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[Outside front cover]
THE O'HIGGINS FUND
Prospectus
May 25, 1999
Like all mutual funds, the Securities
and Exchange Commission has not ap-
proved or disapproved of these secur-
ities offered in the Prospectus and
has not passed upon the accuracy or
adequacy of this Prospectus. Any re-
presentation to the contrary is a
criminal offense.
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RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE
Fund Investment Objectives/Goals
The Fund seeks to provide appreciation through application of a proprietary 28
year back tested asset allocation model.
Principal Investment Strategies of the Fund
The strategy used in managing the Fund's portfolio generally follows that given
in detail in Mr. Michael O'Higgins book "Beating The Dow - With Bonds". It is
summarized in the next paragraph.
Portfolio Management: The Asset Class selection worksheet follows
1. Standard & Poor's Industrial Index Earnings Yield ____________%
2. 10-year U.S. Government T-bond Yield to Maturity ____________ %
3. Adjustment Factor + 0.30%
4. Estimated 10 Year AAA Corporate Bond Yield _____________%
5. Item 1 -Item 4 (the difference in yield) _____________%
If the answer in Item 5 is positive, the Fund purchases 20 of
the lowest dollar priced securities of the 100 highest yield-
ing stocks in the S&P Industrial Index. If the answer is ne-
gative, you continue with this table.
6. Last Week Gold Price Per Troy Ounce $______
7. Year-Ago Gold Price Per troy Ounce $______
8. Item 6- Item 7 (1 year change in the price of gold) $______
If the answer in Item 8 is positive, the Fund purchases U.S.
Treasury bills that mature within a year. If the answer is
negative, the Fund invests in the highest yielding U.S. Gov-
erment zero Coupon Bonds that mature in twenty years or more.
The Fund's strategy differs slighty from the book's methology. It must meet the
diversification requirement of no more than 5% of any one security at the time
of purchase when it is in securities to be eligible for exemption from paying
corporate income taxes under Subchapter M of the Internal Revenue Service Code.
That is why the Fund purchases 20 S&P Industrial Index Stocks instead of 5 Dow
Jones Industrial Stocks. Another difference entails periodic use of the work-
sheet used to determine the optimum asset class selection rather than waiting an
entire year. The third difference is maintainence of a sufficient cash position
to be able to meet redemption requirements in a timely fashion. These variances
are believed to have no significant effects on the methology perfrmance. Use of
this model results in almost 100% investments either in 20 of the lowest dollar
priced securities of the 100 highest yielding stocks in the S&P Industrial Index
or short-term US Treasury Notes or long-term US zero Coupon Bonds.
Principal Risks of Investing in the Fund
Narrative Risk Disclosure: 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 in-
terest rates on our debt security holdings. The Fund's approach of either being
in stocks or short-term US Treasury Notes or long-term US zero Coupon Bonds
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 be successful. Loss of mon-
ey is a risk of investing in this Fund (See Footnote).
Footnote: Bonds increase in price as interest rates decline and decrease
in price as rates increase. The effect on short-term Treasury
notes is about directly proportional to the change. However,
the price movement is exaggerated in the case of long-term zero
Coupon Bonds because no interest is paid until maturity.
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Risk/Return Bar Chart and Table: No Risk/Return Bar chart or table is presented
because the Fund has not been in operation for a complete year as of the date of
the financials included herein.
Non-diversification Policy: The Fund is non-diversified which means that it may
invest a relatively high percentage of its assets in a limited number of securi-
ties. As a result, the Fund may be more susceptible to a single negative eco-
nomic, political or regulatory occurrence. The Fund seeks only enough diversi-
fication in its security selections to maintain its federal non-taxable status
under Sub-Chapter M of the Internal Revenue Code.
RISK/RETURN SUMMARY: FEE TABLE
Fees and Expenses of the Fund
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge(Load) Imposed on Purchases: None
Maximun Deferred Sales Charge (Load): None
Maximun Sales Charge (Load) on Reinvested Dividends: None
Redemption Fee: None
Exchange Fee: None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets):
Management Fees: 1.00%
Distribution [and/or Service] (12b-1) Fees: None
Other Expenses: (will not exceed) 0.49%
Total Annual Fund Operating Expenses: (will not exceed) 1.49%
Example: This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The example assumes
that you invest $10,000 in the Fund for the time periods indicated and then re-
deem all of your shares at the end of those periods. The example also assumes
that your investment has a 5% return each year and that the Funds operating ex-
penses remain the same. Although your actual costs may be lower, based on these
assumptions your costs would be:
1 year 3 years 5 years 10 years
$ 160 $ 504 $ 871 $ 1,926
(See Footnote)
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RELATED RISKS
Investment Objectives
The Fund seeks to provide appreciation through application of a proprietary 28
year back tested asset allocation model. Use of this model results in almost
100% investments either in 20 of the lowest dollar priced securities of the 100
highest yielding stocks in the S&P Industrial Index or short-term US
Treasury Notes or long-term US zero Coupon Bonds. It must be realized, as is
true of almost all securities, there can be no assurance that the Fund will
obtain its ongoing objective of capital appreciation.
Footnote: All operating fees were either waived or paid by the Investment
Adviser during the Fund's first year. And, as stated in the
Management Contractual Agreement, the Adviser will continue to
do so for any operating expenses over 1.49%. However, the Fund
will pay its own expenses up to 1.49% of its annualized assets
when total assets exceed $2,500,000 as expected to occur by
April 1999.
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Principal Investment Strategies
Security Selection Criteria: As stated in the section Principal Investment Stra-
tegies of the Fund on page 1, Asset Allocations and Security Selections recom-
mended by our Investment Adviser follows the methodology described in detail in
the book "Beating The Dow - With Bonds".
Portfolio Turnover Policy: Portfolio turnover depends upon indications of the
publicly available indicator we use. Research has indicated that asset changes
more often than once a year do not tend to improve performance . Accordingly,
the turnover rate should not exceed 100% wherein turnover is computed by divid-
ing the lesser of the Fund's total purchases or sales of securities within the
period by the average monthly portfolio value of the Fund during such period.
If this occurs, brokerage expenses and the effect of capital gains taxes on
shareholder dividends could be higher than those expected from a mutual fund
with lower turnover which could have a negative affec on the Funds relative per-
formance.
Turnover from inception Jan. 30 through Dec. 31 of 1998 amounted to 11%. The
Fund was 88.41% in 30 year US zero Coupon Bonds at the end of 1998.
Risks
As said under Narrative Risk Disclosure on page 1, the Fund's total return, like
stock prices generally, will go up and down such that an investor may lose money
over short and even long periods of time. The Fund's approach of either being
in stocks or US Treasury Notes or US zero Coupon Bonds could impact total re-
turns 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.
MANAGEMENTS DISCUSSION OF FUND PERFORMANCE
The market continuing advance to new historic levels has reduced the earning
yields of stocks in turn to historic lows. This, in turn, may skew the results
obtained with the Asset Allocation Model the Fund employs. Notwithstanding,
market anomalies have always corrected themselves in the past and, although
there is no assurance, it may be expected to continue to do so. A bar chart
comparing the Fund's performance since inception, January 30, 1998 with the S&P
500 Index performance over the same period appears as:
(end point) ??,??? (S&P Index) plot (Table in the Plot)
Since Jan. 30 1998
(end point) 11,370 (The Fund) plot O'Higgins Fund 15.90%
S&P 500 Index ??.??%
(start at $10,000 Jan 30, 1998 and go to Dec. 31, 1998 for both on the plot)
10,000
MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
Management
Investment Adviser: The Valley Forge Management Corp. (VFMC) is a Pennsylvania
corporation that acts as an Investment Adviser to the Fund. Its address and
phone numbers are the same as the Fund. Mr. Bernard Klawans is the owner, di-
rector and officer of the Investment Adviser and also president of the Fund.
On January 1, 1998 shareholders of the Fund approved a management and advisory
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contract with VFMC which was unanimously renewed by the Directors August 11,
1998. This Agreement will continue on a year to year basis provided that ap-
proval is voted at least annually by specific approval of the Board of Direct-
ors of the Fund or by vote of the holders of a majority of the outstanding vot-
ing securities of the Fund, but, in either event, it must also be approved by a
majority of the directors of the Fund who are neither parties to the agreement
nor 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, VFMC will furnish investment advice to the Directors of
the Fund on the basis of a continuous review of the portfolio and recommend to
the Fund when and to what extent securities should be purchased or disposed.
The Agreement may be terminated at any time, without payment of a penalty, by
the Board of Directors or by vote of a majority of the outstanding voting secur-
ities of the Fund on not more than 60 days written notice to VFMC. In the event
of its assignment, the Agreement will terminate automatically. Ultimate decis-
ions as to the investment policy and as to individual purchases and sales of se-
curities are made by the Fund's officers and directors. For these services, the
Fund has agreed to pay a fee of 1% per year on the net assets of the Fund. This
fee is computed on the average daily closing net asset value of the Fund, is
payable monthly and is higher than the fee paid by most other funds. VFMC would
forgo sufficient fees to hold the total expenses of the Fund to less than 1.5%
of the total assets. All fees and expenses of the Fund incurred in 1998 were
either waived or paid by VFMC. These included $8,246 in management fees and
$15,266 in startup, audit, Blue Sky and other expenses.
VFMC has a contract with the Fund wherein it is required to follow the pro-
prietary allocation model in managing the portfolio and to pay the salaries of
those of the Funds employees who may be officers or directors or employees of
the Investment Advisor. Fees, if any, of the custodian, registrar or transfer
agents shall be paid by the Fund. The Fund pays all other expenses, including
fees and expenses of directors not affiliated with the Advisor; legal and acc-
ounting fees; interest, taxes and brokerage commissions, recordkeeping and the
expense of operating its offices. VFMC has paid the initial organizational
costs of the Fund and will reimburse the Fund for any and all losses incurred
because of purchase reneges.
Portfolio Manager: Mr. Klawans has been the portfolio manager of The O'Higgins
Fund since the Fund's inception on January 30, 1998 and of the Valley Forge Fund
since its inception in 1971. Although he manages the day to day operations of
the Fund, his only remuneration comes from receipt of the management fee earned
by VFMC for portfolio investment advice. As indicated above, there were no fees
received by the Investment Adviser from the Fund in 1998.
Legal Proceedings: As of the date of this Prospectus, there was no pending or
threatened litigation involving the Fund in any capacity whatsoever.
Capital Stock
Description of Common Stock: The authorized capitalization of the Fund consists
of 100,000,000 shares of common stock of $0.001 par value per share. Each share
has equal dividend, distribution and liquidation rights. There are no conver-
sion or pre-emptive rights applicable to any shares of the Fund. All shares
issued are fully paid and non-accessible.
Voting Rights: Each holder of common stocks has one vote for each share held.
Voting rights are non-cumulative. Therefore the holders of a majority of shares
of common stock can elect all directors of the Fund if they so choose, and the
holders of the remaining shares cannot elect any person as a director.
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SHAREHOLDER INFORMATION
Who should invest: Investors who desire increases in net asset value & are will-
ing to accept significant (both down and up) fluctations in share values in the
pursuit of capital gains.
Who should not invest: Anyone who must live on unearned income and cannot re-
place eroded capital.
Pricing of Fund Shares
When and How do We Price: The net asset value of the Fund's shares is determin-
ed as of the close of each business day the New York Stock 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, Christmas & New
Year's Day. The price is determined by dividing the value of its securities,
plus any cash and other assets less all liabilities, excluding capital surplus,
by the number of shares outstanding.
Market Value of Securities: The market value of securities held
by the Fund that are listed on a national exchange is determined to be the last
recent sales price on such exchange. Listed securities that have not recently
traded are valued at the last bid price in such market. US Government
Treasury Notes and zero Coupon Bonds are priced at their bid price published in
the Wall Street Journal.
Purchase of Fund Shares
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 in the above Section "Pricing of Fund Shares"
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 purchase applica-
tions when, in the judgment of management such termination or rejection 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 included in every request for a Prospectus. The
minimum initial purchase of shares is $1,000 which is due and payable 3 busi-
ness days after the purchase date. Less may be accepted under especial circum-
stances.
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, but less may be accepted under especial circumstances.
Fractional Shares: Fractional shares to four decimal places are now offered by
the Fund.
Redemption of Fund Shares
Endorsement Requirements: The Fund will redeem all or any part of the shares of
any shareholder who tenders a request for redemption (if certificates have not
been issued) or certificates with respect to shares for which certificates have
been issued. In either case, proper endorsements guaranteed either by a nation-
al bank or a member firm of the New York Stock Exchange will be required unless
the shareholder is known to management.
Redemption Price: 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.
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Redemption Payment: 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 weekend or holiday closings, or when trading on the New York
Stock Exchange is restricted as determined by the Securities and Exchange Com-
mission or when the Securities and Exchange Commission has determined that an
emergency exists, making disposal of fund securities or valuation of net assets
not reasonably practicable. The Fund intends to make payments in cash, however,
the Fund reserves the right to make payments in kind.
Dividends and Distributions
Re-Investments: The Fund will automatically use the taxable dividend and capi-
tal gains distributions for purchase of additional shares for the shareholder
at net asset value as of the close of business on the distribution date.
Cash Payouts: A shareholder may, at any time, by letter or forms supplied by the
Fund direct the Fund to pay dividend and/or capital gains distributions, if any,
to such shareholder in cash.
Tax Consequences
Under provisions of Sub-Chapter M of the Internal Revenue Code of 1986 as amend-
ed, the Fund, by paying out substantially all of its investment income and rea-
lized capital gains, has been and intends to continue 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 trans-
actions, and no more than 50% of the Fund's assets may be in security holdings
that exceed 5% of the total assets of the Fund at the time of purchase.
Tax Distributions: Distribution of any net long term capital gains realized by
the Fund in 1999 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.
All 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 discretion of the Fund's Board of
Directors. Dividends received shortly after purchase 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 and, although in effect a return
of capital, are subject to federal income taxes.
Federal Withholding: 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 regula-
tions. 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 Identi-
fication Number provided is correct and that you are not currently subject to
back-up withholding, or that you are exempt from back-up withholding.
DISTRIBUTION ARRANGEMENTS
The Fund is a truly no-load fund in that there are NO purchase or sales fees and
no 12b-1 fees and no account maintenance fees whatsoever.
FINANCIAL HIGHLIGHTS INFORMATION
Financial Highlights: The financial highlights table is intended to help you un-
derstand the Fund's financial performance since inception om January 30, 1998.
Certain information reflects financial results for a single Fund share. The to-
tal returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Fumd (assuming reinvestment of all dividends
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and distributions). This informations has been audited by Mathieson Aitken
Jemison, LLP, whose report, along with the Fund's financial statements, are in-
cluded in the Statement of Additional Information, which is available upon re-
quest.
Jan. 30 to Dec. 31, 1998
Net asset value Jan. 30th (inception) $ 9.81
Investment operations income:
Net investment income $ 0.32
Realized & unrealized cap gains 1.24
-------
Investment operations totals 11.37
Less distributions:
Dividend from net investment income $(0.32)
Dividend from capital gains .00
-------
Net asset value Dec. 31st $11.05
=======
Total return 15.90%
Net assets Dec 31st in (000)'s $1,700
=======
Ratios to Average Net Assets:
Expenses 0.00%
Net investment income 5.80%
Portfolio turnover rate 11%
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[outside back cover]
WHERE TO GO FOR MORE INFORMATION
You will find more information about THE O'HIGGINS FUND in the following
documents:
Statement of Additional Information (SAI) - The Statement of Additional Infor-
mation cntains additional and more detailed information about the Fund, and is
considered to be a part of this Prospectus.
Annual and Semi-annual Reports - Our annual and semi-annual reports give current
holdings and detailed financial statements of the Fund as of the end of the per-
iod presented. In addition, market conditions and Fund strategies that signifi-
cantly affected the Fund's performance are discussed.
THERE ARE TWO WAYS TO GET A COPY OF ONE OR MORE OF THESE DOCUMENTS
1. Call or write for one, and a copy will be sent without charge.
THE O'HIGGINS FUND
1375 Anthony Wayne Dr.
Wayne, PA. 19087
1-800-548-1942
2. You may also obtain information about the Fund (including the Statement of
Additional Information and other reports) from the Securities and Exchange
Commission on their Internet site at http://www.sec.gov or at their Public
Reference Room in Washington, D.C. Call the Securities and Exchange Com-
mission at 1-800-sec-0330 for room hours and operation. You may also obtain
Fund information by sending a written request and duplicating fee to the Pub-
lic Reference Section of the SEC, Washington, D.C. 20549-6609.
Please contact the Fund at the above address if you wish to
request other information and/or make shareholder inquires.
WHY YOU SHOULD READ THIS PROSPECTUS
Every attempt has been made to present the objectives, risks and strategy of the
Fund in plain and, hopefully, easily understandable language. The Prospectus is
designed to aid you in deciding whether this is one of the right investments for
you. We suggest that you keep it for future reference.
THE O'HIGGINS FUND - SEC file number 811-08465
<PAGE>
THE O'HIGGINS FUND
1375 Anthony Wayne Drive
Wayne, PA. 19087
Telephone Numbers
610-688-6839 800-548-1942
Part B
STATEMENT OF ADDITIONAL INFORMATION
May 25, 1999
This Statement is not a prospectus, but should be read in conjunction with the
Fund's current Prospectus dated May 26, 1999. To obtain the Prospectus, you
may write the Fund or call either of the telephone numbers that are shown above.
TABLE OF CONTENTS
FUND HISTORY ................................................. 1
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
Classification .......................................... 1
Investment Strategies and Risks ......................... 1
Fund Policies ........................................... 1
Temporary Defensive Position and Portfolio Turnover ..... 2
Portfolio Turnover ...................................... 2
MANAGEMENT OF THE FUND
Board of Directors ...................................... 2
Management Information .................................. 2
Compensation and Sales Loads ............................ 2
CONTRON PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Control Persons ......................................... 2
Principal Holders ....................................... 3
Management Ownership .................................... 3
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Adviser ...................................... 3
Principal Underwriter.................................... 3
Services Provided by Investment Adviser ................. 3
Third Party Payments and Service Agreements ............. 3
Other Investment Advice ................................. 3
Dealer Reallowances and Other Services .................. 3
BROKERAGE ALLOWANCES AND OTHER PRACTICES
Brokerage Transactions .................................. 3
Commissions ............................................. 3
Brokerage Selection ..................................... 3
Directed Brokerage and Regular Broker Dealers ........... 4
CAPITAL STOCK AND OTHER SECURITIES
Capital Stock and Other Securities ....................... 4
PURCHASE, REDEMPTION, AND PRICING OF SHARES
Purchase of Shares ....................................... 4
Fund Reorganizations ..................................... 4
Offering Price and Redemption in Kind .................... 4
Redemption in Kind ....................................... 4
TAXATION OF THE FUND ......................................... 4
UNDERWRITERS ................................................. 4
CALCULATION OF PERFORMANCE DATA .............................. 4
FINANCIAL STATEMENTS
Auditors Report .......................................... 5
Schedule of Investments in Securities - Dec. 31, 1998 .... 6
Statement of Assets & Liabilities - Dec. 31, 1998 ........ 7
Statement of Operations, Year Ended Dec. 31, 1998 ........ 7
Statement of Change in Net Assets ........................ 8
Notes to Financial Statements ............................ 8
Financial Highlights on a Per Share Basis and Ratio Data .10
<PAGE>
FUND HISTORY
THE O'HIGGINS FUND (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.
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
Classification
The Fund is an open-end, totally no-load, non-diversified management investment
company.
Investment Strategies and Risks
All investment strategies and risks were thoroughly discussed in the Prospectus.
No additional strategies and risks exist to be discussed here.
Fund Policies
Investment Restrictions: Investment restrictions were selected to aid in main-
taining the conservative nature of the Fund. These may not be changed 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) Sell senior 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 securities
for temporary or emergency purposes in an amount not exceeding 5% of the val-
ue of its total assets.
c) Act as underwriter for securities of other issuers except insofar as the Fund
Fund may be deemed an underwriter in selling its own portfolio securities.
d) Invest over 25% of its assets at the time of purchase in any one industry.
e) 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.
f) 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 con-
sidered the making of a loan.
g) Sell securities short.
h) Invest in securities of other investment companies except as part of a mer-
ger, consolidation, or purchase of assets approved by the Fund's sharehold-
ers or by purchases with no more than 10% of the Fund's assets in the open
market involving only customary brokers commissions.
i) 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 securi-
ties of another issuer.
j) Invest in companies for the purpose of acquiring control.
k) The Fund may not purchase or retain securities of any issuer if those offi-
cers and directors of the Fund or its Investment Advisor owning individually
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.
l) Pledge, mortgage or hypothecate any of its assets.
m) 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.
n) 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 con-
tinuous operation, including the operations of any predecessor.
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<PAGE>
Temporary Defensive Position & Portfolio Turnover
The Fund follows the portfolio management methodology with no exceptions other
than the ones considered to be minor that were discussed in the section Princi-
ple Investment Strategies of the Fund on page 1 of the Prospectus.
MANAGEMENT OF THE FUND
Board of Directors
Shareholders meet annually 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. The Board appoints officers to run the Fund & selects an Invest-
ment Adviser to provide investment advice (See Investment Adviser, pg 4 of the
Prospectus). It meets six times a year to review Fund progress & status.
ManagementInformation
Officers and Directors of the Fund: Their addresses and principal occupations
during the past five years are:
Name and Address Position Principal Occupation Past 5 Yrs
Bernard B. Klawans President President
1375 Anthony Wayne Dr. Interested Director Valley Forge Fund, Inc.
Wayne, PA. Age 78 Valley Forge, PA.
Dr. Gerd H. Dahl Secretary Ag. Chem Research Retired
679 Jefferson Rd. Interested Director Elf Atochem
Bryn Mawr, PA. Age 68 Philadelphia, PA.
Victor J. Belanger Non-Interested VP & Chief Financial Officer
P.O. Box #96, Director Linearizer Technologies Inc.
Princeton Jct., NJ. Age 57 Robbinsville, NJ.
Dr. James P. King Non-Interested President
904 Breezwood Lane Director Desilube Technology In c.
Lansdale, PA. Age 67 Lansdale, PA.
Donald A. Peterson Non-Interested Project Manager
3741 Worthington Rd. Director Lockeed Martin
Collegeville, PA. Age 58 King of Prussia, PA.
William A. Texter Non-Interested Manager Corp. Nuclear Quality
9 Charter Oak Dr. Director PECO Energy Co.
Newtown Sq., PA. Age 52 Philadelphia, PA.
Nancy W. Klawans Treasurer Treasurer
1375 Anthony Wayne Dr. Wife of President Valley Forge Fund, Inc.
Wayne, PA. Age 78 Valley Forge, PA.
Compensation and Sales Load: No compensation has been paid in 1998 to officers
and directors of the Fund. It is expected that each Director will receive $99
to cover expenses involved in travel to each Directors meeting held six times a
year in 1999. The Fund does not compensate officers and directors that are af-
filiated with the Investment Adviser except as they may benefit through payment
of the Advisory fee.
There are no sales loads whatsoever on either purchases or redemptions.
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CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Control Persons
There are no companies or persons that control the Fund. The Fund is controled
by its Board of Directors and run by its elected officers.
Principal Holders
Major Shareholders: There are seven accounts that hold more than 5% of the Fund
shares as of 12/31/98.
These are:
Shareholder Street Address City and State %
Peter Mazola 5965 Peacock Ridge Rd, #301 Rancho Palos Verdes CA. 24.6
Bernard B. Klawans 1375 Anthony Wayne Road Wayne PA. 10.2
Caesar A. Arredondo Mead Point Greenwich CT. 6.0
John O. Franke 1103-48 Ave Dr East Bradenton FL. 5.9
Joseph McCarthy 100 Hilton Ave #907 Garden City NY. 5.8
Thomas F. Burke 717 Via Airosa Santa Barbara CA. 5.7
Fred Picker Trst RR2 Box 170 Putney VT. 5.6
All are independent investors except Mr Klawans who is president of the Fund,
Portfolio Manager and owner of the Investment Adviser. He may be reached at
the Fund's address.
Management Ownership
All officers and directors own 10.64% of the outstanding shares of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Adviser
Mr. Bernard B. Klawans owns the Investment Adviser and acts as the Portfolio Ad-
viser.
Principal Underwriter
The Fund acts as its own underwriter, performing all shareholder services func-
tions.
Services Provided by the Investment Adviser
The Investment Adviser is responsible for furnishing investment direction advice
to the Directors of the Fund on the basis of a continuous review of the port-
folio based upon the investment methodology discussed in the section Principal
Investment Strategies of the Fund on page 1 of the Prospectus. It then recom-
mends to the Fund what and when securities should be purchased or sold. The
Adviser charges a fee of one percent of the averaged net asset values for these
services and has agreed to waive managemet fees and reimburse the Fund for all
Fund expenses exceeding 1.49% of the averaged assets.
Third-Party Payments and Service Agreements
A contract agreement has been agreed upon between the Valley Forge Management
Corp. & FTC Limited, a company wholly owned by Mr. O'Higgins for use of his me-
thodology to 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 method-
ology which is described in detail in his book "Beating the Dow - with Bonds".
Other Investment Advice
There is no individual or organization that receives renumeration from the In-
vestment Adviser or the Fund for providing investment advice except brokers that
- 3 -
<PAGE>
receive competetive commissions on the purchase and sale of the Fund's securi-
ties.
Dealer Reallowances and Other Services
There are no dealer reallowances, Rule 12b-1 plans, paid advertising, compensa-
tion to underwriters or broker dealers, sales personnel or interest, carring or
other finance charges. The Fund does send Prospectuses when it receives unsoli-
cited requests and pays Delaware Charter and Gurantee to act as IRA trustee for
Fund shareholders.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Brokerage Transactions
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.
Commissions
Other than set forth above, the Fund has no fixed policy, formula, method, or
criteria which it uses in allocating brokerage business to brokers furnishing
these materials and services. In its first year of operation, 1998, the
Fund paid no brokerage commissions. All US zero Coupon Bonds were purchased
flat. This means that the price quoted as the asked price was the price paid for
the Bond. The Board of Directors evaluates and reviews th reasonableness of
brokerage commissions paid semiannually.
Brokerage Selection
The Fund will place all orders for purchase & sale of its portfolio securities
through the Fund's President who is answerable to the Fund's Board of Directors.
He may select brokers who, in addition to meeting primary requirements of exe-
cution and price, may furnish statistical or other factual information and ser-
vices, which, in the opinion of management, are helpful or necessary to the
Fund's normal operations. Information or services may include economic studies,
industry studies, statistical analyses, corporate reports, or other forms of as-
sistance to the Fund or its Adviser. No effort is made to determine the value
of these services or the amount they might have reduced expenses of the Adviser.
Directed Brokerage and Regular Broker-Dealers
The Fund and Investment Adviser receives unsolicited solicitations and litera-
ture from many brokers. It is impossible to evaluate the usefullness of the
information received, particulary in view of the portfolio managenment method-
ology used by the Fund. It selects brokers based on competive commission
rates and transaction services rendered. The Fund does not hold securities of
any broker-dealer.
CAPITAL STOCK AND OTHER SECURITIES
Capital stock and other securities are discussed at length in our Prospectus un-
der the section, Capital Stock on Page 5.
PURCHASE, REDEMPTION, AND PRICING OF SHARES
Purchase of Shares
Purchase of Fund shares is discussed at length in the section entitled Purchase
of Fund Shares on page 5 of our Prospectus
- 4 -
<PAGE>
Fund Reorganizations
There have been no Fund reorganization efforts to date of any kind.
Offering Price and Redemption in Kind
The Fund always trades at the net asset value. That means that the offering and
redemption prices are always the same. Details about the offering price are
given in the section entitled Pricing of Fund shares on page 5 of our
Prospectus. Redemption in kind is discussed in the section Redemption of
Shares on page 6 of our Prospectus.
TAXATION OF THE FUND
Taxation of the Fund is discussed in the section Tax Consequences on page 6 of
our Prospectus.
UNDERWRITERS OF THE FUND
The Fund handles all Fund share purchases and redemptions. There are no direct
shareholder charges for these services. Stock certificates will be issued upon
request, but are discouraged because of the chance of loss and the accompaning
costs of reissue indemnfication. All other shareholder holdings are maintained
in book form.
CALCULATION OF PERFORMANCE DATA
Average Annual Total Return Quotation: The average ending redeemable values on
December 31, 1998 of a hypothetical $10,000 investment made at the Fund's incep-
tion on January 30, 1998 would have been $11,644.
- 5 -
<PAGE>
FINANCIAL STATEMENTS
Independent Auditors Report:
LANDSBURG PLATT RASCHIATORE & DALTON
Certified Public Accountants
117 South 17th Street 13th Floor
Philadelphia, PA 19103
215-561-6633
Fax 215-561-2070
To the Shareholders and Board of Directors of The O'Higgins Fund
We have audited the accompanying statement of assets and liabilities of The
O'Higgins Fund including the schedule of investments in securities as of Decem-
ber 31, 1998, and the related statement of operations, the statement of changes
in net assets and the financial highlights and related ratios/supplemental data
for the initial period from January 30, 1998 (date of inception) to December 31,
1998. These financial statements and financial highlights & related ratios/su-
plemental data are the responsibility of the Fund's Management. Our responsi-
bility is to express an opinion on these financial statements & financial high-
lights and related ratios/supplemental data based on our audits.
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 financial statements. Our pro-
cedures included confirmation of securities owned as of Decembeer 31, 1998, ver-
ified by examination and by correspondence with brokers and the application of
alternate auditing procedures for unsettled security transactions. An audit
also includes assessing the accounting principles used and significant esti-
mates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and the selected per share data and
ratios referred to above presents fairly, in all material respects, the finan-
cial position of The O'Higgins Fund as of December 31, 1998 the results of its
operations, the changes in its net assets and the selected per share ratios for
the initial period then ended, in conformity with generally accepted account-
ing principles.
Mathieson Aitken Jemison, LLP
January 13, 1999
- 6 -
<PAGE>
THE O'HIGGINS FUND
STATEMENT OF ASSETS & LIABILITIES - DECEMBER 31, 1998
ASSETS:
Investments, at value (cost $1,641,303) $1,698,590
Receivables, interest 1,125
----------
TOTAL ASSETS 1,699,715
LIABILITIES:
Management fee payable -
----------
TOTAL LIABILITIES -
NET ASSETS (equivalent to $11.05/SH based on 153,8838 sh of cap-
ital stock outstanding, 100 million authorized, $.001 par value) $1,699,715
==========
COMPOSITION OF NET ASSETS: Shares of common stock $ 154
Paid in capital 1,632,374
Net unr4ealized appreciation of investments 67,187
----------
NET ASSETS, DECEMBER 31, 1998 $1,699,715
==========
STATEMENT OF OPERATIONS
Period from Jan 30, 1998 (Date of Inception) to December 31, 1998
INVESTMENT INCOME: Amortization of zero coupon bonds $ 40,874
Interest earned 2,940
Other income 77
----------
TOTAL INVESTMENT INCOME 43,891
EXPENSES: Management fee -
----------
TOTAL EXPENSES -
----------
INVESTMENT INCOME, NET 43,891
REALIZED LOSS ON INVESTMENTS: (588)
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENTS 67,187
----------
NET GAIN ON INVESTMENTS 66,599
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 110,490
See accompaning notes to financial statements
- 6 -
<PAGE>
THE O'HIGGINS FUND
SCHEDULE OF INVESTMETS
Period from January 30, 1998 (Date of Inception) to December 31, 1998
Face
Amount Value
US GOVERNMENT OBLIGATIONS: 88.41%
US Treasury Bond Strip Prin Amt due 2/15/27 6,764,00 $1,502,876
----------
TOTAL BONDS (Cost $1,435,689) $1,502,876
SHORT TERM INVESTMENT: 11.52%
Royal Bank Money Market 3.20% 195,714 195,714
----------
TOTAL SHORT TERM INVESTMENT (Cost $ 195,714) $ 195,714
----------
TOTAL INVESTMENTS $1,698,590
==========
STATEMENT OF CHANGES IN NET ASSETS
Period from January 30, 1998 (Date of Inception) to December 31, 1998
INCREASE IN NET ASSETS FROM OPERATIONS:
Investment income net $ 43,891
Realized loss on investments (588)
Net change in unrealized appreciation on investments 67,187
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 110,490
Distributions to shareholders from investment income, net (43,303)
Net capital share transactions 1,632,528
----------
NET INCREASE IN NET ASSETS 1,699,715
NET ASSETS JANUARY 30, 1998 (DATE OF INCEPTION) -
----------
NET ASSETS DEC. 31, 1998 (including undistributed inv inc of $0) $1,699,715
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY - SIGNIFICANT ACCOUNTING POLICIES: NATURE OF OPERATIONS - The O'-
Higgins Fund ("the Fund") is registered under the Investment Company Act of 1940
as a non-diversified, open-end management investment company. The following is
a summary of the significant accounting policies consistently followed by the
Fund in the preparation of its financial statements. The policies are in con-
formity with generally accepted accounting principles.
Security Valuations - The Fund values its securities, where market quotations
are readily available, at market value based on the last recorded sales price as
reported by the principal securities exchange on which the security is traded,
- 7 -
<PAGE>
THE O'HIGGINS FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY - SIGNIFICANT ACCOUNTING POLICIES: (continued)
or if the security is not traded on an exchange, market value is based on the
latest bid price. Short term investments are valued at cost.
Federal Income Taxes - The Fund's policy is to comply with the requirements of
the Internal Revenue Code that are applicable to regulated investment companies
& to distribute all its taxable income to its shareholders. Therefore no federal
income tax provision is required.
Distributions To Shareholders - The Fund intends to distribute to shareholders
substantially all of its net investment income & net realized long-term capital
gains at year end.
Estimates - The preparation of financial statements in conformity with generally
accepted acccounting principles requires management to make estimates & assump-
tions that affect the reported amount of assets & liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements & the
reported amounts of income and expense during the reporting period. Actual re-
sults could differ from these estimates.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assump-
tions that affect the reported amount of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
OTHER: The Fund follows industry practice and records security transactions on
the trade date. The specific identification method is used for determining
gains or losses for financial statements and income tax purposes. Dividend in-
come is recorded on the ex-dividend date and interest income is recorded on an
accrual basis. Zero coupon bonds are amortized to investment income by the in-
terest method. The amortization is included in the cost of investments in de-
termining the net change in unrealized appreciation/depreciation on investments.
NOTE 2 CAPITAL SHARE TRANSACTIONS: As of 12/31/98, total par value and paid in
capital totaled $1,632,528. The net increase in capital stock transactions for
the period from January 30, 1998 (date of inception) to December 31, 1998 are as
follows:
Shares Amount
--------- -----------
Shares sold 187,331 $ 2,006,993
Shares issued in reinvest of div 3,657 40,405
Shares redeemed ( 37,150) ( 414,870)
--------- -----------
Net increase 153,838 $ 1,632,528
========= ===========
NOTE 3 INVESTMENTS: For the year ended December 31, 1998, purchases and sales of
investment securities other than short-term investments aggregated $1,494,176 &
$98,772 respectively. The gross unrealized appreciation for all securities to-
taled $96,113 and the gross unrealized depreciation for all securities totaled
$28,926 for a net unrealized depreciation of $67,187. The aggregate cost of se-
curities for federal income tax purposes at December 31, 1998 was $1,641,303.
Net realized loss on investments for the year ended Dec. 31, 1998 was $588, all
of which were long transactions. VFMC has entered into a contract with FTC Lim-
ited, a company wholly owned by Michael B. O'Higgins, for use of his technology
to establish and maintain the Fund's investment portfolio. The contract gives
FTC limited 50% of all management fees paid by the Fund in the form of a royal-
ty and may be terminated only by mutual agreement by both parties.
NOTE 4 INVESTMENT ADVISORY AGREEMENT & OTHER RELATED TRANSACTIONS: The Fund has
- 8 -
<PAGE>
THE O'HIGGINS FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 4 INVESTMENT ADVISORY AGREEMENT & OTHER RELATED TRANSACTIONS: (continued)
an investment advisory agreement with the Valley Forge Management Corp., (VFMC)
whereby VFMC receives 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 Fund and
are payable monthly. For the period Jan. 30, 1998 (date of inception) to Dec.
31, 1998 the Fund had incurred $8,246 of management fees and $15,266 in office
expenses, registrations, filing fees and franchise taxes. VFMC has waived the
management fees and is absorbing all Fund expenses until the net assets of the
Fund exceeds $2,500,000. Mr. Bernard Klawans is the sole owner, director and
officer of VFMC and is also the president of the Fund.
NOTE 5 DISTRIBUTION TO SHAREHOLDERS: On Dec. 31, 1998, a distribution of $.32
per share aggregating $43,303 was paid to shareholders of record on Dec. 31,
1998 from net investment income.
- 9 -
<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
- i -
<PAGE>
1. a. Financial Statements - Performance comparisons with the S&P 500 Index and
financial information on a per share basis is presented in Part A for 1998.
All other financial statements are presented in Part B including:
STATEMENT OF ASSETS & LIABILITIES DECEMBER 31, 1998
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1998
SCHEDULE OF INVESTMENTS IN SECURITIES DECEMBER 31, 1998
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
b. Exhibits
(3.i) Articles of Incorporation
(3.ii) By-Laws
(10.i) Investment Advisory Contract
(10.ii) Reimbursement Agreements with Officers and/or Directors
(99.1) Opinion of Counsel concerning Fund securities.
All exhibits are incorporated by reference to The O'Higgins Fund pre-ef-
fective amendment number 2 of the Securities Act of 1933 except exhibits
(10i), (10ii) and (99.1) which are attached.
The Consent of Independent Certified Public Accountants is included in
this Section, Part C - Other Information, page 2.
2. Control Persons - Not applicable.
3. Number of Shareholders - There were sixty five shareholders in The O'Higgins
Fund as of December 31, 1998.
4. Indemnification - The Fund has been advised that, in the opinion of the Se-
curities and Exchange Commission, indemnification for liability arising un-
der the Securities Act of 1933 to directors, officers and cotrolling persons
of the Fund is against public policy as expressed in the Act and is there-
fore, unenforceable. In the event that claims for indemnification against
such liabilities (other than payment by the Fund of expenses incurred or
paid by a director, officer or controlling person of the Fund in the suc-
cessful defense of any action, suit or proceeding) is asserted by such di-
rector, officer or controlling person in connection with the securities be-
ing registered, the Fund will, unless in the opinion of its counsel the mat-
ter has been settled by controlling precedent, submit to a court of appro-
priate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
5. Activities of Investment Adviser - The Valley Forge Management Corporation's
activity at the present time is performance on its Investment Advisory Con-
tract currently effective with The O'Higgins Fund and the Valley Forge Fund,
Inc. Mr Bernard B. Klawans - owner, officer & director of the Valley Forge
Management Corp. is also President of the Bookkeeper Corp. Wayne, PA that
provides software services.
6. Principal Underwriter - The Fund acts as its own underwriter.
7. Location of Accounts and Records - All Fund records are held at corporate
headquarters, 1375 Anthony Wayne Drive, Wayne PA 19087. Scurity certifi-
cates are held in a safe deposit box at the Royal Bank of Pennsylvania,
Route 202, King of Prussia, PA.
8. Management services - Not applicable
9. Distribution Expenses - The Fund currently bears no distribution expenses.
10.This filing is in response to the new Securities and Exchange Commission
format for mutual fund registration. Financial statements are presented
that represent the Fund's status as of December 31, 1998.
- 1 -
<PAGE>
Landsburg Platt Raschiatore & Dalton
A Mathiesen Aitken Jemison, LLP Affiliate
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 Post Effective Amendment No. 3
on Form N-1A of The O'Higgins Fund of our report dated January 14, 1999 on our
examination of the Financial Statements of such Company. We also consent to the
reference to our firm in such Registration Statement.
Mathieson Aitken Jemison, LLP
February 25, 1999
- 2 -
<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 24th day of May, 1999.
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 05/25/99
Gerd H. Dahl Secretary and Director 05/25/99
Nancy W. Klawans Treasurer 05/25/99
Victor J. Belanger Director 05/25/99
Dr. James P. King Director 05/25/99
Donald A. Peterson Director 05/25/99
William A. Texter Director 05/25/99
- 3 -
DIEHL & FOSNOCHT
Attorneys at Law
107 South Church Street
West Chester, PA. 19382-3252
April 1, 1999
The O'Higgins Fund
1375 Anthony Wayne Dr
Wayne, PA. 19087
Gentlemen:
We have been asked to provide this opinion in connection with the registration
under the Securities Act of 1933 ("Securities Act") of $1,6323,528 of the common
stock (par value $.001 per share) of the O'Higgins Fund. ("Fund").
We have examined the Articles of Incorporation: the By-laws, as amended, of the
Fund: various pertinent corporate proceedings: and such other items considered
to be material to determine the legality of the sale of the authorized but unis-
sued shares of the Fund's common capital stock. With respect to the good stand-
ing of the Fund, we are advised that the Fund is in good standing with the Com-
monwealth of Pennsylvania, its state of incorporation, and that all taxes due
have been paid.
Based upon the foregoing, it is our opinion that upon effectiveness of the Post-
EffectiveAmendment to the Securities Act Registration Statement of the Fund fil-
ed pursuant to the provisions of Section 24(e) of the Investment Company Act of
1940 to register $1,632,528 of the Fund's common capital stock ($0.001 per share
par value) and during such time as such Registration Statement is in effect, the
Fund will be authorized to solicit and cause to be solicited share purchase or-
ders and to issue its shares for a cash consideration, as described in the
Fund's curreently effective Prospectus and Statement of Additional Information,
which shares so issued will be validly issued, fully paid and non-assessable
shares.
We offer no opinion with respect to the offer and sale of the Fund's securities
under the securities laws of the severeal states, the District of Columbia, any
territory of the United Statesor any foreign country.
We consent to the inclusion of this opinion as an exhibit to the Securities Act
Registration Statement of the Fund and to the reference in the Fund's Prospectus
and/or Statement of Additional Information to the fact that this opinion con-
serning the legality of the issue on behalf of the Fund, as issuer, has been
rendered by us.
Very truly yours,
Thomas A. Fosnocht, Jr.
TAFjr/rcm
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 Investment Adviser will waive fees and, if
necessary, reimburse the Fund to hold the Fund's expense ratio over the same
period to below 1.5% of its averaged assets.
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
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-
- 1 -
<PAGE>
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 become effective April 1, 1999 and continue in effect
until August 17, 1999 and, thereafter, 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 votes of a majority of the Directors who are not parties to such
agreement or interested persons of any such party. This agreement may be
terminated at any time upon 60 days prior written notice, without 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 automati-
cally 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 transfer of control of the Investment Adviser. Upon ter-
mination of this agreement, the obligations of all parties hereunder shall
cease and terminate as of the date of such termination, except for any obli-
gation 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 Invest-
ment Adviser the fee provided 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 1st day of April, 1999.
The O'HIGGINS Fund, Inc. By _____________________________
Attest:___________________________ Bernard B. Klawans, President
Nancy W. Klawans, Treasurer
Valley Forge Management Corporation By _____________________________
Attest:___________________________ Bernard B. Klawans, President
Nancy W. Klawans
- 2 -
Exhibit - 10 ii
Reimbursement Agreements
The O'Higgins Fund reimburses officers and directors not affiliated with the
Investment Adviser to compensate for travel expenses associated with performance
of their duties. A total of $3,168 was paid in this regard in 1998. The Valley
Forge Management Corp. reimbursed the Fund for this entire amount as the expense
was incurred. As the Fund grows in total assets, the Board of Directors may
place them on salaries commensurate with their duties.
The Fund does not now, and 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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