIES
Objective .......................... 2
Risk Assessment .................... 2
Security Selection Criteria ........ 2
Portfolio Turnover Policy .......... 2
Nondiversification Policy .......... 2
INVESTMENT RESTRICTIONS ................. 2
INVESTMENT ADVISER ...................... 3
CAPITALIZATION
Description of Common Stock ........ 4
Voting Rights ...................... 4
Major Shareholders ................. 4
SHARE PURCHASE - REINVESTMENT ........... 4
Initial Investments ................ 4
Subsequent Purchases ............... 4
Reinvestments ...................... 5
REDEMPTION OF SHARES .................... 5
PRICING OF SHARES ....................... 5
TAX STATUS .............................. 5
OFFICERS AND DIRECTORS OF THE FUND ...... 6
BROKERAGE ............................... 7
AUDITOR'S REPORT ........................ 8
STATEMENT OF ASSETS & LIABILITIES ....... 9
NOTES TO FINANCIAL STATEMENTS ...........10
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<PAGE>
THE FUND
The O'Higgins Fund, Inc. (also referred to as the "Fund") was incorporated in
Pennsylvania on January 1, 1998. The Fund's registered office is in Wayne, PA.
Mail may be addressed to 1375 Anthony Wayne Dr. Wayne, PA. 19087.
OBJECTIVE AND POLICIES
Objective: The O'Higgins Fund is an open-end non-diversified investment manage-
ment company that seeks capital appreciation through application of a proprie-
tary 28 year back-tested allocation model. Use of this model results in almost
100% investments either to selected securities in the S&P 100 list or a mix of
short-term US Treasury Notes and/or long-term US Zero Coupon Bonds. Current
income from investments is a subordinate consideration.
Risk Assessment: Risks associated with the Fund's performance will be those due
to broad market declines and business risks from difficulties which occur to
particular companies while in the Fund's portfolio or the effect of interest
rates on our debt security holdings. The Fund's approach of either being in
stocks or US Treasury Notes and/or US Zero Coupons could impact total returns or
principal by being in the wrong type of security at the wrong time. Also, the
methodology to be used that has worked well in theory in past markets is untried
in future markets. It therefore must be realized that there is no assurance the
method will approximate past calculated favorable performance.
Security Selection Criteria: Criteria used by the Adviser in purchases of sec-
urities will be based on a previously determined number of the securities in the
Standard and Poors 100 list that had the highest yields the previous year or
short-term US Treasury Bills and/or long-term US Zero Coupon Bonds depending
upon periodic reviews of a publicly available indicator which will be describ-
ed in depth in a forthcoming book by Michael B. O'Higgins, author of "Beating
the Dow." All securities including stocks, US Treasury Notes and/or US Zero
Coupon Bonds will be selected in the pursuit of capital appreciation.
Portfolio Turnover Policy: Portfolio turnover depends upon the indications of
the publicly available indicator we will use. Accordingly, the turnover rate
should not exceed 200% wherein turnover is computed by dividing the lesser of
the Fund's total purchases or sales of securities within the period by the av-
erage monthly portfolio value of the Fund during such period. If this occurs,
brokerage expenses and the effect of capital gains taxes on shareholder divi-
dends could be expected to be higher than those expected from the average mutual
fund with lower turnover.
Non-diversification Policy: The Fund is classified as being non-diversified
which means that it may invest a relatively high percentage of its assets in the
obligations of a limited number of issues. The Fund, therefore, may be more
susceptible than a more widely diversified fund to any single economic, politi-
cal, or regulatory occurrence. The policy of the Fund, in the hope of achiev-
ing its objective as stated above, is, therefore, one of selective investments
rather than broad diversification. The Fund seeks only enough diversification
to maintain its federal non-taxable status under Sub-Chapter M of the Internal
Revenue Code.
INVESTMENT RESTRICTIONS
By-laws of the Fund provide the following fundamental investment restrictions;
The Fund may not, except by the approval of a majority of the outstanding
shares; i.e. A) 67% or more of the voting securities present at a duly called
meeting, if the holders of more than 50% of the outstanding voting securities
are present or represented by proxy, or B) of more than 50% of the outstanding
voting securities, whichever is less:
a) Act as underwriter for securities of other issuers except insofar as the
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<PAGE>
Fund may be deemed an underwriter in selling its own portfolio securities.
b) Borrow money or purchase securities on margin, but may obtain such short
term credit as may be necessary for clearance of purchases and sales of se-
curities for temporary or emergency purposes in an amount not exceeding 5%
of the value of its total assets.
c) Sell securities short.
d) Invest in securities of other investment companies except as part of a mer-
ger, consolidation , or purchase of assets approved by the Fund's share-
holders.
e) Invest over 25% of its assets at the time of purchase in any one industry.
f) Make investments in commodities, commodity contracts or real estate although
the Fund may purchase and sell securities of companies which deal in real
estate or interests therein.
g) Make loans. The purchase of a portion of a readily marketable issue of pub-
licly distributed bonds, debentures or other debt securities will not be
considered the making of a loan.
h) Acquire more than 10% of the securities of any class of another issuer,
treating all preferred securities of an issuer as a single class and all
debt securities as a single class, or acquire more than 10% of the voting
securities of another issuer.
i) Invest in companies for the purpose of acquiring control.
j) The Fund may not purchase or retain securities of any issuer if those offi-
cers and directors of the Fund or its Investment Adviser owning individual-
ly more than 1/2 of 1% of any class of security or collectively own more
than 5% of such class of securities of such issuer.
k) Pledge, mortgage or hypothecate any of its assets.
l) Invest in securities which may be subject to registration under the Securi-
ties Act of 1933 prior to sale to the public or which are not at the time of
purchase readily salable.
m) Invest more than 5% of the total Fund assets, taken at market value at the
time of purchase, in securities of companies with less than three years'
continuous operation, including the operations of any predecessor.
n) Issue senior securities.
INVESTMENT ADVISER
The Valley Forge Management Corp. (VFMC) is a Pennsylvania corporation that acts
as an Investment Adviser to the Fund. Mr. Bernard B. Klawans is the sole owner,
director and officer of the Investment Adviser and is also President of the
Fund. He has had over 26 years of day to day operational experience in running
a federally registered mutual fund, the Valley Forge Fund, Inc.
On January 1, 1998 the shareholders of the Fund approved a management and ad-
visory contract with VFMC. This Agreement will continue on a year to year basis
provided that approval is voted on at least annually by specific approval of the
Board of Directors of the Fund or by vote of the holders of a majority of the
outstanding voting securities of the Fund. In either event, it must also be
approved by a majority of Directors of the Fund who are neither parties to the
agreement or interested persons as defined in the Investment Company Act of 1940
at a meeting called for the purpose of voting on such approval.
Under the Agreement, the Valley Forge Management Corp. will furnish investment
direction on the basis of an ongoing review using the new methodology to deter-
mine when and what securities will be purchased or disposed by designated Fund
personnel. The Agreement may be terminated at any time, without payment of pen-
alty, by the Board of Directors or by vote of a majority of the outstanding
voting securities of the Fund on not more than 60 days written notice to the
Valley Forge Management Corp. In the event of its assignment, the Agreement
will terminate automatically. For these services, the Fund has agreed to pay to
the Valley Forge Management Corp. a fee of 1% per year on the net assets of the
Fund. All fees are computed on the average daily closing net asset value of the
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<PAGE>
Fund and are payable monthly. This fee is higher than the fee paid most other
funds. Not withstanding, the Investment Adviser may elect to forgo fees during
the first year of operation.
The Investment Adviser is required, by contract, to render research, statistical
and advisory services to the Fund; to make specific recommendations based on the
Fund's investment requirements; and to pay salaries of the Fund's employees who
may be officers or directors or employees of the Investment Adviser. Excepting
these items, the Fund pays all other fees and expenses incurred in conducting
its business affairs. The Investment Adviser paid the initial organizational
costs of the Fund and will reimburse the Fund for any and all losses incurred
because of purchase reneges.
A contract agreement has been agreed upon between the Valley Forge Management
Corp. and the FTC Limited a company wholly owned by Mr. O'Higgins for use of his
methodology to establish and maintain the portfolio. The contract gives FTC
Limited 50% of all management fees paid by the Fund in the form of a royalty and
may be terminated only by mutual agreement of both parties. Neither O'Higgins
nor FTC Limited will be associated with the Fund or the Investment Adviser in
any way except through promotional marketing efforts. He is in the process of
patenting this methodology which will be described in detail in a new book to be
published by the end of 1998.
CAPITALIZATION
Description of Common Stock: The authorized capitalization of the Fund consists
of 100,000,000 shares of common stock of $0.01 par value per share. Each share
has equal dividend, distribution and liquidation rights with no conversion or
pre-emptive rights. All shares issued are fully paid and non-accessible.
Voting Rights: Each shareholder has one vote for each share held. Voting
rights are non-cumulative, which means that holders of a majority of shares can
elect all directors of the Fund if they so choose.
Major Shareholders: Bernard B. Klawans, as of the date of this Prospectus, owns
all outstanding shares of the Fund.
SHARE PURCHASE - REINVESTMENTS
The offering price of the shares offered by the Fund is at the net asset value
per share next determined after receipt of the purchase order by the Fund and is
computed in the manner described under the caption "PRICING OF SHARES" in this
Prospectus. The Fund reserves the right at its sole discretion to terminate the
offering of its shares made by this Prospectus at any time and to reject pur-
chase applications when, in the judgment of management such termination or re-
jection is in the best interests of the Fund.
Initial Investments: Initial purchase of shares of the Fund may be made only by
application submitted to the Fund. For the convenience of investors, a Share
Purchase Application form is provided with this Prospectus. The minimum initial
purchase of shares is $1,000 which is due and payable 3 business days after the
purchase date. The Fund will be registered in Pennsylvania and therefore re-
stricted to Pennsylvania residents at the time of purchase. There will be no
solicitation of out of the state of Pennsylvania potential shareholders until
registration under the Blue Sky laws of the state of residence have been met.
Any losses incurred because of purchase reneges will be reimbursed by the In-
vestment Adviser.
Subsequent Purchases: Subsequent purchases may be made by mail or by phone and
are due and payable three business days after the purchase date. The minimum is
$100. No account will be allowed to exceed $500,000 at the time of purchase.
- 5 -
<PAGE>
Reinvestments: The Fund will automatically retain and reinvest dividends & cap-
ital gains distributions and use same for the purchase of additional shares for
the shareholder at net asset value as of the close of business on the distribu-
tion date. A shareholder may at any time by letter or forms supplied by the
Fund direct the Fund to pay dividends and/or capital gains distributions, if
any, to such shareholders in cash or request any other information they desire
about the Fund either by US mail or by phone.
REDEMPTION OF SHARES
The Fund will redeem all or any part of the shares of any shareholder who ten-
ders a request for redemption (if certificates have not been issued) or certifi-
cates with respect to shares for which certificates have been issued. In either
case, proper endorsements guaranteed either by a national bank or a member firm
of the New York Stock Exchange will be required unless the shareholder is known
to management. The redemption price is the net asset value per share next de-
termined after notice is received by the Fund for redemption of shares. The
proceeds received by the shareholder may be more or less than his cost of such
shares, depending upon the net asset value per share at the time of redemption
and the difference should be treated by the shareholder as a capital gain or
loss for federal income tax purposes.
Payment by the Fund will ordinarily be made within three business days after
tender. The Fund may suspend the right of redemption or postpone the date of
payment if: The New York Stock Exchange is closed for other than customary week-
end or holiday closings, or when trading on the New York Stock Exchange is re-
stricted as determined by the Securities and Exchange Commission or when the
Securities and Exchange Commission has determined that an emergency exists, mak-
ing disposal of fund securities or valuation of net assets not reasonably prac-
ticable. The Fund intends to make payments in cash, however, the Fund reserves
the right to make payments in kind.
PRICING OF SHARES
The net asset value of the Fund's shares is determined as of the close of busi-
ness of the New York Stock Exchange on each business day of which that Exchange
is open (presently 4:00 p.m.) Monday through Friday exclusive of Washington's
Birthday, Good Friday, Memorial Day, July 4th, Labor Day, Thanksgiving, Christ-
mas & New Year's Day. The price is determined by dividing the value of its se-
curities, plus any cash and other assets less all liabilities, excluding capital
surplus, by the number of shares outstanding. The market value of securities
listed on a national exchange is determined to be the last recent sales price on
such exchange. Listed securities that have not recently traded and over-the-
counter securities are valued at the last bid price in such market.
Short term paper (debt obligations that mature in less than 60 days) are valued
at amortized cost which approximates market value. Other assets are valued at
fair value as determined in good faith by the Board of Directors.
fair value as determined in good faith by the Board of Directors.
TAX STATUS
Under the provisions of Sub-Chapter M of the Internal Revenue Code of 1954 as
amended, the Fund, intends to pay out substantially all of its investment income
and realized capital gains, and intends to be relieved of federal income tax on
the amounts distributed to shareholders. In order to qualify as a "regulated
investment company" under Sub-Chapter M, at least 90% of the Fund's income must
be derived from dividends, interest, and gains from securities transactions and
no more than 50% of the Fund assets may be held in security holdings that exceed
5% of the total assets of the Fund at time of purchase.
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<PAGE>
Distribution of any net long-term capital gains realized by the Fund in 1998
will be taxable to the shareholder as long-term capital gains, regardless of the
length of time Fund shares have been held by the investor. The Taxpayer Relief
Act of 1997 (the Act) increased the asset holding period requirement for long-
term capital gains from 12 to 18 months and set the maximun tax rate at 20%. It
also created a new type, mid-term gains which are held for less than 18 months
but more than 12 and set this tax rate at 28%. In addition, the maximun capital
gains tax rates for long-term gains are reduced from 20% to 10% for taxpayers
whose marginal rate is 15%. All other income realized by the Fund, including
short-term capital gains, will be taxable to the shareholder as ordinary income.
Dividends from net income will be made annually or more frequently at the dis-
cretion of the Fund's Board of Directors. Dividends received shortly after pur-
chase of shares by an investor will have the effect of reducing the per share
net asset value of his shares by the amount of such dividends or distributions
&, although in effect a return of capital, are subject to federal income taxes.
The Fund is required by federal law to withhold 31% of reportable payments
(which may include dividends, capital gains, distributions and redemptions) paid
to shareholders who have not complied with IRS regulations. In order to avoid
this withholding requirement, you must certify on a W-9 tax form supplied by
the Fund that your Social Security or Taxpayer Identification Number provided is
correct and that you are not currently subject to back-up withholding, or that
you are exempt from back-up withholding.
Use of the allication model may result in turnover rates on the order of 200%
per year. Such turnover rates preclude long term capital gains in any dividend
payouts causing all dividends to be charged at ordinary income tax rates.
OFFICERS AND DIRECTORS OF THE FUND
Officers and Directors of the Fund, together with their addresses, age, princi-
pal occupations and percent of shares outstanding held during the past five
years are:
Occupation Percent
Name and Address Age Position Past 5 Years of Class
Bernard B. Klawans* 76 President President 100.00%
1375 Anthony Wayne Dr. Interested Valley Forge Fund
Wayne, PA Director
Dr. Gerd H. Dahl* 65 Secretary Secretary 0.00%
679 Jefferson Rd. Interested Valley Forge Fund
Bryn Mawr, PA Director
Victor J. Belanger 46 Non-Interested V. P. Linearizer 0.00%
Box #96 Director Technologies
Princeton Jct. NJ
Dr. Thomas A. Fosnocht 58 Non-Interested Dr.of Dental 0.00%
737 Hillview Rd. Director Surgery
Malvern, PA
Dr. James P. King 62 Non-Interested Pres. Desilube 0.00%
904 Breezewood Ln. Director Technology Inc.
Lansdale, PA
Donald A. Peterson 57 Non-Interested Program Manager 0.00%
3741 Worthington Road Lockheed Martin
Collegeville, PA
William A. Texter 50 Non-Interested Mgr, Nuclear Quality 0.00%
9 Charter Oak Dr. Director PECO Energy
Newtown Square, PA
* Directors of the Fund who are considered "Interested Directors" as defined by
the Investment Company act of 1940. Mr. Klawans is President and owner of the
Fund's Investment Adviser and Dr. Dahl is secretary of the Fund.
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<PAGE>
A total of $5,000 is estimated to be paid to Officers and Directors of the Fund
for travel expenses associated with their Fund duties in 1998. the Fund does
not compensate its officers and directors affiliated with the Investment Adviser
except as they may benefit through payment of the Advisory fee.
BROKERAGE
The Fund requires all brokers to effect transactions in portfolio securities in
such a manner as to get prompt execution of the orders at the most favorable
price. The Fund will place all orders for purchases and sales of its portfolio
securities through the Fund's President who is answerable to the Fund's Board of
Directors. The Fund's President will select brokers who meet the primary re-
quirements of execution and price, and also may have furnished publicly avail-
able statistical or other factual information which appear helpful or necessary
to the Fund's normal operations. No effort will be made in any given circum-
stance to determine the value of this information or the amount it might have
reduced Adviser expenses.
Other than as set forth above, the Fund has no fixed policy, formula, method or
criteria which it uses in allocating brokerage business to firms furnishing
these materials and executions . Thee Board of Directors will evaluate and re-
view the reasonableness of brokerage commissions paid to brokers every two
months initially and, after the first year of operation at least semiannually.
Use of the allocation model may result in turnover rates on the order of 200%
per year. Such turnover rates would generate commission rates on the order of
four times that of the average fund and thereby reduce the total return on in-
vestments.
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<PAGE>
LANDSBURG PLATT RASCHIATORE & DALTON
Certified Public Accountants
117 South 17th Street 13th Floor
Philadelphia, PA 19103
215-561-6633
Fax 215-561-2070
Independent Auditor's Report
To the Shareholers and Board of Directors of The O'Higgins Fund
We have audited the accompanying statement of assets and liabilities of The
O'Higgins Fund as of January 5, 1998. This statement of assets and liabilities
is the responsibility of the Fund's Management. Our responsibility is to ex-
press an opinion on this statement of assets and liabilities based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of ma-
terial misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and liabili-
ties. An audit also includes assessing the accounting principles used and sig-
nificant estimates made by management, as well as evaluating the overall finan-
cial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above pre-
sents fairly, in all material respects, the financial position of The O'Higgins
Fund as of January 5, 1998, in conformity with generally accepted accounting
principles.
Landsburg Platt Raschiatore & Dalton
Landsburg Platt Raschiatore & Dalton
Philadelphia, Pennsylvania
January 23, 1998
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<PAGE>
The O'Higgins Fund
Statement of Assets and Liabilities
January 5, 1998
ASSETS
Cash $100,000
========
LIABILITIES
Net assets (equivalent to $10.00 per share based
on 10,000 shares of capital stock outstanding.
100,000,000 shares authorized, $.01 par value) $100,000
========
COMPOSITION OF NET ASSETS
Shares of common stock $ 100
Paid in capital 99,900
--------
Net assets January 5, 1998 $100,000
========
The accompanying notes are an integral part of these financial statements.
- 9 -
<PAGE>
The O'Higgins Fund
Notes to the Statement of Assets and Liabilities
January 5, 1998
NOTE 1 ORGANIZATION
The O'Higgins Fund (the "Fund") was organized as a corporation in Pennsylvania
on January 1, 1998. The Fund had no operations since that date other than
matters relating to its organization and registration as an open-end non-diver-
sified management investment company under the Investment Company Act of 1940
and its securities under the Securities Act of 1933, the sale and issuance of
10,000 shares of common stock ("initial shares") to its initial investor on
January 2, 1998.
NOTE 2 ORGANIZATION COSTS
Organizational costs will be borne by the Fund's Investment Adviser.
NOTE 3 REGISTRATION FEES
Registratin fees will be borne by the Fund's Investment Adviser.
- 10 -
<PAGE>
FORM N-1A
PART C - OTHER INFORMATION
Contents Page #
1. Financial Statements & Exhibits 1
2. Control Persons 1
3. Number of Shareholders 1
4. Indemnification 1
5. Activities of Investment Adviser 1
6. Principal Underwriters 1
7. Location of Accounts & Records 1
8. Management Services 1
9. Distribution Expenses 1
10. Undertakings 1
11. Auditor's Consent 2
12. Signatures 3
Exhibits
Articles of Incorporation 3 i
By-Laws 3 ii
Investment Advisory Contract 10 i
Reimbursement Agreements - Officers/Directors 10 ii
Opinion of Counsel Concerning Fund Sscurities 99.1
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<PAGE>
1. a. Financial Statements - Condensed financial information on a per share ba-
sis is presented in Part A. All other financial statements are presented
in Part B. These include:
Statement of Assets & Liabilities January 5, 1998
Notes to Statement of Assets and Liabilities January 5, 1998
b. Exhibits - All exhibits believed to be applicable to this filing include:
(3.i) Articles of Incorporation
(3.ii) By-Laws
(10.1) Investment Advisory Contract
(10.2) Reimbursement Agreements with Officers and/or Directors
2. Control Persons - Not applicable
3. Number of Shareholders - There is one shareholder of The O'Higgins Fund as
of this filing.
4. Indemnification - Insofar as indemnification for liability arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant, the registrant has been advised
that, in the opinion of the Securities and Exchange Commission, such in-
demnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of ex-
penses incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or proceed-
ing) is asserted by such director, officer or controlling person in con-
nection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whe-
ther such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
5. Activities of Investment Adviser - The Valley Forge Management Corpora-
tion's activity at the present time is performance on its Investment Ad-
visory Contract currently effective with the Valley Forge Fund, Inc. Mr.
Bernard B, Klawans - owner, officer and director of the Valley Forge Man-
agement Corp. is also President of the Bookkeeper Corporation.
6. Principal Underwriter - The Fund acts as its own underwriter.
7. Location of Accounts & Records - All Fund records are held at corporate
headquarters - 1375 Anthony Wayne Drive, Wayne, Pa. 19087 - with the ex-
ception of security certifications which are in a safe deposit box at the
Royal Bank of Pennsylvania, DeKalb Pike, King of Prussia, PA.
8. Management services - Not applicable
9. Distribution Expenses - The Fund currently bears no distribution expenses.
10. Undertakings - The Fund will file a post-effective amendment to this init-
ial filing within four to six months of the effective date of Registrant's
1933 Act Registration Statement. Financial statements will be presented
that will not be certified.
- 1 -
<PAGE>
Landsburg Platt Raschiatore & Dalton
Certified Public Accountants
117 S. 17th St. 13th Fl.
Philadelphia, PA. 19103
215-561-6633
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion by reference to the initial Registration Statement
on Form N-1A of The O'Higgins Fund of our report dated January 23, 1998 on our
examination of the Statement of Assets and Liabilities on such Company. We also
consent to the reference to our firm in such Initial Registration Statement.
Landsburg Platt Raschatore & Dalton
January 28, 1998
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Invest-
ment Company Act of 1940, The O'Higgins Fund certifies that it meets all of
the requirements for effectiveness of this Registration Statement and has
duly caused this amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Wayne and State of Pennsylvania, on the 25th day of January, 1998.
The O'Higgins Fund
Bernard B. Klawans
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
Bernard B. Klawans President, CEO and Director 1/25/98
Gerd H. Dahl Secretary and Director 1/25/98
Nancy W. Klawans Treasurer 1/25/98
Victor J. Belanger Director 1/25/98
Dr. Thomas A. Fosnocht Director 1/25/98
Dr. James P. King Director 1/25/98
Donald A. Peterson Director 1/25/98
William A. Texter Director 1/25/98
- 3 -
EXHIBIT - 3 i
Filed with the Department of State on Oct 20, 1997
Brette Kunda
____________________________
Secretary of the Commonwealth
ARTICLES OF INCORPORATION-FOR PROFIT
OF
Beating the Dow Fund, Inc.
A Business-stock Corporation (15 Pa.C.S. Paragragh 1306)
DSCB:15-1306/2102/2303/2702/2903/3101/7102A(Rev 91)
In compliance with the requirements of the applicable provisions of 15 Pa.C.S.
(relating to corporations and unincorporated associations) the undersigned, de-
siring to incorporate a corporation for profit hereby, state(s) that:
1. The name of the corporation is: Beating the Dow Fund, Inc.
2. The address of this corporation initial registered ofice in this Commonwealth
is:
1375 Anthony Wayne Dr. Wayne Pa. 19087 Chester County
3. The corporation is incorporated under the provisions of the Business Corp-
oration Law of 1988.
4. The aggregate number of shares authorized is: 100,000,000.
5. The name and address of the incorporator is:
Bernard B. Klawans 1375 Anthony Wayne Dr Wayne Pa. 19087
6. The specified effective date is: January 1, 1998.
7. No additional provisions of the articles.
8. The corporation is not a statutory close corporation.
9. The corporation is not a cooperative corporation.
IN TESTIMONY WHEREOF the incorporator has signed these Articles of Incorpora-
tion this 20th day of October, 1997.
Bernard B. Klawans
_________________
Signature
APPROVED BY THE STATE OF PENNSYLVANIA OCTOBER 22, 1997
- 1 -
<PAGE>
Filed with the Department of State on__________
_____________________________
Secretary of the Commonwealth
ARTICLES OF AMENDMENT - DOMESTIC BUSINESS CORPORATION
In compliance with the requirements of 15 Pa.C.S. par 1915 (relating to articles
of amendment) the undersigned business corporation, desiring to amend its Arti-
cles,hereby states that:
1. The name of the corporation is: Beating the Dow Fund, Inc.
2. The address of this corporation's current registered office in this Common-
wealth is:
1375 Anthony Wayne Dr. Wayne Pa. 19087 Chester County
3. The statute by which it was incorporated is: Business Stock 15PACS
4. The date of its incorporation was 1/1/98
5. The amendment shall be effective upon filing these Articles of Amendment in
the Department of State.
6. The amendment was adapted by the shareholders pursuant to 15 Pa.C.S. par 1914
(a) and (b).
7. The amendment adopted by the corporation changed the name to The O'Higgins
Fund.
8. The restated Articles of Incorporation suopersede the original Articles and
all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of
Amendment to be signed by a duly authorized officer on this 5th day of January
1998.
The O'Higgins Fund
By: Bernard B. Klawans
President
- 2 -
EXHIBIT 3 ii
The O'Higgins Fund BY-LAWS
ARTICLE I - OFFICES
Section I. The principal office of the Corporation shall be in the City of
Wayne, County of Chester, State of Pennsylvania. The Corporation shall also
have offices at such other places as the Board of Directors may from time to
time determine and the business of the Corporation may require.
ARTICLE II - STOCKHOLDERS AND STOCK CERTIFICATES
Section 1. Every stockholder of record shall be entitled to a stock certificate
representing the shares owned by him. Stock certificates shall be in such form
as may be required by law and as the Board of Directors shall prescribe. Every
stock certificate shall be signed by the President or a Vice President and by
the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secre-
tary, and sealed with the corporate seal, which may be a facsimile, either en-
graved or printed. Whenever permitted by law, the Board of Directors may au-
thorize the issuance of stock certificates bearing the facsimile signatures of
the officers authorized to sign such certificates.
Section 2. Shares of the capital stock of the Corporation shall be transferable
only on the books of the Corporation by the person in whose name such shares are
registered, or by his duly authorized transfer agent. In case of transfers by
executors, administrators, guardians or other legal representatives, duly au-
thenticated evidence of their authority shall be produced, and may be required
to be deposited and remain with the corporation or its duly authorized transfer
agent. No transfer shall be made unless and until the certificate issued to the
transferor shall be delivered to the Corporation, or its duly authorized trans-
fer agent, properly endorsed.
Section 3. Any person desiring a certificate for shares of the capital stock
of the Corporation to be issued in lieu of one lost or destroyed shall make an
affidavit or affirmation setting forth the loss or destruction of such stock
certificate, and shall advertise such loss or destruction in such manner as the
Board of Directors may require, and shall, if the Board of Directors shall so
require, give the Corporation a bond of indemnity, in such form and with such
security as may be satisfactory to the Board, indemnifying the Corporation a-
gainst any loss that may result upon the issuance of a new stock certificate.
Upon receipt of such affidavit and proof of publication of the advertisement of
such loss or destruction, and the bond, if any, required by the Board of Direct-
ors, a new stock certificate may be issued of the same tenor and for the same
number of shares as the one alleged to have been lost or destroyed.
Section 4. The Corporation shall be entitled to treat the holder of record any
share or shares of its capital stock as the owner thereof, & accordingly, shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not the Corporation
shall have express or other notice thereof, except as otherwise provided by the
laws of the State of Pennsylvania.
- 1 -
<PAGE>
ARTICLE III - MEETING OF STOCKHOLDERS
Section 1. The annual meeting of the stockholders of the Corporation for the
election of directors and for the transaction of general business shall be held
at the principal office of the Corporation, or at such other place within or
without the State of Pennsylvania as the Board of Directors may from time to
time prescribe, on the third Tuesday in August at 8:00 PM in each year, unless
that day shall be duly designated as a legal holiday, in which event the annual
meeting of the stockholders shall be held on the first day following which is
not a holiday. The place of the annual meeting of the stockholders of the Corp-
oration shall not be changed within sixty days next before the day on which such
meeting is to be held. A notice of any change in the place of the annual meet-
ing shall be given to each stockholder twenty days before the election is held.
Section 2. Special meetings of the stockholders may be called at any time by
the President, and shall be called at any time by the President, or by the Sec-
retary, upon the written request of a majority of the members of the Board of
Directors, or upon the written request of the holders of a majority of the
shares of the capital stock of the Corporation issued and outstanding and en-
titled to vote at such meeting. Upon receipt of a written request from any per-
son or persons entitled to call a special meeting, which shall state the object
of the meeting, it shall be the duty of the President; or, in his absence, the
Secretary, to call such meeting to be held not less than ten days nor more than
sixty days after the receipt of such request. Special meetings of the stock-
holders shall be held at the principal office of the Corporation, or at such
other place within or without the State of Pennsylvania as the Board of Direct-
ors may from time to time direct, or at such place within or without the State
of Pennsylvania as shall be specified in the notice of such meeting.
Section 3. Notice of the time and place of the annual or any special meeting of
the stockholders shall be given to each stockholder entitled to notice of such
meeting at least ten days prior to the date of such meeting. In the case of
special meetings of the stockholders, the notice shall specify the object or ob-
jects of such meeting, and no business shall be transacted at such meeting other
than that mentioned in the call.
Section 4. The Board of Directors may close the stock transfer books of the
corporation for a period not exceeding sixty days preceding the date of any
meeting of stockholders, or the date for payment of any dividends, or the date
for the allotment of rights, or the date when any change or conversion or ex-
change of capital stock shall go into effect, or for a period of not exceeding
sixty days in connection with the obtaining of the consent of stockholders for
any purpose; provided, however, that in lieu of closing the stock transfer books
as aforesaid, the Board of Directors may fix in advance a date, not exceeding
sixty days preceding the date of any meeting of stockholders, or the date for
the payment of any dividend, or the date for the allotment of rights of the date
when any change or conversion or exchange of capital stock shall go into effect,
or a date in connection with obtaining such consent, as a record date for the
determination of the stockholders entitled to notice of, and to vote at, such
meeting and any adjournment thereof, or to receive payment of such dividend,or
to receive such allotment of rights, or to exercise such rights, or to give such
consent, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after any such record date as aforesaid.
Section 5. At least ten days before every election of directors of the Corpor-
ation, the Secretary shall prepare and file in the office where the election is
to be held a complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the residence of each stockholder
and the number of voting shares held by him, and such list shall at all times,
during the usual hours for business and during the whole time of said election,
be open to the examination of any stockholder.
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Section 6. At all meetings of the stockholders, a quorum shall consist of the
persons representing a majority of the outstanding shares of the capital stock
of the Corporation entitled to vote at such meeting. In the absence of a quorum
no business shall be transacted except that the stockholders present in person
or by proxy and entitled to vote at such meeting shall have power to adjourn the
meeting from time to time without notice other than announcement at the meeting
until a quorum shall be present. At any such adjourned meeting at which a quor-
um shall be present, any business may be transacted which might have been trans-
acted at the meeting on the date specified in the original notice. If a quorum
is present at any meeting the holders of the majority of the shares of the Corp-
oration issued and outstanding and entitled to vote at the meeting who shall be
present in person or by proxy at the meeting shall have power to act upon all
matters properly before the meeting, and shall also have power to adjourn the
meeting to any specific time or times, and no notice of any such adjourned meet-
ing need be given to stockholders absent or otherwise.
Section 7. At all meetings of the stockholders the following order of business
shall be substantially observed, as far as it is consistent with the purpose of
the meeting:
Election of Directors
Ratification of Elections of Auditors
New Business
Section 8. At any meeting of the stockholders of the Corporation every stock
holder having the right to vote shall be entitled in person or by proxy appoint-
ed by an instrument in writing subscribed by such stockholder and bearing a date
not more than three years prior to said meeting unless such instrument provides
for a longer period, to one vote for each share of stock having voting power re-
gistered in his name on the books of the corporation.
ARTICLE IV - DIRECTORS
Section 1. The Board of Directors shall consist of not less than three nor more
than twelve members, who may be any persons, whether or not they hold any shares
of the capital stock of the corporation.
Section 2. The directors shall be elected annually by the stockholders of the
Corporation at their annual meeting, and shall hold office for the term of one
year and until their successors shall be duly elected and shall qualify.
Section 3. The Board of Directors shall have the control and management of the
business of the Corporation, and in addition to the powers and authority by
these by-laws expressly conferred upon them, may, subject to the provisions of
the laws of the State of Pennsylvania and of the Certificate of Incorporation,
exercise all such powers of the Corporation and do all such acts and things as
are not required by law or by the Certificate of Incorporation to be exercised
or done by the stockholders.
Section 4. If the office of any director becomes or is vacant by reason of
death, resignation, removal, disqualification or otherwise, the remaining di-
rectors may by vote of a majority of said directors choose a successor or suc-
cessors who shall hold office for the unexpired term; provided that vacancies on
the Board of Directors may be so filled only if, after the filling of the same,
at least two-thirds of the directors then holding office would be directors
elected to such office by the stockholders at a meeting or meetings called for
the purpose. In the event that at any time less than a majority of the direct-
ors were so elected promptly as possible and in any event within sixty days for
the purpose of electing directors to fill any vacancy which has not been filled
by the directors in office. Any other vacancies in the Board of Directors not
filled by the directors may also be filled for an unexpired term by the stock-
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<PAGE>
holders at a meeting called for that purpose.
Section 5. The Board of Directors shall have power to appoint, and at its dis-
cretion to remove or suspend, any officer, officers, managers, superintendents,
subordinates, assistants, clerks, agents & employees, permanently or temporari-
ly, as the Board may think fit, and to determine their duties and to fix, & from
time to time change, their salaries or emoluments, & to require security in such
instances and in such amounts as it may deem proper. No contract of employment
for services to be rendered to the Corporation shall be of longer duration than
two weeks, unless such contract of employment shall be in writing, signed by the
officers of the Corporation and approved by the Board of Directors.
Section 6. In case of the absence of an officer of the Corporation, or for any
other reason which may seem sufficient to the Board of Directors, the Board may
delegate his powers and duties for the time being to any other officer of the
Corporation or to any director.
Section 7. The Board of Directors may, be resolution or resolutions passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of two or more of the directors of the Corporation, which to the extent
provided in such resolution or resolutions, shall have and may exercise the pow-
ers of the Board of Directors in the management of the business and affairs of
the Corporation, and may have power to authorize the seal of the Corporation to
be affixed to all papers which may require it. Such committee or committees
shall have such name or names as may be determined from time to time by resolu-
tion adopted by the Board of Directors. Any such committee shall keep regular
minutes of its proceedings, and shall report the same to the Board when requir-
ed.
Section 8. The Board of Directors may hold their meetings and keep the books of
the Corporation, except the original or duplicate stock ledger, outside of the
State of Pennsylvania at such place or places as they may from time to time de-
termine.
Section 9. The Board of Directors shall have power to fix, and from time to
time to change the compensation, if any, of the directors of the Corporation.
Section 10. The Board of Directors shall present at each annual meeting of the
shareholders, and, when called for by vote of the stockholders, at any special
meeting of the stockholders, a full and clear statement of the business and con-
condition of the Corporation.
ARTICLE V - DIRECTORS MEETINGS
Section 1. Regular meetings of the Board of Directors shall be held without no-
tice at such times and places as may be free from time to time prescribed by the
Board.
Section 2. Special meetings of the Board of Directors may be called at any time
by the President, and shall be called by the President upon the written request
of a majority of the members of the Board of Directors. Unless notice is waived
by all the members of the Board of Directors, notice of any special meeting
shall be sent to each director at least twenty-four hours prior to the date of
such meeting, and such notice shall state the time, place and object or objects
of such special meeting.
Section 3. Three member of the Board of Directors shall constitute a quorum for
the transaction of business at any meeting. The act of a majority of the di-
rectors present at any meeting where there is a quorum shall be the act of the
Board of Directors, except as may be otherwise specifically provided by statue
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or by the Certificate of Incorporation or by these by-laws.
Section 4. The order of business at meetings of the Board of Directors shall be
described from time to time by the Board.
ARTICLE VI - OFFICERS AND AGENTS
Section 1. At the first meeting of the Board of Directors after the election of
directors in each year, the Board shall elect a President, a Secretary and a
Treasurer, and may elect or appoint one or more Vice Presidents, Assistant Sec-
retaries, Assistant Treasurers, and such other officers and agents as the Board
may deem necessary and as the business of the Corporation may require.
Section 2. The President and the Chairman of the Board shall be elected from
the membership of the Board of Directors, but other officers need not be members
of the Board of Directors. Any two or more offices may be held by the same per-
son. All officers of the Corporation shall serve for one year and until their
successors shall have been duly elected and shall have qualified; provided, how-
ever, that any officer may be removed at any time, either with or without cause,
by action of the Board of Directors.
Section 3. The salaries of all officers and agents of the Corporation shall be
fixed by the Board of Directors.
ARTICLE VII - DUTIES OF OFFICERS
PRESIDENT
Section 1. The President shall be the Chief Executive Officer and head of the
Corporation, and in the recess of the Board of Directors shall have the general
control and management of its business and affairs, subject, however, to the re-
gulations of the Board of Directors. He shall preside at all meetings of the
stockholders and shall be a member exofficio of all standing committees.
Section 2. The President shall call all special or other meetings of the stock-
holders and Board of Directors. In case the President shall at any time neglect
or refuse to call a special meeting of the stockholders when requested so to do
by a majority of the directors, or by the stockholder representing a majority of
the stock of the Corporation, as is elsewhere in these by-laws provided, then
and in such case, such special meeting shall be called by the Secretary, or in
the event of his neglect or refusal to call such meeting, may be called by a ma-
jority of the directors or by the stockholders representing a majority of the
stock of the Corporation, who desire such special meeting, as the case may be,
upon notice as hereinbefore provided. In case the President shall at any time
neglect or refuse to call a special meeting of the Board of Directors when re-
quested to do so by a majority of the Directors, as is elsewhere in these
by-laws provided, then and in such case, such special meeting may be called by
the majority of the directors desiring such special meeting, upon notice as
hereinbefore provided.
VICE PRESIDENTS
Section 3. In case of the absence of the President, the Vice President, or, if
there be more than one Vice President, then the Vice Presidents, according to
their seniority, shall preside at the meetings of the stockholders of the Corp-
oration. In the event of the absence, resignation, disability or death of the
President, such Vice President shall exercise all the powers and perform all the
duties of the President until the return of the President or until such disabil-
ity shall have been removed or until a new President shall have been elected.
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<PAGE>
THE SECRETARY AND ASSISTANT SECRETARIES
Section 4. The Secretary shall attend all meetings of the stockholders and
shall record all the proceedings thereof in a book to be kept for that purpose
and he shall record all the proceedings thereof in a book to be kept for that
purpose and he shall be the custodian of the corporate seal of the Corporation.
In the absence of the Secretary, an Assistant Secretary or any other person
appointed or elected by the Board of Directors, as is elsewhere in these by-laws
provided, may exercise the rights and perform the duties of the Secretary.
Section 5. The Assistant Secretary, or, if there be more than one Assistant
Secretary, then the Assistant Secretaries in the order of their seniority shall,
in the absence or disability of the Secretary, perform the duties and exercise
the powers of the Secretary. Any Assistant Secretary elected by the Board shall
also perform such other duties and exercise such other powers as the Board of
Directors shall from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 6. The Treasurer shall keep full and correct accounts of the receipts
and expenditures of the Corporation in books belonging to the Corporation, and
shall deposit all moneies and valuable effects in the name and to the credit of
the Corporation and in such depositories as may be designated by the Board of
Directors, and shall, if the Board shall so direct, give bond with sufficient
security and in such amount as may be required by the Board of Directors for the
faithful performance of his duties. He shall disburse funds of the Corporation
as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and Board of Directors at the
regular meetings of the Board, or whenever they may require it, an account of
all his transactions as the chief fiscal officer of the corporation, and of the
financial condition of the Corporation.
Section 7. The Assistant Treasurer, or if there be more than one Assistant
Treasurer, then the Assistant Treasurers in the order of their seniority, shall,
in the absence or disability of the Treasurer, perform the duties and exercise
the powers of the Treasurer. Any Assistant Treasurer elected by the Board shall
also perform such duties and exercise such powers as the Board of Directors
shall from time to time prescribe.
ARTICLE VIII - CHECKS, DRAFTS, NOTES, ETC.
Section 1. All checks shall bear the signature of such person or persons as the
Board of Directors may from time to time direct.
Section 2. All notes and other similar obligations and acceptances of drafts by
the Corporation shall be signed by such person or persons as the Board of Di-
rectors may from time to time direct.
Section 3. Any officer of the Corporation or any other employee, as the Board of
Directors may from time to time direct, shall have full power to endorse for
deposit all checks and all negotiable paper drawn payable to his or their order
or to the order of the Corporation.
ARTICLE IX - CORPORATE SEAL
Section 1. The corporate seal of the Corporation shall have inscribed thereon
the name of the Corporation, the year of its organization, and the words Corpor-
ate Seal, Pennsylvania. Such seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
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<PAGE>
ARTICLE X - DIVIDENDS
Section 1. Dividends upon the shares of the capital stock of the Corporation
may, subject to the provisions of the Certificate of Incorporation, if any, be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock of the Corporation.
Section 2. Before payment of any dividend there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board
of Directors may, from time to time, in their absolute discretion, think proper
as a reserve fund to meet contingencies, or for equalizing dividends, or for re-
pairing or maintaining any property of the Corporation, or for such other pur-
pose as the Board of Directors shall deem to be for the best interests of the
Corporation, and the Board of Directors may abolish any such reserve in the man-
ner in which it was created.
ARTICLE XI - FISCAL YEAR
Section 1. The fiscal year of the Corporation shall begin on January 1 of each
year, and end on December 31 of each year.
ARTICLE XII - NOTICES
Section 1. Whenever under the provisions of these by-laws notice is required to
be given to any director or stockholder, it shall not be construed to mean per-
sonal notice, and such notice may be given in writing, by mail, by depositing
the same in the post office or letter box, in a postpaid sealed wrapper, add-
ressed to such director or stockholder at such address as shall appear on the
books of the Corporation, or, if the address of such director or stockholder
does not appear on the books of the Corporation, to such director or stockholder
at the General Post Office in the City of Wayne, Pennsylvania and such notice
shall be deemed to be given at the time it shall be so deposited in the post
office or letter box. In the case of directors, such notice may also be given
by telephone, telegraph or cable.
Section 2. Any notice required to be given under these by-laws may be waived in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein.
Section 3. Each director and officer (and his heirs, executors, and adminis-
trators) shall be indemnified by the Corporation against reasonable costs and
expenses incurred by him in connection with any action, suit or proceeding to
which he may be made a party by reason of his being or having been a director or
officer of the Corporation, except in relation to any action, suits or proceed-
ings in which he has been adjudged liable because of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the con-
duct of his office. In the absence of any adjudication which expressly finds
that the director or officer is so liable or which expressly absolves him of
liability for willful misfeasance, bad faith, gross negligence or reckless dis-
regard of the duties involved in the conduct of his office, or in the event of a
settlement, each director and officer (and his heirs, executors and administrat-
ors) shall be indemnified by the Corporation against payments made, including
reasonable costs determination by a written opinion of independent counsel.
Amounts paid in settlement shall not exceed costs, fees and expenses which would
have been reasonably incurred if the action, suit or proceeding had been liti-
gated to a conclusion. Such a determination by independent counsel, and the
payments of amounts by the Corporation on the basis thereof shall not prevent a
stockholder from challenging such indemnification by appropriate legal proceed-
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<PAGE>
ings on the grounds that the person indemnified was liable to the Corporation or
its security holders by reason of the conduct as used herein. The foregoing
provisions shall be exclusive of any other rights of indemnification to which
the officers and directors might otherwise be entitled.
ARTICLE XIII - AMENDEMENTS
Section 1. These by-laws may be amended, altered, repealed or added to at the
annual meeting of the stockholders of the Corporation or of the Board of Direct-
ors, or at any special meeting of the stockholders or of the Board of Directors
called for that purpose, by the affirmative vote of the holders of a majority of
the shares of capital stock of the Corporation then issued and outstanding and
entitled to vote, or by a majority of the Whole Board of Directors, as the case
may be.
ARTICLE XIV - INVESTMENT RESTRICTIONS
By-laws of the Fund provide the following fundamental investment restrictions;
The Fund may not, except by the approval of a majority of the outstanding
shares; i.e. A) 67% or more of the voting securities present at a duly called
meeting, if the holders of more than 50% of the outstanding voting securities
are present or represented by proxy, or B) of more than 50% of the outstanding
voting securities, whichever is less:
a) Act as underwriter for securities of other issuers except insofar as the
Fund may be deemed an underwriter in selling its own portfolio securities.
b) Borrow money or purchase securities on margin, but may obtain such short
term credit as may be necessary for clearance of purchases and sales of se-
curities for temporary or emergency purposes in an amount not exceeding 5%
of the value of its total assets.
c) Sell securities short.
d) Invest in securities of other investment companies except as part of a mer-
ger, consolidation , or purchase of assets approved by the Fund's share-
holders.
e) Invest over 25% of its assets at the time of purchase in any one industry.
f) Make investments in commodities, commodity contracts or real estate although
the Fund may purchase and sell securities of companies which deal in real
estate or interests therein.
g) Make loans. The purchase of a portion of a readily marketable issue of pub-
licly distributed bonds, debentures or other debt securities will not be
considered the making of a loan.
h) Acquire more than 10% of the securities of any class of another issuer,
treating all preferred securities of an issuer as a single class and all
debt securities as a single class, or acquire more than 10% of the voting
securities of another issuer.
i) Invest in companies for the purpose of acquiring control.
j) The Fund may not purchase or retain securities of any issuer if those offi-
cers and directors of the Fund or its Investment Adviser owning individual-
ly more than 1/2 of 1% of any class of security or collectively own more
than 5% of such class of securities of such issuer.
k) Pledge, mortgage or hypothecate any of its assets.
l) Invest in securities which may be subject to registration under the Securi-
ties Act of 1933 prior to sale to the public or which are not at the time of
purchase readily salable.
m) Invest more than 5% of the total Fund assets, taken at market value at the
time of purchase, in securities of companies with less than three years'
continuous operation, including the operations of any predecessor.
n) Issue senior securities.
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Exhibit - 10 i
INVESTMENT ADVISORY CONTRACT
AGREEMENT, made by and between The O'Higgins Fund, Inc., a Pennsylvania Corp-
oration, (hereinafter called "Fund") and Valley Forge Management Corporation, a
Pennsylvania Corporation (hereinafter called "Investment Adviser")
WITNESSETH: WHEREAS, Fund engages in the business of investing and reinvesting
its assets and property in various stocks and securities and Investment Adviser
engages in the business of providing investment advisory services.
1. The Fund hereby employs the Investment Adviser, for the period set forth
in Paragraph 6 hereof, and on the terms set forth herein, to render invest-
ment advisory services to the Fund, subject to the proprietary allocation
model devised by Mr. Michael O"Higgins. The Investment Adviser hereby ac-
cepts such employment and agrees, during such period, to render the services
and assume the obligations herein set forth, for the compensation provided.
The Investment Adviser shall, for all purposes herein, be deemed to be an
independent contractor, and shall, unless otherwise expressly provided and
authorized, have no authority to act for or represent the Fund in any way,
or in any way be deemed an agent of the Fund.
2. As a compensation for the services to be rendered to the Fund by the Invest-
ment Adviser under the provisions of this Agreement, the Fund shall pay to
the Investment Adviser monthly a fee equal to one-twelfth of one percent per
month, (the equivalent of 1% per annum) of the daily average net assets of
the Fund during the month. The first payment of fee hereunder shall be
prorated on a daily basis from the date this Agreement takes effect but may
be waived by the Investment Adviser under especial circumstances.
3. It is expressly understood and agreed that the services to be rendered by
the Investment Adviser to the Fund under the provisions of this Agreement
are not to be deemed to be exclusive, and the Investment Adviser shall be
free to render different services to others so long as its ability to render
the services provided for in this Agreement shall not be impaired thereby.
4. It is understood and agreed that directors, officers, employees, agents and
shareholders of the Fund may be interested in the Investment Adviser as dir-
ectors, officers, employees, agents and shareholders, and that directors,
officers, employees, agents and shareholders of the Investment Adviser may
be interested in the Fund, as directors, officers, employees, agents and
shareholders or otherwise, and that the Investment Adviser, itself, may be
interested in the Fund as a shareholder or otherwise, specifically, it is
understood and agreed that directors, officers, employees, agents and share-
holders of the Investment Adviser may continue as directors, officers, emp-
loyees, agents and shareholders of the Fund; that the Investment Adviser,
its directors, officers, employees, agents and shareholders may engage in
other business, may render investment advisory services to other investment
companies, or to any other corporation, association, firm or individual, may
render underwriting services to the Fund, or to any other investment compa-
ny, corporation, association, form or individual. The Fund shall bear ex-
penses and salaries necessary and incidental to the conduct of its business,
including but not in limitation of the foregoing, the costs incurred in the
maintenance of its own books, records, and procedures; dealing with its own
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<PAGE>
shareholders; the payment of dividends; transfers of stock (including issu-
ance & redemption of shares); reports and notices to shareholders; expenses
of annual stockholders; meetings; miscellaneous office expenses; brokerage
commissions; taxes; and custodian, legal, accounting and registration fees.
Employees, officers and agents of the Investment Adviser who are, or may in
the future be, directors and/or senior officers of the Fund shall receive no
remuneration from the Fund or acting in such capacities for the Fund. In
the conduct of the respective businesses of the parties hereto and in the
performance of this agreement, the Fund & Investment Adviser may share com-
mon facilities and personnel common to each, with appropriate proration of
expenses.
5. Investment Adviser shall give the Fund the benefit of its best judgment and
efforts in rendering these services, and Fund agrees as an inducement to the
undertaking of these services that Investment Adviser shall not be liable
hereunder for any mistake of judgment or any event whatsoever, provided that
nothing herein shall be deemed to protect, or purport to protect, Investment
Adviser against any liability to Fund or to its security holders to which
Investment Adviser would otherwise be subject by reason of willful misfeas-
ance, bad faith or gross negligence in the performance of duties hereunder,
or by reason of reckless disregard of obligations and duties hereunder.
6. This agreement shall continue in effect until August xx, 1998, and, there-
after, only so long as such continuance is approved at least annually by
votes of the Fund's Board of Directors, cast in person at a meeting called
for the purpose of voting on such approval, including the votes of a majori-
ty of the Directors who are not parties to such agreement or interested per-
sons of any such party. This agreement may be terminated at any time upon
60 days prior written notice, without the payment of any penalty, by the
Fund's Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund. The contract will automatically terminate in the
event of its assignment by the Investment Adviser (within the meaning of the
Investment Company Act of 1940), which shall be deemed to include a transfer
of control of the Investment Adviser. Upon the termination of this agree-
ment, the obligations of all the parties hereunder shall cease and terminate
as of the date of such termination, except for any obligation to respond for
a breach of this Agreement committed prior to such termination and except
for the obligation of the Fund to pay to the Investment Adviser the fee pro-
vided in Paragraph 2 hereof, prorated to the date of termination.
7. This Agreement shall not be assigned by the Fund without prior written con-
sent thereto of the Investment Adviser. This Agreement shall terminate au-
tomatically in the event of its assignment by the Investment Adviser unless
an exemption from such automatic termination is granted by order or rule of
the Securities and Exchange Commission.
IN WITNESS WHEREOF, the parties hereto have caused their corporate seals to
be affixed and duly attested and their presence to be signed by their duly
authorized officers this 5th day of January, 1998.
The O'HIGGINS Fund, Inc. By _____________________________
Bernard B. Klawans, President
Attest: ___________________________
Nancy W. Klawans, Treasurer
Valley Forge Management Corporation By _____________________________
Bernard B. Klawans, President
Attest: ________________
Nancy W. Klawans
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Exhibit - 10 ii
Reimbursement Agreements
The O'Higgins Fund will reimburse officers and directors not affiliated with the
Investment Adviser to compensate for travel expenses associated with performance
of their duties. As the Fund grows in total assets, the Board of Directors may
place them on salaries commensurate with their duties.
The Fund has no plans to compensate officers, employes and directors who are
affiliated with the Investment Adviser except indirectly through payment of the
management fee.
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