1933 Act Registration No. 333-47541
1940 Act Registration No. 811-08617
________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20546
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. 2
Post-Effective Amendment No. ____
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Pre-Effective Amendment No. 2
HUGHES FUNDS, INC.
(Exact name of registrant as specified in Charter)
741 Cox Road
Moorestown NJ 08057
(Address of Principle Executive Offices and Zip Code)
609-234-3903
(Registrant's Telephone Number including Area Code)
Charles J Hughes
741 Cox Road
Moorestown NJ 08057
(Name and Address of Agent for Service)
Calculation of Registration Fee:
The Registrant hereby declares, pursuant to Rule 24f-2 under the Investment
Company Act of 1940, and the Securities Act of 1933, that an indefinite number
of shares of beneficial interest, no par value, is being registered by this
Registration Statement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
HUGHES VALUE FUND
CROSS-REFERENCE SHEET
[as required by Rule 495]
<TABLE
Item No. on Form N-1A Caption or Subheading in Prospectus
or Statement of Additional Information
PART A - INFORMATION REQUIRED IN PROSPECTUS
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1. Cover Page Cover Page
2. Synopsis General Information;Investment Methods;
Cover Page
3. Condensed Financial Information Fees And Expenses
4. General Desription of Registrant General Information; Capital Structure
5. Management of the Fund Management of the Fund; Investment
Adviser
5a.Management's Discussion of Fund Not Applicable
Performance
6. Capital Stock and Other Capital Structure; Distributions,
Securities Federal Income Tax
7. Purchase of Securities Being Purchasing Shares
Offered
8. Redemption or Repurchase Redeeming Shares; Determinination of
Net Asset Value, Federal Income
Tax
9. Legal Proceedings Not Applicable
PART B. STATEMENT OF ADDITIONAL INFORMATION
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not covered in Statement of Additional
Information (covered under Item 4 of
Part A)
13. Investment Objectives and Investment Policies and
Policies Restrictions
14. Management of the Fund Investment Adviser; Directors and
Officers
15. Control Persons and Principal Directors and Officers;
Holders of Securities Investment Adviser
16. Investment Advisory and other Investment Adviser; Custodian;
Services Transfer Agent; Administration
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Not covered in Statement of
Securities Additional Information (covered under
Item 6 in Part A)
19. Purchase, Redemption and Pricing Not covered in Statement of
of Securities Being Offered Additional Information (covered under
Item 7 in Part A)
20. Tax Status Tax Information
21. Underwriters Covered in Item 5 of Part A and
Item 16 of Part B
22. Calculations of Performance Data Performance Information
23. Financial Statements Not Applicable. See item 32 of
Part C
PART C
Information required to be included in PART C is set forth under the
appropriate Item, so numbered, in PART C of the Registration Statement.
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P R O S P E C T U S
Dated July 1, 1998
HUGHES VALUE FUND
741 Cox Road
Moorestown NJ 08057
609-234-3903
Hughes Funds,Inc.(the "Company") is a diversified, open-end management
investment company currently consisting of one portfolio, The Hughes Value Fund
(the "Fund"). The primary investment objective of the Fund is capital
appreciaton.
The minimum investment in the Fund is $2,000 for non-qualified accounts and
$1,000 for I.R.A.'s. The minimum subsequent investment for all accounts is
$1,000. The Fund is a pure No-Load Fund. There are no 12b-1 marketing fees or
other sales charges. This means that 100% of your initial investment is invested
in shares of the Fund.
This Prospectus concisely sets forth the information which you should know
before you invest. Please read this Prospectus and retain it for future
reference. A Statement of Additional Information regarding the Fund, dated
July 1, 1998 has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this Prospectus.
Copies of the Statement of Additional Information may be obtained
at no charge by writing or calling the Fund at its address or telephone number
listed above. The SEC maintains a web site (www.sec.gov) that contains the
Statement of Additional Information, material incorporated by reference, and
other information regarding registrants that file electronically with the SEC.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, the shares of the Fund in any jurisdiction in which such offer
or solicitation may not lawfully be made.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Fees And Expenses Determination of Net Asset Value
Investment Objectives Management of the Fund
and Policies Investment Adviser
Risk Factors Distributions
Investment Restrictions Federal Income Tax
Purchasing Shares Capital Structure
Redeeming Shares General Information
FEES AND EXPENSES
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee None
Annual Fund Operating Expenses:
(as a percentage of net assets)
The following table sets forth the regular operating expenses that are paid out
of the Fund's average daily assets. These fees are used to pay for services such
as the investment management of the Fund, maintaining shareholder records and
furnishing shareholder statements. This is a new Fund without a prior operating
history, so the following expense figures are estimates . True
expenses may be greater or lower than those shown below.
Management Fees 1.00%
12b-1 Fees None
Other Expenses 0.25%
------
Total Fund Operating Expenses 1.25%
The table presented below is intended to help you understand the various costs
and expenses that an investor in the Fund might bear directly or indirectly.
The 5% annual return used in the example is for illustration only and is not
intended to be indicative of the future performance of the Fund, which may be
more or less than the assumed rate. Additionally, future Fund expenses may be
more or less than those shown in the example.
Example
You would pay on a $1,000 investment, assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period, the following expenses;
One Year Three Years
-------- -----------
$13 $40
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown. Because the Fund has no operating history, "Other Expenses" is based on
estimated amounts for the Fund's first fiscal year. From time to time, the
Adviser may voluntarily waive receipt of its fees and/or assume certain expenses
of the Fund which would have the effect of lowering the expense ratio and
increasing the yield to investors.
INVESTMENT OBJECTIVE AND POLICIES
The Fund is a diversified mutual fund whose primary investment objective is
growth of capital. The Fund will seek to achieve its objective by investing
primarily in the securities of companies whose stock is traded on the
New York Stock Exchange ("NYSE"), the American Stock Exchange ("ASE") and the
NASDAQ over-the-counter market. There can be no assurance that the Fund's
objective will be achieved.
Under normal market conditions, the Fund will invest more than 25% of its
assets in stocks of banks, thrifts, insurance companies, credit card companies,
consumer finance companies, mortgage lenders, stock brokers, and the holding or
parent companies of such institutions ("Financial Services Companies").
The Fund may also invest in savings accounts of mutual thrifts and annuities
of mutual insurance companies which may entitle the Fund to participate
in future stock conversions and de-mutualizations of mutual thrifts and
insurance companies. You should be aware that because the Fund's investment
portfolio will be concentrated in Financial Services Companies, the shares
may be subject to greater risk than the shares of a fund whose portfolio
is less concentrated. Further, Financial Services Companies are regulated at
both the state and federal levels. Accordingly, shares of the Fund may be
subject to additional risks resulting from changes in the laws of the states or
the United States affecting these companies. Additionally, the Fund may invest
in the securities of Financial Services Companies that are relatively smaller,
engaged in business mostly within their own geographic region, and less
well-known to the investment community. Accordingly, the shares may be subject
to the additional risk that the Fund may be limited in its ability to dispose
of such companies at times and prices most advantageous to the Fund.
The Fund invests primarily in companies with an established record of earnings
and dividends, reasonable return on equity, and sound finances. The Fund may
also, from time to time, invest in securities that pay no dividends or interest
if, in the Advisor's opinion, such an investment would be beneficial to the
Fund and further its investment objectives.
The Adviser will allocate Fund assets among securities of particular issuers
and industry groups, based on the Advisor's analysis as to the best values
currently available in the marketplace. Elements included in that analysis
are, by way of example, a company's price value relative to its industry peers,
its history of dividend payments and capital growth, its ability to show strong
and consistent capital growth over the long term, and other technical and
fudamental analytical factors. The Advisor will, based on the foregoing
analysis, purchase securities that appear to be undervalued in relation to the
long-term earning power or asset value of their issuers. Consistent earnings
growth is also an important factor.
The Fund is a diversified Fund, meaning that the Fund limits the amount of
its assets invested in any one issuer, thereby reducing the risk of loss
incurred by that issuer. The Fund will normally invest in in a diversified
portfolio of securities, including common and preferred stocks, foreign stocks,
real estate investment trusts, and debt securities.
Cash Reserves. Although the Fund normally will invest its assets as described
above, it may, to meet liquidity needs or for temporary defensive purposes,
ordinarily invest a portion of its assets in cash or cash equivilants, money
market securities such as short term notes issued by the United States
Government, its agencies and/or instrumentalities, and debentures, certificates
of deposit or bankers acceptances. The Fund may also enter into repurchase
agreements. If, in the Advisor's opinion, it is appropriate for the Fund to
assume a temporary defensive posture, the Fund may invest up to 100% of its
assets in these instruments.
Common Stocks. The Fund may invest in common stock. Common stock is issued by
companies to raise cash for business purposes and represents a proportionate
equity interest in the issuing companies. Therefore, the Fund participates in
the success or failure of any company in which it holds common stock. The
market values of common stock can fluctuate significantly, reflecting the
business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors. Despite the risk of price volatility, however,
common stocks historically have offered the greatest potential for
gain on investment, compared to other classes of financial assets.
Preferred Stock. The Fund may invest in preferred stock. Preferred stock
generally pays dividends at a specified rate and generally has preference over
common stock in the payments of dividends and the liquidation of the issuer's
assets. Dividends on preferred stock are generally payable at the discretion
of the issuer's board of directors. Accordingly, shareholders may suffer a
loss of value if dividends are not paid. The market prices of preferred
stocks are also sensative to changes in interest rates and in the issuer's
creditworthiness. Accordingly, shareholders may experience a loss of value due
to adverse interest rate movements or a decline in the issuer's credit
rating.
Foreign Securities. The Fund may invest in securities of foreign issuers
which are publicly traded on U.S. exchanges either directly or in the form of
American Depository Receipts (ADRs). The Fund will only invest in ADRs that
are issuer sponsored. Sponsored ADRs typically are issued by a U.S. bank or
trust company and evidence ownership of underlying securities issued by a
foreign corporation. Investments in foreign securities involve greater risks
compared to domestic investments. Foreign companies are not subject to the
regulatory requirements of U.S. companies and, as such, there may be less
publicly available information about issuers than is available in the reports
and ratings published about companies in the U.S. Additionally, foreign
companies are not subject to uniform accounting, auditing and financial
reporting standards. Dividends and interest on foreign securities may be subject
to foreign withholding taxes. Such taxes may reduce the net return to
shareholders. Although the Fund intends to invest in securities of foreign
issuers domiciled in nations which the Adviser considers as having stable and
friendly goverments, there is the possibility of expropriation, confiscation,
taxation, currency blockage or political or social instability which could
affect investments of foreign issuers domiciled in such nations.
Real Estate Investment Trusts. The Fund may invest in real estate investment
trusts (REITs). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed the REITs taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from such REITs in
its distribution to its shareholders and, accordingly, a portion of the Fund's
distributions may also be designated as a return of capital.
Money Market Funds. The Fund may invest in securities issued by other
registered investment companies that invest in short-term debt securities
(i.e., money market fund). As a shareholder of another registered investment
company, the Fund would bear its pro rata portion of that investment company's
advisory fees and other expenses. Such fees and expenses will be borne
indirectly by the Fund's shareholders. The Fund may invest in such instruments
to the extent that such investments do not exceed 10% of the Funds net assets
and/or 3% of any one investment company's outstanding securities.
Debt Securities. The Fund may invest in corporate or U.S. Goverment debt
securities including zero coupon bonds.
Corporate debt securities may be convertible into preferred or common stock. In
selecting corporate debt securities for the Fund, the Adviser reviews and
monitors the creditworthiness of each issuer and issue.
U.S. Government securities include direct obligations of the U.S. Government and
obligations issued by U.S. Government agencies and instrumentalities. The
market value of such securities fluctuates in response to interest rates and
the creditworthiness of the issuer. In the case of securities backed by the
full faith and credit of the United States Government, shareholders are only
exposed to interest rate risk.
Zero coupon bonds do not provide for cash interest payments but instead are
issued at a discount from face value. Each year, a holder of such bonds must
accrue a portion of the discount as income. Because issuers of zero coupon bonds
do not make periodic interest payments, their prices tend to be more volatile
than other types of debt securities when market interest rates change.
Repurchase Agreements. The Fund may invest a portion of its assets in repurchase
agreements ("Repos") with broker-dealers, banks and other financial
institutions, provided that the Fund's custodian always has possession of the
securities serving as collateral for the Repos or has proper evidence of book
entry receipt of said securities. In a Repo, the Fund purchases securities
subject to the seller's simultaneous agreement to repurchase those securities
from the Fund at a specified time (usually one day) and price. The repurchase
price reflects an agreed-upon interest rate during the time of investment.
All Repos entered into by the Fund must be collateralized by U.S. Government
Securities, the market values of which equal or exceed 102% of the principal
amount of the money invested by the Fund. If an institution with whom the Fund
has entered into a Repo enters insolvency proceedings, the resulting delay,
if any, in the Fund's ability to liquidate the securities serving as collateral
could cause the Fund some loss if the securities declined in value prior to
liquidation. To minimize the risk of such loss, the Fund will enter into Repos
only with institutions and dealers considered creditworthy.
Futures and Options on Securities. The Fund may enter into futures contracts
relating to equity securities, may write (i.e. sell) covered put and call
options, and may purchase put and call options, on securities traded on a
United States exchange or properly regulated over-the-counter market. Such
options can include long-term options with durations of up to three years.
Although not normally anticipated to be widely employed, the Fund may use
futures and options to increase or decrease its exposure to the effects of
changes in security prices, to hedge securities held, to maintain cash reserves
while remaining fully invested, to facilitate trading, to reduce transaction
costs, or to seek higher investment returns when a futures or options contract
is priced more attractively than the underlying security or index. The Fund may
enter into these transactions so long as the value of the underlying securities
on which options or futures contracts may be written at any one time does not
exceed 100% of the net assets of the Fund and so long as the initial margin
required to enter into such contracts does not exceed 10% of the Funds total net
assets.
Risk Factors. The primary risks associated with the use of options and futures
are; (1) imperfect correlation between a change in the value of the underlying
security or index and a change in the price of the option or futures contract,
and (2) the possible lack of a liquid secondary market for an options or futures
contract and the resulting inability of the Fund to close out the position prior
to the maturity date. The risk of imperfect correlation will be minimized by
investing only in those contracts whose price fluctuations are expected to
resemble those of the Fund's underlying securities. The risk that the Fund will
be unable to close out a position will be minimized by entering into such
transactions only on national exchanges and over-the-counter markets with an
active and liquid secondary market.
Restricted And Illiquid Securities. The Fund will not invest more than
15% of its net assets in securities that the Advisor determines, under
the supervision of the Board of Directors, to be illiquid and/or restricted.
Illiquid securities are securities that may be difficult to sell promptly at an
acceptable price because of lack of available market and other factors. The sale
of some illiquid and other types of securities may be subject to legal
restrictions. Because illiquid and restricted securities may present a greater
risk of loss than other types of securities, the Fund will not invest in such
securities in excess of the limits set forth above.
When-Issued Securities And Delayed-Delivery Transactions. The Fund may purchase
securities on a when-issued basis, and it may purchase or sell securities for
delayed-delivery. These transactions occur when securities are purchased or sold
by the Fund with payment and delivery taking place at some future date. The Fund
may enter into such transactions when, in the Advisor's opinion, doing so may
secure an advantageous yield and/or price to the Fund that might otherwise be
unavailable. The Fund has not established any limit on the percentage of assets
it may commit to such transactions, but to minimize the risks of entering into
these transactions, the Fund will maintain a segregated account with its
Custodian consisting of cash, cash equivalents, U.S. Government Securities or
other high-grade liquid debt securities, denominated in U.S. dollars or non-U.S.
currencies, in an amount equal to the aggregate fair market value of its
commitments to such transactions.
Portfolio Turnover. The Fund has no operating history and therefore has no
reportable portfolio turnover. Higher portfolio turnover rates may result in
higher rates of net realized capital gains to the Fund, thus the portion of the
Fund's distributions constituting taxable gains may increase. In addition,
higher portfolio turnover activity can result in higher brokerage costs to the
Fund. The Fund anticipates that its annual portfolio turnover will not be
greater than 50%.
RISK FACTORS
The Fund may be appropriate for long-term investors who understand the potential
risks and rewards of investing in common stocks. The value of the Fund's
investments will vary from day-to-day, reflecting changes in market conditions,
interest rates and other company, political, and economic news. Over the short-
term, stock prices can fluctuate dramatically in response to these factors.
However, over longer time periods, stocks, although more volatile, have
historically shown greater growth potential than other investments. The Fund is
not, in itself, a balanced investment plan, and the potential volatility of the
Fund's investment may present certain risks. Further, the Fund has no operating
history, and this may pose additional risks. Additionally, Mr. Hughes has no
previous experience in advising a mutual fund, and this may pose additional
risks. The value of the Fund's shares will fluctuate to a greater degree than
the shares of funds utilizing more conservative investment techniques, or those
having as investment objectives the conservation of capital and/or the
realization of current income. When you sell your Fund shares, they may be worth
more or less than what you paid for them. There is no assurance that the Fund
can achieve its investment objective, since all investments are inherently
subject to market risk.
In recent years, a potential problem has been uncovered relating to computer
programs and the problems that might be encountered by those programs when the
year 2000 arrives (the "Year 2000 Issue"). Many existing computer programs use
only two digits to identify a year in the date field. As a result, these
programs cannot recognize the changeover from 1999 to 2000, and the program may
fail as a result. The Fund is a new fund. Accordingly, it does not presently
own any software possibly containing said flaws. The Fund will only enter into
agreements with vendors and/or other service providers that provide guarantees
to the Fund that the vendor and/or other service provider is in compliance
with Year 2000 capabilities. Based on the Fund's actions and above-stated
policies, the Fund does not anticipate that the Year 2000 issue will have a
material impact on its operations.
INVESTMENT RESTRICTIONS
The Fund will not:
1. To the extent of 75% of its assets (valued at time of investment), invest
more than 5% of the Fund's total net assets (valued at time of investment) in
the securities of any one issuer (excluding U.S. Government securities);
2. Acquire securities of any one issuer that at time of investment (a) represent
more than 10% of the voting securities of the issuer or (b) have a value greater
than 10% of the value of the outstanding securities of the issuer;
3. Invest more than 15% of its assets in securities that are not readily
marketable;
4. Invest less than 25% of the Funds total assets in Financial Services
Companies, except for temporary or defensive purposes;
5. Borrow money, except that the Fund may borrow an amount representing not
greater than 5% of its total net assets for temporary or emergency purposes;
6. Make loans or underwrite the securities of other issuers,provided,however
that investing in debt securities and Repos shall not constitute a loan of money
for purposes of this restriction;
7. Purchase warrants on securities;
8. Issue senior securities;
9. Invest in commodities, or futures and options on commodities.
These restrictions cannot be changed without the approval of the holders of a
"majority of the outstanding voting securities" of the Fund as defined in the
Investment Company Act of 1940. Other investment policies and restrictions of
the Fund may be changed without obtaining shareholder approval. A full listing
of the Fund's investment restrictions can be found in the Statement of
Additional Information.
PURCHASING SHARES
To purchase shares of the Fund, first complete and sign a New Account
Purchase Application and mail it, together with your check for the total
purchase price, to Hughes Funds, Inc., 741 Cox Road, Moorestown, NJ
08057. The purchase price is the net asset value per share as described under
"Determination of Net Asset Value". Checks are accepted subject to collection
at full face value in United States currency.If shares of the Fund are purchased
with a check that does not clear, the purchase will be cancelled and you
will be subject to any losses or fees incurred by the Fund with respect to the
transaction. If shares are purchased by check and redeemed by letter within
seven business days of purchase, the Fund may hold redemption proceeds until the
purchase check has cleared, which may take up to ten business days.
Each investment in shares of the Fund, including dividends and capital gains
distributions reinvested in Fund shares, is acknowledged by a statement showing
the number of shares purchased, the net asset value at which shares are
purchased, and the new balance of Fund shares owned. The Fund does not issue
stock certificates for the shares purchased. All full and fractional shares will
be carried on the books of the Fund without the issuance of certificates.
Shares of the Fund are purchased at the net asset value next computed after the
receipt and acceptance of the purchase order, as described under "Determination
of Net Asset Value." There are no sales commissions or underwriting discounts.
The minimum initial investment is $2,000, except for Individual Retirement
Accounts (IRAs) where the minimum is $1,000. Minimum subsequent purchases in all
cases are $1,000, excluding reinvestments of dividends and capital gains
distributions.
All applications to purchase shares of the Fund are subject to acceptance by
authorized officers of the Fund and are not binding until accepted.
The Fund reserves the right not to accept purchase orders under circumstances or
in amounts considered disadvantageous to existing shareholders.
REDEEMING SHARES
Upon receipt by the Fund of a redemption request in proper form, shares of the
Fund will be redeemed at their next determined net asset value. Redemption
requests must be in writing and delivered to the Fund at 741 Cox Road,
Moorestown, N.J. 08057. To be in "proper form" the redemption request must:
1. Specify the number of shares or dollar amount to be redeemed, if less than
all shares are to be redeemed;
2. Be signed by all owners exactly as their names appear on the account;
3. If required,include a signature guarantee from any "eligible guarantor
institution" as defined by the rules under the Securities Exchange Act of
1934. Eligible guarantor institutions include banks, brokers, dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations. A notary public is not an
eligible guarantor.
Further documentation, such as copies of corporate resolutions and instruments
of authority may be requested from corporations, administrators, executors,
personal representatives, trustees, or custodians to evidence the authority of
the person or entity making the redemption request.
Signature Guarantees. A signature guarantee is designed to protect you and the
Fund by verifying your signature. SIGNATURE GUARANTEES ARE REQUIRED WHEN:
(1) establishing certain services after the account is opened; (2) requesting
redemptions in excess of $10,000; (3) redeeming or exchanging shares, when
proceeds are: (i) being mailed to an address other than the address of record,
(ii) made payable to other than the registered owner(s); or (4) transferring
shares to another owner.
The redemption price per share is net asset value determined as described under
"Determination of Net Asset Value." There is no redemption charge. At the time
of redemption,your shares may be worth more or less than what you paid for them,
depending upon the value of the Fund's portfolio securities at the time of
redemption. If the net asset value of the shares in an account falls to less
than $1,000 as a result of previous redemptions and not market price declines,
the Fund may notify the registered holder that unless the account value is
increased to at least the minimum within 60 days,the Fund will redeem all shares
in the account and pay the redemption price to the registered holder.
Payment for shares redeemed is made within seven days after receipt by the Fund
of a request for redemption in proper form. The Fund reserves the right to
suspend or postpone redemptions during any period when (a) trading on any of the
major U.S. stock exchanges is restricted, as determined by the Securities and
Exchange Commission, or that the major exchanges are closed for other than
customary weekend and holiday closings, (b) the Commission has by order
permitted such suspension, or (c) an emergency, as determined by the Commission,
exists making disposal of portfolio securities or valuation of net assets of the
Fund not reasonably practicable.
DETERMINATION OF NET ASSET VALUE
For purposes of computing the net asset value of a share of the Fund, securities
traded on security exchanges, or in the over-the-counter market in which
transaction prices are reported, are valued at the last sales price at the time
of valuation or, lacking any reported sales on that day, at the most recent bid
quotations. Securities for which quotations are not available and any other
assets are valued at a fair market value as determined in good faith by the
Advisor, subject to the review and supervision of the board of directors.
The price per share for a purchase order or redemption request is the
net asset value next determined after receipt of the order.
The Fund is open for business on each day that the New York Stock Exchange
("NYSE") is open. The Fund's share price or net asset value per share ("NAV")
is normally determined as of 4:00 p.m., New York time. The Fund's share price is
calculated by subtracting its liabilities from the closing fair market value of
its total assets and dividing the result by the total number of shares
outstanding on that day. Fund liabilities include accrued expenses and dividends
payable, and its total assets include the market value of the portfolio
securities as well as income accrued but not yet received. Since the Fund does
not charge sales or redemption fees, the NAV is the offering price for shares
of the Fund.
MANAGEMENT OF THE FUND
The board of directors of the Company has overall responsibility for the
conduct of the Fund's affairs. The day-to-day operations of the Fund are managed
by the Company's President subject to the bylaws of the Company and review by
the Board of Directors. The Board of Directors is elected by the shareholders.
Information relating to the directors and officers of the Company is provided
in the "Statement of Additional Information."
INVESTMENT ADVISER
The Company has entered into an Investment Advisory Contract (the "Contract")
with Hughes Investment Advisors LLC, (the "Adviser"), 741 Cox Road, Moorestown
NJ 08057. Charles J Hughes is the president of and controls the Adviser and is
responsible for all its investment decisions,including the day-to-day management
of the Fund. Mr. Hughes also serves as the President and as a Director of the
Company. The Adviser manages the investment of the assets of the Fund in
accordance with the Fund's investment objective, policies, and restrictions. The
Adviser was formed on December 9, 1997 and registered as an Investment Advisory
Firm with the Securities and Exchange Commission on March 13, 1998. The Advisor
formerly operated as Hughes Trading L.L.C. and developed financial futures and
timimg model software for equity trading. Mr. Hughes' models were winners of the
Robbins Trading Company World Cup Championship of Futures Trading in 1994 and
1995. In addition, Mr. Hughes has been a commercial airline pilot for American
Airlines since 1988. Although Mr. Hughes has extensive experience managing
portfolios for himself and his family, Mr. Hughes does not have any previous
experience in providing investment management services to any registered
investment company.
The Adviser receives from the Fund, as compensation for its services, a fee,
accrued daily and payable monthly, at an annual rate of 1.00% of the Fund's net
assets. The Adviser has obligated itself to reimburse the Fund to the extent the
Fund's total annual expenses, excluding taxes, interest and extraordinary
litigation expenses, during any of its fiscal years, exceed 1.25% of its average
daily net asset value in such year.
Under the Contract, the Adviser furnishes at its own expense office space to
the Company and all necessary office facilities, equipment, and personnel for
managing the assets of the Fund. The Adviser also pays all expenses of marketing
shares of the Fund, placement of securities orders and related bookkeeping.
The Fund pays all expenses incident to its operations and business not
specifically assumed by the Adviser, including expenses relating to custodial,
legal, and auditing charges; printing and mailing of reports and prospectuses to
existing shareholders; taxes and corporate fees; maintaining registration of the
Fund under the Investment Company Act of 1940 and registration of its shares
under the Securities Act of 1933; and qualifying and maintaining qualification
of its shares under the securities laws of certain states.
In recent years, a potential problem has been uncovered relating to computer
programs and the problems that might be encountered by those programs when
the year 2000 arrives (the "Year 2000 issue"). Many existing computer
programs use only two digits to identify a year in the date field. As a
result, these programs cannot recognize the changeover from 1999 to 2000,
and the programs may fail as a result. The Advisor does not presently
own any software possibly containing said flaws. The Advisor will only
enter into agreements with vendors and/or other service providers that
provide guarantees to the Advisor that the vendor and/or service
provider is in compliance with Year 2000 capabilities. Based on the Advisor's
actions and above-stated policies, the Advisor does not anticipate that the
Year 2000 issue will have a material impact on its operations or on its
ability to provide services to the Fund.
DISTRIBUTIONS
The Fund intends to distribute to shareholders, at least annually, substantially
all net investment income and any net capital gains realized from sales of the
Fund's portfolio securities. Dividends from net investment income and
distributions from any net realized capital gains are reinvested in additional
shares of the Fund unless the shareholder has requested in writing to have them
paid by check.
FEDERAL INCOME TAX
The Fund intends to qualify as a regulated investment company under
the Internal Revenue Code so as to be relieved of federal income tax on its
capital gains and net investment income currently distributed to its
shareholders. Dividends from investment income and net short-term capital gains
are taxable as ordinary income. Distributions of long-term capital gains are
taxable as long-term capital gains regardless of the length of time shares in
the Fund have been held. Distributions are taxable, whether received in cash or
reinvested in shares of the Fund.
Each shareholder is advised annually of the source of distributions for federal
income tax purposes. A shareholder who is not subject to federal income tax will
not be required to pay tax on distributions received.
If shares are purchased shortly before a record date for a distribution, the
shareholder will, in effect, receive a return of a portion of his investment,
but the distribution will be taxable to him even if the net asset value of the
shares is reduced below the shareholder's cost. However, for federal income tax
purposes the original cost would continue as the tax basis.
If a shareholder fails to furnish his social security or other tax
identification number or to certify properly that it is correct, the Fund may be
required to withhold federal income tax at the rate of 31% (backup withholding)
from dividend, capital gain and redemption payments to him. Dividend and capital
gain payments may also be subject to backup withholding if the shareholder fails
to certify properly that he is not subject to backup withholding due to the
under-reporting of certain income.
CAPITAL STRUCTURE
The Company was incorporated in Maryland on December 15, 1997. The Board of
Directors approve all significant agreements between the Company and the persons
and companies that furnish services to the Fund, including agreements with the
Fund's custodian, transfer agent, investment advisor and administrator. The
day-to-day operations of the Fund are delegated to the Advisor. The Statement
of Additional Information contains background information regarding each of the
Company's Directors and Executive Officers. The Company's Articles of
Incorporation permit the Board of Directors to issue 100,000,000 shares of
common stock. The Board of Directors has the power to designate one or more
classes ("series") of shares of common stock and to classify or reclassify any
unissued shares with respect to such series. Currently the shares of the Fund
are the only series of shares being offered by the Company. Shareholders are
entitled: (i) to one vote per full share; (ii) to such distributions as may be
declared by the Company's Board of Directors out of funds legally available;
and (iii) upon liquidation, to participate ratably in the assets available for
distribution. There are no conversion or sinking fund provisions applicable to
the shares, and the holders have no preemptive rights and may not cumulate their
votes in the election of directors. The shares are redeemable and are fully
transferable. All shares issued and sold by the Fund will be fully paid and
nonassessable.
GENERAL INFORMATION
The Fund will not issue stock certificates evidencing shares. Instead, the
shareholder's account will be credited with the number of shares purchased,
relieving shareholders of responsibility for safekeeping of certificates and the
need to deliver them upon redemption. Written confirmations are issued for all
purchases of shares. The Fund acts as transfer agent and dividend disbursing
agent.
Shareholders will be provided at least semi-annually with a report showing the
Fund's portfolio and other information and annually after the close of the
Fund's fiscal year, which ends December 31, with a report containing
audited financial statements.
The Fund's average annual total return is computed by determining the average
annual compounded rate of return for a specified period that, if applied to a
hypothetical $1000 initial investment, would produce the redeemable value of
that investment at the end of the period, assuming reinvestment of all dividends
and distributions and with recognition of all recurring charges. The Fund may
also utilize a total return calculation for differing periods computed in the
same manner but without annualizing the total return.
The Fund's "yield" refers to the income generated by an investment in the fund
over a thirty day (or one month) period (which period will be stated). Yield is
computed by dividing the net investment income per share earned during the most
recent calendar month by the maximum offering price per share on the last day of
the month. This income is then "annualized." That is, the amount of income
generated by the investment during that thirty-day period is assumed to be
generated each month over a twelve month period and is shown as a percentage
of the investment.
For purposes of the yield calculation, interest income is computed based on the
yield to maturity of each debt obligation and dividend income is based on the
stated dividend rate of each equity security in the Fund's portfolio, and all
recurring charges are recognized.
In reports or other communications to investors, or in advertising material,
the Fund may describe general economic and market conditions affecting the Fund
and may compare its performance with other mutual funds as listed in the
rankings prepared by Lipper Analytical Services, Inc. or similar nationally
recognized rating services and financial publications that monitor mutual fund
performance. The Fund may also, from time to time, compare its performance to
the Standard & Poors Composite Index of 500 Stocks ("S&P 500"), a widely
recognized, unmanaged index of common stock prices.
According to the law of Maryland, under which the Company is incorporated, and
the Company's bylaws, the Company is not required to hold an annual meeting of
shareholders unless required to do so under the Investment Company Act of 1940.
Inquiries regarding the Fund should be directed to the Fund at its address or
telephone number shown on the front cover of this Prospectus.
The Company will call a meeting of shareholders for the purpose of voting upon
the removal of a director or directors when requested in writing to do so
by record holders of at least 10% of the Fund's outstanding common shares,
and in connection with such meeting will comply with the provisions of section
16(c) of the Investment Company Act of 1940 concerning assistance with a record
shareholder communication asking other record shareholders to join in that
request.
HUGHES VALUE FUND
(a no-load Fund)
Investment Adviser:
Hughes Investment Advisors LLC
741 Cox Road
Moorestown NJ 08057
Custodian:
CoreStates Bank, N.A.
1345 Chestnut Street
Philadelphia PA 19101
Transfer and Dividend Disbursing Agent:
Hughes Investment Advisors LLC
741 Cox Road
Moorestown NJ 08057
Independent Auditors:
DeAngelis and Higgins LLC
39 North Main Street
Cranbury NJ 08512
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT
OF ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF SHARES OF THE FUND, AND IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND.
STATEMENT OF ADDITIONAL INFORMATION
Dated July 1, 1998
HUGHES VALUE FUND
741 Cox Road
Moorestown NJ 08057
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus of the Hughes Value Fund, dated
July 1, 1998. Requests for copies of the Prospectus should be made by writing
to the Hughes Funds, Inc., 741 Cox Road, Moorestown NJ 08057 or by
calling 609-234-3903.
TABLE OF CONTENTS
Investment Policies and Restrictions Custodian
Investment Adviser Transfer Agent
Directors and Officers Administration
Performance Information Independent Accountants
Purchasing and Redeeming Shares Independent Auditors Report *
Tax Information Financial Statements *
Portfolio Transactions
* to be filed by amendment
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objectives and the manner in which the Fund
pursues its investment objective is discussed in the prospectus under
the captions "Investment Objectives and Policies" and "Risk Factors." The
complete list of investment restrictions is as follows:
The Fund will not:
1. To the extent of 75% of its assets (valued at time of investment), invest
more than 5% of its assets in securities of any one issuer, except
in obligations of the United States Government and its agencies
and instrumentalities;
2. Acquire securities of any one issuer that at the time of investment
(a) represent more than 10% of the voting securities of the issuer or
(b) have a value greater than 10% of the value of the outstanding securities
of the issuer;
3.
Invest less than 25% of its assets (valued at time of investment) in
securities of Financial Services Companies, except for temporary or
defensive purposes;
4. Borrow money except from banks for temporary or emergency purposes in amounts
not exceeding 5% of the value of the Fund's assets at the time of borrowing;
5. Underwrite the distribution of securities of other issuers, or acquire
"restricted" securities that, in the event of a resale, might be required to
be registered under the Securities Act of 1933;
6. Make margin purchases or short sales of securities;
7. Invest in companies for the purpose of management or the exercise of control;
8. Lend money (but this restriction shall not prevent the Fund from investing in
debt securities or repurchase agreements), or lend its portfolio securities;
9. Acquire or retain any security issued by a company, an officer or director of
which is an officer or director of the Company or an officer, director or
other affiliated person of the Adviser;
10.Invest in oil, gas or other mineral exploration or development programs,
although it may invest in marketable securities of companies engaged in
oil, gas or mineral exploration;
11.Purchase or sell real estate or real estate loans or real estate limited
partnerships, although it may invest in marketable securities of companies
that invest in real estate or interests in real estate;
12.Purchase warrants on securities;
13.Issue senior securities;
14. Invest in commodities, or futures and options on commodities.
Restrictions 1 through 14 listed above are fundamental policies, and may be
changed only with the approval of a "majority of the outstanding voting
securities" of the Fund as defined in the Investment Company Act of 1940.
The Fund has also adopted the following restrictions that may be changed by the
Board of Directors without shareholder approval:
The Fund may not:
a. Invest more than 15% of its assets in securities that are not readily
marketable;
b. Acquire securities of other investment companies except (a) by purchase in
the open market, where no commission or profit to a sponsor or dealer results
from such purchase other than the customary broker's commission and (b) where
acquisition results from a dividend or merger, consolidation or other
reorganization (in addition to this investment restriction, the Investment
Company Act of 1940 provides that the Fund may neither purchase more than 3%
of the voting securities of any one investment company nor invest more than
10% of the Funds assets (valued at time of investment) in all investment
company securities purchased by the Fund);
c. Pledge, mortgage or hypothecate its assets, except for temporary or emergency
purposes and then to an extent not greater than 5% of its total assets at
cost;
d. Invest more than 10% of the Fund's assets (valued at time of investment)
in initial margin deposits of options or futures contracts;
INVESTMENT ADVISER
Information on the Fund's investment adviser, Hughes Investment Advisors LLC, is
set forth in the prospectus under "Investment Adviser," and is incorporated
herein by reference.
The adviser is a New Jersey Limited Liability Company. Charles J Hughes is the
President with a 51% interest in the company and his brother Daniel J Hughes
is a member of the company with a 49% interest. Although Mr. Hughes has
extensive experience in managing personal investment portfolios for himself
and his family, he does not have any previous experience in providing investment
management services to any registered investment company.
The Advisory Agreement provides that the adviser shall not be liable for any
loss suffered by the Fund or its shareholders as a consequence of any act or
omission in connection with services under the Agreement, except by reason of
the adviser's willful misfeasance, bad faith, gross negligence, or reckless
disregard of its obligations and duties under the Advisory Agreement.
The Advisory Agreement expires on June 30, 1999, but may be continued from year
to year so long as its continuance is approved annually (a) by the vote of
a majority of the Directors of the Fund who are not "interested persons" of the
Fund or the adviser cast in person at a meeting called for the purpose of voting
on such approval, and (b) by the Board of Directors as a whole or by the vote
of a majority (as defined in the 1940 Act) of the outstanding shares of the
Fund. The Agreement will terminate automatically in the event of its assignment
(as defined in the 1940 Act).
DIRECTORS AND OFFICERS
The board of directors has overall responsibility for conduct of the Company's
affairs. The day-to-day operations of the Fund are managed by the Advisor
subject to the bylaws of the Company and review by the Board of Directors.
The directors of the Company, including those directors who are also
officers, are listed below:
Name, Age, Address, Position Principal Occupation For the
with Fund Last Five Years
Charles J Hughes Age 47 * Fund Adviser
741 Cox Road President Hughes Trading LLC since
Moorestown NJ 08057 February, 1996. Pilot for American
President, Treasurer & Director Airlines since 1988.
BA Degree LaSalle University
Frank G Solecki Age 52 Director of Manufacturing PCD
48 Cove Road Division of FMC Corporation
Moorestown NJ 08057 BS Degree PennState University
Secretary and Director
Neal K Smith Age 46 Sales Engineer for Del-Val
144 Knotty Oak Dr. Equipment,Inc.
Mount Laurel NJ 08054 BS Degree Grove City College
Director
* Indicates an "interested person" as defined in the Investment Company Act of
1940.
The Corporation was organized as a Maryland Corporation on December 15, 1997.
(See the Section titled "Capital Structure" in the Fund's Prospectus). The table
below sets forth the compensation anticipated to be paid by the Corporation to
each of the directors of the Corporation during the fiscal year ending
December 31, 1998.
Name of Director Compensation Pension Annual Total Compensation
from Corp. Benefits Benefits Paid to Director
Charles J Hughes 0 0 0 0
Frank G Solecki $500 0 0 $500
Neal K Smith $500 0 0 $500
Charles J Hughes and Daniel J Hughes intend to purchase 5,000 shares each of
the Fund prior to the effective date of the Fund's registration and will be
deemed initially to control the Fund.
The Company will call a meeting of shareholders for the purpose of voting upon
the question of removal of a director or directors when requested in writing to
do so by record holders of at least 10% of the Fund's outstanding common shares.
The Corporation's bylaws contain procedures for the removal of directors by its
stockholders. At any meeting of stockholders, duly called and at which a quorum
is present, the stockholders may by the affirmative vote of the holders of a
majority of the votes entitled to be cast thereon, remove any director or
directors from office and may elect a successor or successors to fill any
resulting vacancies for the unexpired terms of the removed directors.
PERFORMANCE INFORMATION
From time to time the Fund may quote total return figures. "Total Return" for a
period is the percentage change in value during the period of an investment in
Fund shares, including the value of shares acquired through reinvestment of all
dividends and capital gains distributions. "Average Annual Total Return" is the
average annual compounded rate of change in value represented by the Total
Return Percentage for the period.
[n]
Average Annual Total Return is computed as follows: P(1+T) = ERV
Where: P = a hypothetical initial investment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of shares at the end of the period
Yield. The Fund may advertise performance in terms of a 30-day yield quotation.
The 30-day yield quotation is computed by dividing the net investment income
per share earned during the period by the maximum offering price per share on
the last day of the period, according to the following formula:
Yield=2[(a-b/cd + 1)6-1]
Where: a=dividends and interest earned during the period
b=expenses accrued for the period (net of reimbursement)
c=the average daily number of shares outstanding during the period
that they were entitled to receive dividends
d=the maximum offering price per share on the last day of the period
The Fund imposes no sales charge and pays no distribution expenses. Income taxes
are not taken into account. The Fund's performance is a function of conditions
in the securities markets, portfolio management, and operating expenses.
Although information such as that shown above is useful in reviewing the Fund's
performance and in providing some basis for comparison with other investment
alternatives, it should not be used for comparison with other investments using
different reinvestment assumptions or time periods.
In sales literature, the Fund's performance may be compared with that of market
indices and other mutual funds. In addition to the above computations, the Fund
might use comparative performance as computed in a ranking determined by Lipper
Analytical Services, Morningstar, Inc., or that of another service.
PURCHASING AND REDEEMING SHARES
Purchases and redemptions are discussed in the Fund's prospectus under the
headings "Purchasing Shares" and "Redeeming Shares." All of that information is
incorporated herein by reference.
Redemptions will be made at net asset value. See "Determination of Net Asset
Value" in the prospectus, which information is incorporated herein by reference.
The Fund's net asset value is determined on days on which the New York Stock
Exchange is open for trading.
The Fund has elected to be governed by rule 18f-1 under the Investment Company
Act pursuant to which it is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of the net asset value of the Fund during any 90 day
period for any one sharholder. Redemptions in excess of the above amounts will
normally be paid in cash, but may be paid wholly or partly by a distribution in
kind of securities.
TAX INFORMATION
See "Federal Income Tax" in the prospectus. All that information is incorporated
herein by reference.
Taxation Of The Fund. The Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code. To qualify as a
regulated investment company, the Fund must, among other things, derive at
least 90% of its gross income from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of stock,
securities, or other income derived with respect to its business of investing
in such stock or securities.
If the Fund qualifies as a regulated investment company and distributes at least
90% of its net investment income, the Fund will not be subject to Federal income
tax on the income so distributed. However, the Fund would be subject to
corporate income tax on any undistributed income other than tax-exempt income
from municipal securities.
Taxation Of The Shareholder. Taxable distributions generally are included in a
shareholder's gross income for the taxable year in which they are received.
However, dividends declared in October, November and December and made payable
to shareholders of record in such month will be deemed to have been received
on December 31st if paid by the Fund during the following January.
Distributions by the Fund will result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution would be taxable to the shareholder
as ordinary income or as a long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares of the Fund just prior to a distribution. The price of such shares
include the amount of any forthcoming distribution so that those investors may
receive a return of investment upon distribution which will, nevertheless, be
taxable to them.
A redemption of shares is a taxable event and, accordingly, a capital gain or
loss may be recognized. Each investor should consult a tax advisor regarding the
effect of federal, state, local, and foreign taxes on an investment in the Fund.
Dividends. A portion of the Fund's income may qualify for the dividends-received
deduction available to corporate shareholders to the extent that the Fund's
income is derived from qualifying dividends. Because the Fund may earn other
types of income, such as interest, income from securities loans, non-qualifying
dividends, and short-term capital gains, the percentage of dividends from the
Fund that qualifies for the deduction generally will be less than 100%. The Fund
will notify corporate shareholders annually of the percentage of Fund dividends
that qualifies for the dividend received deductions.
A portion of the Fund's dividends derived from certain U.S. Government
obligations may be exempt from state and local taxation. Short-term capital
gains are distributed as dividend income. The Fund will send each shareholder
a notice in January describing the tax status of dividends and capital gain
distributions for the prior year.
Capital Gain Distribution. Long-term capital gains earned by the Fund from the
sale of securities and distributed to shareholders are federally taxable as
long-term capital gains, regardless of the length of time shareholders have
held their shares. If a shareholder receives a long-term capital gain
distribution on shares of the Fund, and such shares are held six months or less
and are sold at a loss, the portion of the loss equal to the amount of the
long-term capital gain distribution will be considered a long-term loss for tax
purposes. Short-term capital gains distributed by the Fund are taxable to
shareholders as dividends, not as capital gains.
PORTFOLIO TRANSACTIONS
The Fund will generally purchase and sell securities without regard to the
length of time the security has been held. Accordingly, it can be expected that
the rate of portfolio turnover may be substantial. Since investment decisions
are based on the anticipated contribution of a security to the Fund's investment
objective, the rate of portfolio turnover is not a factor when the Adviser
believes a change is in order to achieve those objectives.
The Fund expects that its annual portfolio turnover rate will not exceed 50%
under normal conditions. However, there can be no assurance that the Fund will
not exceed this rate,and the portfolio turnover rate may vary from year to year.
High portfolio turnover in any year will result in the payment by the Fund of
above-average transaction costs and could result in the payment by shareholders
of above-average amounts of taxes on realized investment gains. Distributions to
shareholders of such investment gains, to the extent they consist of short-term
capital gains, will be considered ordinary income for federal income tax
purposes.
Decisions to buy and sell securities for the Fund are made by the Adviser
subject to review by the Corporation's Board of Directors. In placing purchase
and sale orders for portfolio securities for the Fund, it is the policy of the
Adviser to seek the best execution of orders at the most favorable price. In
selecting brokers to effect portfolio transactions, the determination of what is
expected to result in the best execution at the most favorable price involves a
number of largely judgmental considerations. Among these are the Adviser's
evaluation of the broker's efficiency in executing and clearing transactions.
Over-the-counter securities are generally purchased and sold directly with
principal market makers who retain the difference in their cost in the security
and its selling price. In some instances, the Adviser feels that better prices
are available from non-principal market makers who are paid commissions
directly.
CUSTODIAN
CoreStates Bank, 1345 Chestnut Street, Philadelphia PA 19101, acts as
custodian for the Fund. As such, CoreStates Bank holds all securities and cash
of the Fund, delivers and receives payment for securities sold, receives and
pays for securities purchased, collects income from investments and performs
other duties, all as directed by officers of the Company. CoreStates does not
exercise any supervisory function over management of the Company, the purchase
and sale of securities or the payment of distributions to shareholders.
TRANSFER AGENT
Hughes Investment Advisors LLC, the Adviser to the Fund, also acts as transfer,
dividend disbursing, and shareholder servicing agent for the Fund pursuant to a
written agreement with the Company, dated February 11 1998. Under the agreement,
Hughes Investment Advisors is responsible for administering and performing
transfer agent functions, dividend distribution, shareholder administration, and
maintaining necessary records in accordance with applicable rules and
regulations.
For the services to be rendered as transfer agent, The Fund shall pay Hughes
Investment Advisors an annual fee, paid monthly, based on the average net assets
of the Fund, as determined by valuations made as of the close of each business
day of the month. The transfer agent fee shall be 0.1% (one tenth of one
percent per annum) of such average net assets up to and including $30,000,000,
and 0.05% (five one-hundreths of one percent per annum) of such average net
assets of the Fund in excess of $30,000,000.
Hughes Investment Advisors has agreed not to charge the Fund fees related to
transfer agent services until June 30, 1999. After this date, the board of
directors of the Company will determine if Hughes Investment Advisors may charge
the Fund transfer agent fees.
ADMINISTRATION
Hughes Investment Advisors LLC, the Adviser to the Fund, also acts as
Administrator to the Fund pursuant to a written agreement with the Company,
dated February 11 1998. The Administrator supervises all aspects of the
operations of the Fund except those performed by the Fund's investment adviser
under the Fund's investment advisory agreement. The Administrator is responsible
for:
(a) calculating the Fund's net asset value
(b) preparing and maintaining the books and accounts specified in Rule 31a-1
and 31a-2 of the Investment Company Act of 1940
(c) preparing financial statements contained in reports to stockholders of the
Fund
(d) preparing the Fund's federal and state tax returns
(e) preparing reports and filings with the Securities and Exchange Commission
(f) preparing filings with state Blue Sky authorities
(g) maintaining the Fund's financial accounts and records
For the services to be rendered as Administrator, The Fund shall pay Hughes
Investment Advisors an annual fee, paid monthly, based on the average net assets
of the Fund, as determined by valuations made as of the close of each business
day of the month. The Administration fee shall be 0.1% (one tenth of one
percent per annum) of such average net assets up to and including $30,000,000,
and 0.05% (five one-hundreths of one percent per annum) of such average net
assets of the Fund in excess of $30,000,000.
Hughes Investment Advisors has agreed not to charge the Fund fees related to
Administration services until June 30, 1999. After this date, the board of
directors of the Company will determine if Hughes Investment Advisors may charge
the Fund Administration fees.
The Fund will distribute its own shares.
INDEPENDENT ACCOUNTANTS
DeAngelis & Higgins LLC, 39 North Main Street, Cranbury NJ 08512 has been
selected as the independent accountants for the Fund. As such, DeAngelis &
Higgins LLC performs audits of the Fund's financial statements.
PART C
OTHER INFORMATION
Item 24 Financial Statements and Exhibits
(a) Financial Statements included in Part B
Independent Auditors Report *
Statement of Assets and Liabilities *
(b) Exhibits
1. Articles of Incorporation
2. Bylaws of Registrant
3. Not Applicable
4. See Exhibit 1, Articles of Incorporation, Article IV
5. Investment Advisory Agreement
6. Not Applicable
7. Not Applicable
8. Custodian Agreement
9. Transfer Agent Agreement
9.1 Administration Agreement
10. Opinion of Counsel
11. Consent of Independent Auditors *
12. Not Applicable
13. Subscription Agreement
13.1 New Account Application
14 Individual Retirement Account Custodial Agreement
15 Not Applicable
16 Not Applicable
27 Financial Data Schedule *
18 Not Applicable
* to be filed by amendment
Item 25 Persons Controlled by or under Common Control with Registrant.
No person is directly or indirectly controlled by, or under common control with
the Registrant.
Item 26 Number of Holders of Securities.
As of the date of filing of this registration statement there were no record
holders of capital stock of registrant. Mr. Charles J Hughes and Daniel J Hughes
each intend to purchase 5,000 shares of the Fund prior to the effective date
of the Fund's registration and will be deemed initially to control the Fund.
Item 27 Indemnification.
Section 2-418 of the General Corporation Law of Maryland authorizes the
registrant to indemnify its directors and officers under specified cicumstances.
Section 7 of Article VII of the bylaws of the registrant (exhibit 2 to the
registration statement, which is incorporated herein by reference) provides in
effect that the registrant shall provide certain indemnification to its
directors and officers. In accordance with section 17(h) of the Investment
Company Act, this provision of the bylaws shall not protect any person against
any liability to the registrant or its shareholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
Item 28 Business and Other Connections of Investment Adviser.
The Adviser has been a pilot with American Airlines since 1988. He is also the
president of Hughes Trading LLC, a company that markets financial software.
Item 29 Principal Underwriters.
Registrant has no principal underwriters. Registrant will distribute its own
shares.
Item 30 Location of Accounts and Records.
Hughes Funds, Inc.
741 Cox Road
Moorestown NJ 08057
Item 31 Management Services.
None
Item 32 Undertakings.
The Registrant will file a post effective amendment containing financial
statements which need not be certified, within four to six months from the
effective date of this registration statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration to
be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Moorestown and State of New Jersey on the 11th day of February, 1998.
Hughes Funds, Inc.
(Registrant)
By: /s/ Charles J Hughes, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
Name Title Date
/s/ Charles J Hughes President, Treasurer February 11, 1998
Director
/s/ Frank G Solecki Secretary, Director February 11, 1998
/s/ Neal K Smith Director February 11, 1998
EXHIBIT INDEX
Exhibit No. Exhibit
EX-99.B1 Registrant's Articles of Incorporation
EX-99.B2 Registrant's Bylaws
EX-99.B4 See Exhibit B1, Articles of Incorporation, Article IV
EX-99.B5 Investment Advisory Agreement with Hughes Investment Advisors
EX-99.B8 Custodian Agreement with CoreStates Bank
EX-99.B9 Transfer Agent Agreement
EX-99.B9.1 Administration Agreement
EX-99.B10 Opinion of Counsel
EX-99.B11 Consent of Independent Auditors *
EX-99.B13 Subscription Agreement
EX-99.B13.1 New Account Application
EX-99.B14 Individual Retirement Account Custodial Agreement
EX-27 Financial Data Schedule *
* To be filed by amendment.
ARTICLES OF INCORPORATION
OF
HUGHES FUNDS, INC.
WE,THE UNDERSIGNED, Billie J Swoboda, whose post office address is 300 East
Lombard St., Baltimore Maryland 21202, and Mark J Diffenbaugh, whose post office
address is 300 East Lombard St., Baltimore Maryland 21202, and Wesley Kinter,
whose post office address is 300 East Lombard St., Baltimore Maryland 21202 each
being at least eighteen years of age, do, under and by virtue of the General
Laws of the State of Maryland authorizing the formation of corporations,
associate ourselves as incorporators with the intention of forming a
corporation.
ARTICLE I
The name of the corporation (hereinafter called "Corporation") is:
HUGHES FUNDS, INC.
ARTICLE II
The period of existence shall be perpetual.
ARTICLE III
The purposes for which the Corporation is formed are to engage
in any lawful business for which corporations may be organized under the
Maryland General Corporation Law.
ARTICLE IV
A. The aggregate number of shares of capital stock which the
Corporation shall have authority to issue is Five Hundred Million
(500,000,000) shares, all with a par value of One Hundredth of a Cent
($0.0001) per share, to be known and designated as "Common Stock." The
aggregate par value of the authorized shares of the Corporation is Fifty
Thousand Dollars ($50,000). The Board of Directors of the Corporation may
increase or decrease the aggregate number of authorized shares of Common
Stock pursuant to Section 2-105 of the Maryland General Corporation Law or
any successor provision thereto. The Board of Directors of the
Corporation may classify or reclassify any unissued shares of Common Stock
and may designate or redesignate the name of any class of outstanding
Common Stock. The Board of Directors may fix the number of shares of
Common Stock in any such class and, except as specifically set forth in
these Articles of Incorporation, may set or change the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms or conditions of redemption of any
class of unissued shares of Common Stock. A total of Four Hundred Million
(400,000,000) shares of Common Stock shall initially be classified as
follows:
Class Fund Shares
A Growth and Income Fund* 100,000,000
B Value Fund* 100,000,000
C Investment Grade Income Fund* 100,000,000
D Global Leaders Fund* 100,000,000
* or such other name designated by the Corporation's Board of Directors
B. Notwithstanding the authority granted to the Board of
Directors of the Corporation with respect to the designation,
classification and reclassification of the unissued shares of Common Stock
of the Corporation, each class of Common Stock shall have the following
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms or conditions of
redemption:
1. Each holder of shares of Common Stock of the
Corporation, irrespective of the class, shall be entitled to one
(1) vote for each full share (and a fractional vote for each
fractional share) then standing in his or her name on the books
of the Corporation; provided, however, that shares of any class
of Common Stock owned, other than in a fiduciary capacity, by
the Corporation or by another corporation in which the
Corporation owns shares entitled to cast a majority of all the
votes entitled to be cast by all shares outstanding and entitled
to vote of such corporation, shall not be voted at any meeting
of stockholders. On any matter submitted to a vote of
stockholders all shares of the Corporation's Common Stock then
issued and outstanding and entitled to vote, irrespective of the
class, shall be voted in the aggregate and not by class, except
that: (a) when otherwise expressly provided by the Maryland
General Corporation Law, the Investment Company Act of 1940 and
the regulations thereunder, or other applicable law, shares
shall be voted by individual class; and (b) when the matter to
be acted upon does not affect any interest of a particular class
of the Corporation's Common Stock, then only shares of the
affected class shall be entitled to vote thereon. At all
elections of directors of the Corporation, each stockholder
shall be entitled to vote the shares owned of record by him for
as many persons as there are directors to be elected, but shall
not be entitled to exercise any right of cumulative voting.
2. All consideration received by the Corporation for the
issue or sale of shares of any class of the Corporation's Common
Stock, together with all assets in which such consideration is
invested and reinvested, income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange
or liquidation thereof, and any such funds or payments derived
from any reinvestment of such proceeds in whatever form the same
may be, shall irrevocably belong to the class of the
Corporation's Common Stock with respect to which such assets,
payments or funds were received by the Corporation for all
purposes, subject only to the rights of creditors, and shall be
so handled upon the books of account of the Corporation. Such
consideration, assets, income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange
or liquidation thereof, and any assets derived from any
reinvestment of such proceeds in whatever form, are herein
referred to as "assets belonging to" such class. Any assets,
income, earnings, profits and proceeds thereof, funds or
payments which are not readily attributable to any particular
class of the Corporation's Common Stock shall be allocable among
any one or more of the classes of the Corporation's Common Stock
in such manner and on such basis as the Board of Directors, in
its sole discretion, shall deem fair and equitable. The power
to make such allocations may be delegated by the Board of
Directors from time to time to one or more of the officers of
the Corporation.
3. The assets belonging to any class of the Corporation's
Common Stock shall be charged with the liabilities in respect of
such class of the Corporation's Common Stock, and shall also be
charged with the share of the general liabilities of the
Corporation allocated to such class determined as hereinafter
provided. The determination of the Board of Directors shall be
conclusive as to: (a) the amount of such liabilities, including
the amount of accrued expenses and reserves; (b) any allocation
of the same to a given class; and (c) whether the same are
allocable to one or more classes. The liabilities so allocated
to a class are herein referred to as "liabilities belonging to"
such class. Any liabilities which are not readily attributable
to any particular class of the Corporation's Common Stock shall
be allocable among any one or more of the classes of the
Corporation's Common Stock in such manner and on such basis as
the Board of Directors, in its sole discretion, shall deem fair
and equitable. The power to make such allocations may be
delegated by the Board of Directors from time to time to one or
more of the officers of the Corporation.
4. Shares of a class of the Corporation's Common Stock
shall be entitled to such dividends and distributions, in stock
or in cash or both, as may be declared from time to time by the
Board of Directors, acting in its sole discretion, with respect
to such class; provided, however, that dividends and
distributions on shares of a class of the Corporation's Common
Stock shall be paid only out of the lawfully available "assets
belonging to" such class as such phrase is defined in this
Article IV.
5. In the event of the liquidation or dissolution of the
Corporation, stockholders of a class of the Corporation's Common
Stock shall be entitled to receive, as a class, out of the
assets of the Corporation available for distribution to
stockholders, but other than general assets not belonging to any
particular class, the assets belonging to such class, and the
assets so distributable to the holders of any class of the
Corporation's Common Stock shall be distributed among such
holders in proportion to the number of shares of such class of
the Corporation's Common Stock held by them and recorded on the
books of the Corporation. In the event that there are any
general assets not belonging to any particular class of the
Corporation's Common Stock and available for distribution, such
distribution shall be made to the holders of all classes of the
Corporation's Common Stock in proportion to the net asset values
of the respective classes of the Corporation's Common Stock
determined as set forth in the Bylaws of the Corporation.
6. Each share of each class of Common Stock of the
Corporation now or hereafter issued shall be subject to
redemption by the stockholders of the Corporation and, subject
to the suspension of such right of redemption as provided in the
Bylaws, each holder of shares of any class of Common Stock of
the Corporation, upon request to the Corporation accompanied by
surrender of the appropriate stock certificate or certificates,
if any, in proper form for transfer and after complying with any
other redemption procedures established by the Board of
Directors, shall be entitled to require the Corporation to
redeem all or any part of the shares of such class of Common
Stock standing in the name of such holder on the books of the
Corporation at the net asset value of such shares. In the event
that no certificates have been issued to the holder, the Board
of Directors may require the submission of a stock power with an
appropriate signature guarantee. All shares of any class of its
Common Stock redeemed by the Corporation shall be deemed to be
cancelled and restored to the status of authorized but unissued
shares. The method of computing the net asset value of shares
of each class of Common Stock of the Corporation for purposes of
the issuance and sale, or redemption, thereof, as well as the
time as of which such net asset value shall be computed, shall
be as set forth in the Bylaws. Payment of the net asset value
of each share of each class of Common Stock of the Corporation
surrendered to it for redemption shall be made by the
Corporation within seven (7) days after surrender of such stock
to the Corporation for such purpose, or within such other
reasonable period as may be determined from time to time by the
Board of Directors. The Board of Directors of the Corporation
may, upon reasonable notice to the stockholders of the
Corporation, impose a fee for the privilege of redeeming shares,
such fee to be not in excess of two percent (2.0%) of the
proceeds of any such redemption. The Board shall have
discretionary authority to rescind the imposition of any such
fee and to reimpose the redemption fee from time to time upon
reasonable notice. Any fee so imposed shall be uniform as to
all stockholders to the extent required by the Investment
Company Act of 1940.
7. If, at any time when a request for transfer or
redemption of the shares of any class of Common Stock is
received by the Corporation or its agent, the value (computed as
set forth in the Bylaws) of the shares of such class in a
stockholder's account is less than One Thousand Dollars
($1,000.00), after giving effect to such transfer or redemption,
the Corporation may cause the remaining shares of such class in
such stockholder's account to be redeemed in accordance with
such procedures as the Board of Directors shall adopt.
8. Each holder of shares of the Corporation's Common
Stock, irrespective of the class, may, upon request to the
Corporation accompanied by surrender of the appropriate stock
certificate or certificates, if any, in proper form for transfer
and after complying with any other conversion procedures
established by the Board of Directors, convert such shares into
shares of any other class of the Corporation's Common Stock on
the basis of their relative net asset values (determined in
accordance with the Bylaws of the Corporation) less a conversion
charge or discount determined by the Board of Directors. Any
fee so imposed shall be uniform as to all stockholders to the
extent required by the Investment Company Act of 1940.
9. No holder of shares of any class of Common Stock of
the Corporation shall, as such holder, have any right to
purchase or subscribe for any shares of any class of the Common
Stock of the Corporation which it may issue or sell (whether out
of the number of shares authorized by these Articles of
Incorporation, or out of any shares of any class of Common Stock
of the Corporation acquired by it after the issue thereof, or
otherwise) other than such right, if any, as the Board of
Directors, in its discretion, may determine.
ARTICLE V
The number of directors constituting the Board of Directors
shall initially be three (3), and the names of the initial directors are
Charles J Hughes, Frank Solecki, and Neal K Smith. Thereafter, the
number of directors shall be such number as is fixed from time to time by
the Bylaws.
ARTICLE VI
The Corporation reserves the right to enter into, from time to
time, investment advisory and administration agreements providing for the
management and supervision of the investments of the Corporation, the
furnishing of advice to the Corporation with respect to the desirability
of investing in, purchasing or selling securities or other property and
the furnishing of clerical and administrative services to the Corporation.
Such agreements shall contain such other terms, provisions and conditions
as the Board of Directors of the Corporation may deem advisable and as are
permitted by the Investment Company Act of 1940.
The Corporation may designate custodians, transfer agents,
registrars and/or disbursing agents for the stock and assets of the
Corporation and employ and fix the powers, rights, duties,
responsibilities and compensation of each such custodian, transfer agent,
registrar and/or disbursing agent.
ARTICLE VII
The following provisions define, limit and regulate the powers
of the Corporation, the Board of Directors and the stockholders:
A. The Corporation may issue and sell shares of any class of
its own Common Stock in such amounts and on such terms and conditions, for
such purposes and for such amount or kind of consideration now or
hereafter permitted by the laws of the State of Maryland, the Bylaws and
these Articles of Incorporation, as its Board of Directors may determine;
provided, however, that the consideration per share to be received by the
Corporation upon the sale of any shares of any class of its Common Stock
shall not be less than the net asset value per share of such class of
Common Stock outstanding at the time as of which the computation of said
net asset value shall be made.
B. The Board of Directors may, in its sole and absolute
discretion, reject in whole or in part orders for the purchase of shares
of any class of Common Stock and may, in addition, require such orders to
be in such minimum amounts as it shall determine.
C. The holders of any fractional shares of any class Common
Stock shall be entitled to the payment of dividends on such fractional
shares, to receive the net asset value thereof upon redemption, to share
in the assets of the Corporation upon liquidation and to exercise voting
rights with respect thereto.
D. The Board of Directors shall have full power in accordance
with good accounting practice: (a) to determine what receipts of the
Corporation shall constitute income available for payment of dividends and
what receipts shall constitute principal and to make such allocation of
any particular receipt between principal and income as it may deem proper;
and (b) from time to time, in its discretion (i) to determine whether any
and all expenses and other outlays paid or incurred (including any and all
taxes, assessments or governmental charges which the Corporation may be
required to pay or hold under any present or future law of the United
States of America or of any other taxing authority therein) shall be
charged to or paid from principal or income or both, and (ii) to apportion
any and all of said expenses and outlays, including taxes, between
principal and income.
E. The Board of Directors shall have the power to determine
from time to time whether and to what extent and at what time and places
and under what conditions and regulations the books, accounts and
documents of the Corporation or any of them, shall be open to the
inspection of stockholders, except as otherwise provided by applicable
law; and except as so provided, no stockholder shall have any right to
inspect any book, account or document of the Corporation unless authorized
to do so by resolution of the Board of Directors.
ARTICLE VIII
The address of the principal office of the Corporation in
Maryland is c/o The Corporation Trust Incorporated, 300 East Lombard Street,
Baltimore, Maryland 21202.
ARTICLE IX
The address of the initial registered office is c/o The
Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, Maryland
21202.
ARTICLE X
The name of the initial registered agent at such address is The
Corporation Trust Incorporated, a Maryland corporation.
IN WITNESS WHEREOF, the undersigned incorporators of the HUGHES
FUNDS, INC. who executed the foregoing Articles of Incorporation hereby
acknowledges the same to be their act and further acknowledges that, to the
best of their knowledge, the matters and facts set forth therein are true in
all material respects under the penalties of perjury.
Dated this 15th day of December, 1997
/s/ Billie J Swoboda
/s/ Mark J Diffenbaugh
/s/ Wesley Kinter
BYLAWS
OF
HUGHES FUNDS, INC.
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1. Place of Meetings. All meetings of stockholders shall be
held at such location as the Board of Directors shall direct.
Section 2. Annual Meeting.
(a) The annual meeting of stockholders for the election of
directors and the transaction of such other business as may properly come
before it, if the annual meeting shall be held, shall be held during the
month of December of each year (or during such other month as the Board of
Directors shall determine), commencing in 1998, at such date and time as
shall be fixed by the Board of Directors and stated in the notice of such
meeting, but in no event more than one hundred twenty (120) days after the
occurrence of the event requiring the meeting to elect directors. Any
business of the corporation may be transacted at the annual meeting
without being specifically designated in the notice, except such business
as is specifically required by statute to be stated in the notice.
(b) The corporation shall not be required to hold an annual
meeting in any year in which the election of directors is not required to
be acted on by stockholders under the Investment Company Act of 1940.
Section 3. Special Meeting. Special meetings of the stockholders may
be called by the board of directors, the president, any vice president, or
the secretary, and shall be called by the secretary upon the written
request of the holders of shares entitled to not less than ten percent
(10%) of all the votes entitled to be cast at such meeting; provided that
such holders prepay the costs to the corporation of preparing and mailing
the notice of the meeting. The business transacted at any special meeting
of stockholders shall be limited to the purposes stated in the notice.
Section 4. Notice of Meeting. Not less than ten (10) days nor more
than ninety (90) days before the date of every stockholders' meeting, the
secretary shall give to each stockholder entitled to vote at such meeting
and to each other stockholder entitled to notice of such meeting under
applicable law, written or printed notice stating the time and place of
the meeting, and in the case of a special meeting (or where required by
applicable law) the purpose or purposes for which the meeting is called,
either by mail, by presenting it to him personally or by leaving it at his
residence or usual place of business. If mailed, such notice shall be
deemed to be given when deposited in the United States mail addressed to
the stockholder at his post office address as it appears on the records of
the corporation, with postage thereon prepaid.
Section 5. Quorum. At any meeting of stockholders the presence in
person or by proxy of stockholders entitled to cast a majority of the
votes thereat shall constitute a quorum; but this section shall not affect
any requirement under statute or under the charter for the vote necessary
for the adoption of any measure. If at any meeting a quorum is not
present or represented, the chairman of the meeting or the holders of a
majority of the stock present or represented may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until
a quorum is present or represented. At such adjourned meeting at which a
quorum is present or represented, any business may be transacted which
might have been transacted at the meeting as originally called.
Section 6. Stock Entitled to Vote. Each issued share of each class of
stock shall be entitled to vote at any meeting of stockholders except
shares owned, other than in a fiduciary capacity, by the corporation or by
another corporation in which the corporation owns shares entitled to cast
a majority of all the votes entitled to be cast by all shares outstanding
and entitled to vote of such corporation.
Section 7. Voting. Each outstanding share of each class of stock
entitled to vote at a meeting of stockholders shall be entitled to one
vote on each matter submitted to a vote. In all elections for directors
every stockholder shall have the right to vote the shares of each class
owned of record by him for as many persons as there are directors to be
elected, but shall not be entitled to exercise any right of cumulative
voting. A stockholder may vote the shares owned of record by him either
in person or by proxy executed in writing by the stockholder or by his
authorized attorney-in-fact. No proxy shall be valid after eleven (11)
months from its date unless otherwise provided in the proxy. At all
meetings of stockholders, unless the voting is conducted by inspectors,
all questions relating to the qualification of voters, the validity of
proxies and the acceptance or rejection of votes shall be decided by the
chairman of the meeting. A majority of the votes cast at a meeting of
stockholders, duly called and at which a quorum is present, shall be
sufficient to take or authorize any action which may properly come before
the meeting, unless a greater number is required by statute or by the
charter.
Section 8. Informal Action. Any action required or permitted to be
taken at any meeting of stockholders may be taken without a meeting, if a
consent in writing, setting forth such action, is signed by all the
stockholders entitled to vote on the subject matter thereof and such
consent is filed with the records of the corporation.
ARTICLE II
DIRECTORS
Section 1. Number. The number of directors of the corporation shall
be three (3). By vote of a majority of the entire board of directors, the
number of directors fixed by the charter or by these bylaws may be
increased or decreased from time to time to not more than fifteen nor less
than three, but the tenure of office of a director shall not be affected
by any decrease in the number of directors so made by the board.
Section 2. Election and Qualification. Until the first annual meeting
of stockholders and until successors are duly elected and qualify, the
board of directors shall consist of the persons named as such in the
charter. At the first annual meeting of stockholders, the stockholders
shall elect directors to hold office until their successors are elected
and qualify. A director need not be a stockholder of the corporation, but
must be eligible to serve as a director of a registered investment company
under the Investment Company Act of 1940.
Section 3. Vacancies. Any vacancy on the board of directors occurring
between stockholders' meetings called for the purpose of electing
directors may be filled, if immediately after filling any such vacancy at
least two-thirds of the directors then holding office shall have been
elected to such office at an annual or special meeting of stockholders, in
the following manner: (i) for a vacancy occurring other than by reason of
an increase in directors, by a majority of the remaining members of the
board, although such majority is less than a quorum; and (ii) for a
vacancy occurring by reason of an increase in the number of directors, by
action of a majority of the entire board. A director elected by the board
to fill a vacancy shall be elected to hold office until the next annual
meeting of stockholders or until his successor is elected and qualified.
If by reason of the death, disqualification or bona fide resignation of
any director or directors, more than sixty percent (60%) of the members of
the board of directors are interested persons of the corporation, as
defined in the Investment Company Act of 1940, such vacancy shall be
filled within thirty (30) days if it may be filled by the board, or within
sixty (60) days if a vote of stockholders is required to fill such
vacancy; provided that such vacancy may be filled within such longer
period as the Securities and Exchange Commission may prescribe by rules
and regulations, upon its own motion or by order upon application. In the
event that at any time less than a majority of the directors were elected
by the stockholders, the board or proper officer shall forthwith cause to
be held as promptly as possible, and in any event within sixty (60) days,
a meeting of the stockholders for the purpose of electing directors to
fill any existing vacancies in the board, unless the Securities and
Exchange Commission shall by order extend such period.
Section 4. Powers. The business and affairs of the corporation shall
be managed under the direction of the board of directors, which may
exercise all of the powers of the corporation, except such as are by law
or by the charter or by these bylaws conferred upon or reserved to the
stockholders.
Section 5. Removal.
(a) At any meeting of stockholders, duly called and at which a
quorum is present, the stockholders may, by the affirmative vote of the
holders of a majority of the votes entitled to be cast thereon, remove any
director or directors from office and may elect a successor or successors
to fill any resulting vacancies for the unexpired terms of removed
directors.
(b) Notwithstanding any other provisions of these bylaws, the
secretary of the corporation shall promptly call a special meeting of
stockholders for the purpose of voting upon the question of removal of any
director upon the written request of the holders of shares entitled to not
less than ten percent (10%) of all the votes entitled to be cast at such
meeting.
(c) Whenever ten or more stockholders of record who have been
such for at least six months preceding the date of application, and who
hold in the aggregate either shares having a net asset value of at least
$25,000 or at least one percent (1%) of the total outstanding shares,
whichever is less, shall apply to the corporation's secretary in writing,
stating that they wish to communicate with other stockholders with a view
to obtaining signatures to a request for a meeting pursuant to subsection
(b) above and accompanied by a form of communication and request which
they wish to transmit, the secretary shall within five business days after
such application either: (1) afford to such applicants access to a list
of the names and addresses of all stockholders as recorded on the books of
the corporation; or (2) inform such applicants as to the approximate
number of stockholders of record and the approximate cost of mailing to
them the proposed communication and form of request.
(d) If the secretary elects to follow the course specified in
clause (2) of subsection (c) above, the secretary, upon the written
request of such applicants, accompanied by a tender of the material to be
mailed and of the reasonable expenses of mailing, shall, with reasonable
promptness, mail such material to all stockholders of record at their
addresses as recorded on the books, unless within five (5) business days
after such tender the secretary shall mail to such applicants and file
with the Securities and Exchange Commission, together with a copy of the
material to be mailed, a written statement signed by at least a majority
of the board of directors to the effect that in their opinion either such
material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or
would be in violation of applicable law, and specifying the basis of such
opinion.
(e) After opportunity for hearing upon the objections specified
in the written statement so filed, the Securities and Exchange Commission
may, and if demanded by the board of directors or by such applicants
shall, enter an order either sustaining one or more of such objections or
refusing to sustain any of them. If the Securities and Exchange
Commission shall enter an order refusing to sustain any of such
objections, or if, after the entry of an order sustaining one or more of
such objections, the Securities and Exchange Commission shall find, after
notice and opportunity for hearing, that all objections so sustained have
been met, and shall enter an order so declaring, the secretary shall mail
copies of such material to all shareholders with reasonable promptness
after the entry of such order and the renewal of such tender.
Section 6. Place of Meetings. Meetings of the board of directors,
regular or special, may be held at any place in or out of the State of
Maryland as the board may from time to time determine or as may be
specified in the notice of meeting.
Section 7. First Meeting of Newly Elected Board. The first meeting of
each newly elected board of directors shall be held without notice
immediately after and at the same general place as the annual meeting of
the stockholders, for the purpose of organizing the board, electing
officers and transacting any other business that may properly come before
the meeting.
Section 8. Regular Meetings. Regular meetings of the board of
directors may be held without notice at such time and place as shall from
time to time be determined by the board.
Section 9. Special Meetings. Special meetings of the board of
directors may be called at any time either by the board, the president, a
vice president or a majority of the directors in writing with or without a
meeting. Notice of special meetings shall either be mailed by the
secretary to each director at least three (3) days before the meeting or
shall be given personally or telegraphed to each director at least one (1)
day before the meeting. Such notice shall set forth the time and place of
such meeting but need not, unless otherwise required by law, state the
purposes of the meeting.
Section 10. Quorum and Vote Required for Action. At all meetings of
the board of directors a majority of the entire board shall constitute a
quorum for the transaction of business, and the action of a majority of
the directors present at any meetings at which a quorum is present shall
be the action of the board of directors unless the concurrence of a
greater proportion is required for such action by statute, the articles of
incorporation or these bylaws. If at any meeting a quorum is not present,
a majority of the directors present may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a
quorum is present. Members of the board of directors or a committee of
the board may participate in a meeting by means of a conference telephone
or similar communications equipment if all persons participating in the
meeting can hear each other at the same time; provided, however, that a
director may not participate in a meeting by means of a conference
telephone or similar communications equipment if the purpose of the
meeting is to approve the corporation's investment advisory agreement
and/or to approve the selection of the corporation's auditors, or if
participation in such a manner would otherwise violate the Investment
Company Act of 1940 or other applicable laws. Except as set forth in the
preceding sentence, participation in a meeting by these means constitutes
presence in person at the meeting.
Section 11. Executive and Other Committees. The board of directors may
appoint from among its members an executive and other committees composed
of two (2) or more directors. The board may delegate to such committees in
the intervals between meetings of the board any of the powers of the board
to manage the business and affairs of the corporation, except the power
to: (i) declare dividends or distributions upon the stock of the
corporation; (ii) issue stock of the corporation; (iii) recommend to the
stockholders any action which requires stockholder approval; (iv) amend
the bylaws; (v) approve any merger or share exchange which does not
require stockholder approval; or (vi) take any action required by the
Investment Company Act of 1940 to be taken by the independent directors of
the corporation or by the full board of directors.
Section 12. Informal Action. Except as set forth in the following
sentence, any action required or permitted to be taken at any meeting of
the board of directors or of a committee of the board may be taken without
a meeting, if a written consent to such action is signed by all members of
the board or the committee, as the case may be, and such written consent
is filed with the minutes of proceedings of the board or committee.
Notwithstanding the preceding sentence, no action may be taken by the
board of directors pursuant to a written consent with respect to the
approval of the corporation's investment advisory agreement, the approval
of the selection of the corporation's auditors, or any action required by
the Investment Company Act of 1940 or other applicable law to be taken at
a meeting of the board of directors to be held in person.
ARTICLE III
OFFICERS AND EMPLOYEES
Section 1. Election and Qualification. At the first meeting of each
newly elected board of directors there shall be elected a president, one
or more vice presidents, a secretary and a treasurer. The board may also
elect one or more assistant secretaries and assistant treasurers. No
officer need be a director. Any two or more offices, except the offices
of president and vice president, may be held by the same person but no
officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law, charter or these
bylaws to be executed, acknowledged or verified by two or more officers.
Each officer must be eligible to serve as an officer of a registered
investment company under the Investment Company Act of 1940. Nothing
herein shall preclude the employment of other employees or agents by the
corporation from time to time without action by the board.
Section 2. Term, Removal and Vacancies. The officers shall be elected
to serve until the next first meeting of a newly elected board of
directors and until their successors are elected and qualified. Any
officer may be removed by the board, with or without cause, whenever in
its judgment the best interests of the corporation will be served thereby,
but such removal shall be without prejudice to the contractual rights, if
any, of the person so removed. A vacancy in any office shall be filled by
the board for the unexpired term.
Section 3. Bonding. Each officer and employee of the corporation who
singly or jointly with others has access to securities or funds of the
corporation, either directly or through authority to draw upon such funds,
or to direct generally the disposition of such securities shall be bonded
against larceny and embezzlement by a reputable fidelity insurance
company. Each such bond, which may be in the form of an individual bond,
a schedule or blanket bond covering the corporation's officers and
employees and the officers and employees of the investment adviser to the
corporation and other corporations to which said investment adviser also
acts as investment adviser, shall be in such form and for such amount
(determined at least annually) as the board of directors shall determine
in compliance with the requirements of Section 17(g) of the Investment
Company Act of 1940, as amended from time to time, and the rules,
regulations or orders of the Securities and Exchange Commission
thereunder.
Section 4. President. The president shall be the principal executive
officer of the corporation. He shall preside at all meetings of the
stockholders and directors, have general and active management of the
business of the corporation, see that all orders and resolutions of the
board of directors are carried into effect, and execute in the name of the
corporation all authorized instruments of the corporation, except where
the signing shall be expressly delegated by the board to some other
officer or agent of the corporation.
Section 5. Vice Presidents. The vice president, or if there be more
than one, the vice presidents in the order determined by the board of
directors, shall, in the absence or disability of the president, perform
the duties and exercise the powers of the president, and shall have such
other duties and powers as the board may from time to time prescribe or
the president delegate.
Section 6. Secretary and Assistant Secretaries. The secretary shall
give notice of, attend and record the minutes of meetings of stockholders
and directors, keep the corporate seal and, when authorized by the board,
affix the same to any instrument requiring it, attesting to the same by
his signature, and shall have such further duties and powers as are
incident to his office or as the board may from time to time prescribe.
The assistant secretary, if any, or, if there be more than one, the
assistant secretaries in the order determined by the board, shall in the
absence or disability of the secretary, perform the duties and exercise
the powers of the secretary, and shall have such other duties and powers
as the board may from time to time prescribe or the secretary delegate.
Section 7. Treasurer and Assistant Treasurers. The treasurer shall be
the principal financial and accounting officer of the corporation. He
shall be responsible for the custody and supervision of the corporation's
books of account and subsidiary accounting records, and shall have such
further duties and powers as are incident to his office or as the board of
directors may from time to time prescribe. The assistant treasurer, if
any, or, if there be more than one, the assistant treasurers in the order
determined by the board, shall in the absence or disability of the
treasurer, perform all duties and exercise the powers of the treasurer,
and shall have such other duties and powers as the board may from time to
time prescribe or the treasurer delegate.
ARTICLE IV
RESTRICTIONS ON COMPENSATION
TRANSACTIONS AND INVESTMENTS
Section 1. Salary and Expenses. Directors and executive officers as
such shall not receive any salary for their services or reimbursement for
expenses from the corporation; provided that the corporation may pay fees
in such amounts and at such times as the board of directors shall
determine to directors who are not interested persons of the corporation
for attendance at meetings of the board of directors. Clerical employees
shall receive compensation for their services from the corporation in such
amounts as are determined by the board of directors.
Section 2. Compensation and Profit from Purchase and Sales. No
affiliated person of the corporation, as defined in the Investment Company
Act of 1940, or affiliated person of such person, shall, except as
permitted by Section 17(e) of the Act, or the rules, regulations or orders
of the Securities and Exchange Commission thereunder, (i) acting as agent,
accept from any source any compensation for the purchase or sale of any
property or securities to or for the corporation or any controlled company
of the corporation, as defined in such Act, or (ii) acting as a broker, in
connection with the sale of securities to or by the corporation or any
controlled company of the corporation, receive from any source a
commission, fee or other remuneration for effecting such transaction.
Section 3. Transactions with Affiliated Person. No affiliated person
of the corporation, as defined in the Investment Company Act of 1940, or
affiliated person of such person shall knowingly (i) sell any security or
other property to the corporation or to any company controlled by the
corporation, as defined in the Act, except shares of stock of the
corporation or securities of which such person is the issuer and which are
part of a general offering to the holders of a class of its securities,
(ii) purchase from the corporation or any such controlled company any
security or property except shares of stock of the corporation or
securities of which such person is the issuer, (iii) borrow money or other
property from the corporation or any such controlled company, or (iv)
acting as a principal effect any transaction in which the corporation or
controlled company is a joint or joint and several participant with such
person; provided, however, that this section shall not apply to any
transaction permitted by Sections 17(a), (b), (c), (d) or 21(b) of the
Investment Company Act of 1940 or the rules, regulations or orders of the
Securities and Exchange Commission thereunder, and shall not prohibit the
joint participation by the corporation and an affiliate in a fidelity bond
arrangement.
Section 4. Investment Adviser. The corporation shall employ one or
more investment advisers, the employment of which shall be pursuant to
written agreements in accordance with Section 15 of the Investment Company
Act of 1940, as amended from time to time.
ARTICLE V
STOCK CERTIFICATES AND TRANSFER BOOKS
Section 1. Certificates. The Corporation will not issue stock
certificates unless required to do so by state law. Instead shareholder's
accounts will be credited with the number of shares purchased.
Section 2. Written Confirmation. Each shareholder of the Corporation
will receive written confirmation of shares purchased.
Section 3. Stock Ledger. The corporation shall maintain at its office
or at the office of its principal transfer agent, if any, an original or
duplicate stock ledger containing the names and addresses of all
stockholders and the number of shares of each class of stock held by each
stockholder.
Section 4. Registered Stockholders. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as
such, as the owner of shares for all purposes, and shall not be bound to
recognize any equitable or other claim to or interest in such shares on
the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of
Maryland.
Section 5. Transfer Agent and Registrar. The corporation may maintain
one or more transfer offices or agencies, each in charge of a transfer
agent designated by the board of directors, where the shares of each class
of stock of the corporation shall be transferable. The corporation may
also maintain one or more registry offices, each in charge of a registrar
designated by the board, where the shares of such classes of stock shall
be registered.
Section 6. Transfers of Stock. Upon surrender to the corporation or a
transfer agent of a certificate for shares of any class duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 7. Fixing of Record Dates and Closing of Transfer Books. The
board of directors may fix, in advance, a date as the record date for the
purpose of determining stockholders entitled to notice of, or to vote at,
any meeting of stockholders, or stockholders entitled to receive payment
of any dividend or the allotment of any rights, or in order to make a
determination of stockholders for any other proper purpose. Such date, in
any case, shall be not more than ninety (90) days, and in case of a
meeting of stockholders not less than ten (10) days, prior to the date on
which the particular action requiring such determination of stockholders
is to be taken. In lieu of fixing a record date, the board may provide
that the stock transfer books shall be closed for a stated period but not
to exceed, in any case, twenty (20) days. If the stock transfer books are
closed or a record date is fixed for the purpose of determining
stockholders entitled to vote at a meeting of stockholders, such books
shall be closed for at least ten (10) days immediately preceding such
action.
ARTICLE VI
ACCOUNTS, REPORTS, CUSTODIAN AND INVESTMENT ADVISER
Section 1. Inspection of Books. The board of directors shall
determine from time to time whether, and, if allowed, when and under what
conditions and regulations the accounts and books of the corporation
(except such as may by statute be specifically open to inspection) or any
of them, shall be open to the inspection of the stockholders, and the
stockholders' rights in this respect are and shall be limited accordingly.
Section 2. Reliance on Records. Each director and officer shall, in
the performance of his duties, be fully protected in relying in good faith
on the books of account or reports made to the corporation by any of its
officials or by an independent public accountant.
Section 3. Preparation and Maintenance of Accounts, Records and
Statements. The president, a vice president or the treasurer shall
prepare or cause to be prepared annually, a full and correct statement of
the affairs of the corporation, including a balance sheet or statement of
financial condition and a financial statement of operations for the
preceding fiscal year, which shall be submitted at the annual meeting of
the stockholders and filed within twenty (20) days thereafter at the
principal office of the corporation. If the corporation is not required
to hold an annual meeting of stockholders, the statement of affairs shall
be placed on file at the corporation's principal office within one hundred
twenty (120) days after the end of the fiscal year. The proper officers
of the corporation shall also prepare, maintain and preserve or cause to
be prepared, maintained and preserved the accounts, books and other
documents required by Section 2-111 of the Maryland General Corporation
Law and Section 31 of the Investment Company Act of 1940 and shall prepare
and file or cause to be prepared and filed the reports required by Section
30 of such Act. No financial statement shall be filed with the Securities
and Exchange Commission unless the officers or employees who prepared or
participated in the preparation of such financial statement have been
specifically designated for such purpose by the board of directors.
Section 4. Auditors. No independent public accountant shall be
retained or employed by the corporation to examine, certify or report on
its financial statements for any fiscal year unless such selection: (i)
shall have been approved by a majority of the entire board of directors
within thirty (30) days before or after the beginning of such fiscal year
or before the annual ratification by the stockholders; (ii) shall have
been ratified by the stockholders, provided that any vacancy occurring
between such annual ratification due to the death or resignation of such
accountant may be filled by the board of directors; and (iii) shall
otherwise meet the requirements of Section 32 of the Investment Company
Act of 1940.
Section 5. Custodianship. All securities owned by the corporation and
all cash, including, without limiting the generality of the foregoing, the
proceeds from sales of securities owned by the corporation and from the
issuance of shares of the capital stock of the corporation, payments of
principal upon securities owned by the corporation, and distributions in
respect of securities owned by the corporation which at the time of
payment are represented by the distributing corporation to be capital
distributions, shall be held by a custodian or custodians which shall be a
bank, as that term is defined in the Investment Company Act of 1940,
having capital, surplus and undivided profits aggregating not less than
$2,000,000. The terms of custody of such securities and cash shall
include provisions to the effect that the custodian shall deliver
securities owned by the corporation only (a) upon sales of such securities
for the account of the corporation and receipt by the custodian of payment
therefor, (b) when such securities are called, redeemed or retired or
otherwise become payable, (c) for examination by any broker selling any
such securities in accordance with "street delivery" custom, (d) in
exchange for or upon conversion into other securities alone or other
securities and cash whether pursuant to any plan of merger, consolidation,
reorganization, recapitalization or readjustment, or otherwise, (e) upon
conversion of such securities pursuant to their terms into other
securities, (f) upon exercise of subscription, purchase or other similar
rights represented by such securities, (g) for the purpose of exchanging
interim receipts or temporary securities for definitive securities, (h)
for the purpose of redeeming in kind shares of the capital stock of the
corporation, or (i) for other proper corporate purposes. Such terms of
custody shall also include provisions to the effect that the custodian
shall hold the securities and funds of the corporation in a separate
account or accounts and shall have sole power to release and deliver any
such securities and draw upon any such account, any of the securities or
funds of the corporation only on receipt by such custodian of written
instruction from one or more persons authorized by the board of directors
to give such instructions on behalf of the corporation, and that the
custodian shall deliver cash of the corporation required by this Section 5
to be deposited with the custodian only upon the purchase of securities
for the portfolio of the corporation and the delivery of such securities
to the custodian, for the purchase or redemption of shares of the capital
stock of the corporation, for the payment of interest, dividends, taxes,
management or supervisory fees or operating expenses, for payments in
connection with the conversion, exchange or surrender of securities owned
by the corporation, or for other proper corporate purposes. Upon the
resignation or inability to serve of any such custodian the corporation
shall (a) use its best efforts to obtain a successor custodian, (b)
require the cash and securities of the corporation held by the custodian
to be delivered directly to the successor custodian, and (c) in the event
that no successor custodian can be found, submit to the stockholders of
the corporation, before permitting delivery of such cash and securities to
anyone other than a successor custodian, the question whether the
corporation shall be dissolved or shall function without a custodian;
provided, however, that nothing herein contained shall prevent the
termination of any agreement between the corporation and any such
custodian by the affirmative vote of the holders of a majority of all the
shares of the capital stock of the corporation at the time outstanding and
entitled to vote. Upon its resignation or inability to serve, the
custodian may deliver any assets of the corporation held by it to a
qualified bank or trust company selected by it, such assets to be held
subject to the terms of custody which governed such retiring custodian,
pending action by the corporation as set forth in this Section 5.
Section 6. Termination of Custodian Agreement. Any employment
agreement with a custodian shall be terminable on not more than sixty (60)
days' notice in writing by the board of directors or the custodian and
upon any such termination the custodian shall turn over only to the
succeeding custodian designated by the board of directors all funds,
securities and property and documents of the corporation in its
possession.
Section 7. Checks and Requisitions. Except as otherwise authorized by
the board of directors, all checks and drafts for the payment of money
shall be signed in the name of the corporation by a custodian, and all
requisitions or orders for the payment of money by a custodian or for the
issue of checks and drafts therefore, all promissory notes, all
assignments of stock or securities standing in the name of the
corporation, and all requisitions or orders for the assignment of stock or
securities standing in the name of a custodian or its nominee, or for the
execution of powers to transfer the same, shall be signed in the name of
the corporation by not less than two persons (who shall be among those
persons, not in excess of five, designated for this purpose by the board
of directors) at least one of which shall be an officer. Promissory
notes, checks or drafts payable to the corporation may be endorsed only to
the order of a custodian or its nominee by the treasurer or president or
by such other person or persons as shall be thereto authorized by the
board of directors.
Section 8. Investment Advisory Contract. Any investment advisory
contract in effect after the first annual meeting of stockholders of the
corporation, to which the corporation is or shall become a party, whereby,
subject to the control of the board of directors of the corporation, the
investment portfolio with respect to any class of Common Stock of the
corporation shall be managed or supervised by the other party to such
contract, shall be effective and binding only upon the affirmative vote of
a majority of the outstanding voting securities of such class of Common
Stock of the corporation (as defined in the Investment Company Act of
1940), and the investment advisory contract currently in effect with
respect to any class of Common Stock shall be submitted to the holders of
shares of such class of Common Stock for ratification by the affirmative
vote of such majority. Any investment advisory contract to which the
corporation shall be a party whereby, subject to the control of the board
of directors of the corporation, the investment portfolio with respect to
any class of Common Stock of the corporation shall be managed or
supervised by the other party to such contract, shall provide, among other
things, that such contract cannot be assigned. Such investment advisory
contract shall prohibit the other party thereto from making short sales of
shares of capital stock of the corporation; and such investment advisory
contract shall prohibit such other party from purchasing shares otherwise
than for investment, and shall require such other party to advise the
corporation of any sales of shares of the capital stock of the corporation
made by such person or organization less than two months after the date of
any purchase by him or it of shares of the capital stock of the
corporation. Unless any such contract shall expressly otherwise provide,
any provisions therein for the termination thereof by action of the board
of directors of the corporation shall be construed to require that such
termination can be accomplished only upon the vote of a majority of the
entire board.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Offices. The registered office of the corporation in the
State of Maryland shall be in the City of Baltimore. The corporation may
also have offices at such other places within and without the State of
Maryland as the board of directors may from time to time determine. Except
as otherwise required by statute, the books and records of the corporation
may be kept outside the State of Maryland.
Section 2. Seal. The corporate seal shall have inscribed thereon the
name of the corporation, and the words "Corporate Seal" and "Maryland".
The seal may be used by causing it or a facsimile thereof to be impressed,
affixed, reproduced or otherwise.
Section 3. Fiscal Year. The fiscal year of the corporation shall be
fixed by the board of directors.
Section 4. Notice of Waiver of Notice. Whenever any notice of the
time, place or purpose of any meeting of stockholders or directors is
required to be given under the statute, the charter or these bylaws, a
waiver thereof in writing, signed by the person or persons entitled to
such notice and filed with the records of the meeting, either before or
after the holding thereof, or actual attendance at the meeting of
stockholders in person or by proxy or at the meeting of directors in
person, shall be deemed equivalent to the giving of such notice to such
person. No notice need be given to any person with whom communication is
made unlawful by any law of the United States or any rule, regulation,
proclamation or executive order issued by any such law.
Section 5. Voting of Stock. Unless otherwise ordered by the board of
directors, the president shall have full power and authority, in the name
and on behalf of the corporation, (i) to attend, act and vote at any
meeting of stockholders of any company in which the corporation may own
shares of stock of record, beneficially (as the proxy or attorney-in-fact
of the record holder) or of record and beneficially, and (ii) to give
voting directions to the record stockholder of any such stock beneficially
owned. At any such meeting, he shall possess and may exercise any and all
rights and powers incident to the ownership of such shares which, as the
holder or beneficial owner and proxy of the holder thereof, the
corporation might possess and exercise if personally present, and may
delegate such power and authority to any officer, agent or employee of the
corporation.
Section 6. Dividends. Dividends upon any class of stock of the
corporation, subject to the provisions of the charter, if any, may be
declared by the board of directors in any lawful manner. The source of
each dividend payment shall be disclosed to the stockholders receiving
such dividend, to the extent required by the laws of the State of Maryland
and by Section 19 of the Investment Company Act of 1940 and the rules and
regulations of the Securities and Exchange Commission thereunder.
Section 7. Indemnification.
A. The corporation shall indemnify all of its corporate
representatives against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by
them in connection with the defense of any action, suit or proceeding, or
threat or claim of such action, suit or proceeding, whether civil,
criminal, administrative, or legislative, no matter by whom brought, or in
any appeal in which they or any of them are made parties or a party by
reason of being or having been a corporate representative, if the
corporate representative acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation
and with respect to any criminal proceeding, if he had no reasonable cause
to believe his conduct was unlawful provided that the corporation shall
not indemnify corporate representatives in relation to matters as to which
any such corporate representative shall be adjudged in such action, suit
or proceeding to be liable for gross negligence, willful misfeasance, bad
faith, reckless disregard of the duties and obligations involved in the
conduct of his office, or when indemnification is otherwise not permitted
by the Maryland General Corporation Law.
B. In the absence of an adjudication which expressly absolves the
corporate representative, or in the event of a settlement, each corporate
representative shall be indemnified hereunder only if there has been a
reasonable determination based on a review of the facts that
indemnification of the corporate representative is proper because he has
met the applicable standard of conduct set forth in paragraph A. Such
determination shall be made: (i) by the board of directors, by a majority
vote of a quorum which consists of directors who were not parties to the
action, suit or proceeding, or if such a quorum cannot be obtained, then
by a majority vote of a committee of the board consisting solely of two or
more directors, not, at the time, parties to the action, suit or
proceeding and who were duly designated to act in the matter by the full
board in which the designated directors who are parties to the action,
suit or proceeding may participate; or (ii) by special legal counsel
selected by the board of directors or a committee of the board by vote as
set forth in (i) of this paragraph, or, if the requisite quorum of the
full board cannot be obtained therefor and the committee cannot be
established, by a majority vote of the full board in which directors who
are parties to the action, suit or proceeding may participate.
C. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall create a rebuttable presumption that the person was
guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard to the duties and obligations involved in the conduct of his or
her office, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
D. Expenses, including attorneys' fees, incurred in the preparation
of and/or presentation of the defense of a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized in the manner
provided in Section 2-418(F) of the Maryland General Corporation Law upon
receipt of: (i) an undertaking by or on behalf of the corporate
representative to repay such amount unless it shall ultimately be
determined that he or she is entitled to be indemnified by the corporation
as authorized in this bylaw; and (ii) a written affirmation by the
corporate representative of the corporate representative's good faith
belief that the standard of conduct necessary for indemnification by the
corporation has been met.
E. The indemnification provided by this bylaw shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under these bylaws, any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person subject to the limitations imposed from
time to time by the Investment Company Act of 1940, as amended.
F. This corporation shall have power to purchase and maintain
insurance on behalf of any corporate representative against any liability
asserted against him or her and incurred by him or her in such capacity or
arising out of his or her status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under
this bylaw provided that no insurance may be purchased or maintained to
protect any corporate representative against liability for gross
negligence, willful misfeasance, bad faith or reckless disregard of the
duties and obligations involved in the conduct of his or her office.
G. "Corporate Representative" means an individual who is or was a
director, officer, agent or employee of the corporation or who serves or
served another corporation, partnership, joint venture, trust or other
enterprise in one of these capacities at the request of the corporation
and who, by reason of his or her position, is, was, or is threatened to be
made, a party to a proceeding described herein.
Section 8. Amendments.
A. These bylaws may be altered, amended or repealed and new
bylaws may be adopted by the stockholders by affirmative vote of not less
than a majority of the shares of all classes of stock present or
represented at any annual or special meeting of the stockholders at which
a quorum is in attendance.
B. These bylaws may also be altered, amended or repealed and
new bylaws may be adopted by the Board of Directors by affirmative vote of
a majority of the number of directors present at any meeting at which a
quorum is in attendance; but no bylaw adopted by the stockholders shall be
amended or repealed by the Board of Directors if the bylaws so adopted so
provides.
C. Any action taken or authorized by the stockholders or by
the Board of Directors, which would be inconsistent with the bylaws then
in effect but is taken or authorized by affirmative vote of not less than
the number of shares or the number of directors required to amend the
bylaws so that the bylaws would be consistent with such action, shall be
given the same effect as though the bylaws had been temporarily amended or
suspended so far, but only so far, as was necessary to permit the specific
action so taken or authorized.
Section 9. Reports to Stockholders. The books of account of the
corporation shall be examined by an independent firm of public accountants
at the close of each annual fiscal period of the corporation and at such
other times, if any, as may be directed by the Board of Directors of the
corporation. A report to the stockholders based upon each such
examination shall be mailed to each stockholder of the corporation of
record on such date with respect to each report as may be determined by
the Board of Directors at his address as the same appears on the books of
the corporation. Each such report shall include the financial information
required to be transmitted to stockholders by rules or regulations of the
Securities and Exchange Commission under the Investment Company Act of
1940 and shall be in such form as the Board of Directors shall determine
pursuant to rules and regulations of the Securities and Exchange
Commission.
Section 10. Information to Accompany Dividends. At the time of the
payment by the corporation of any dividend to the holders of any class of
stock of the corporation, each stockholder to whom such dividend is paid
shall be notified of the account or accounts from which it is paid and the
amount thereof paid from each such account.
ARTICLE VIII
SALES, REDEMPTION AND
NET ASSET VALUE OF SHARES
Section 1. Sales of Shares. Shares of any class of Common Stock of
the corporation shall be sold by it for the net asset value per share of
such class of Common Stock outstanding at the time as of which the
computation of said net asset value shall be made as hereinafter provided
in these bylaws.
Section 2. Periodic Investment and Dividend Reinvestment Plans. The
corporation acting by and through the Board of Directors shall have the
right to adopt and to offer to the holders of each class of stock and to
the public a periodic investment plan and an automatic reinvestment of
dividend plan subject to the limitations and restrictions imposed thereon
and as set forth in the Investment Company Act of 1940 and any rule or
regulation adopted or issued thereunder.
Section 3. Shares Issued for Securities. In the case of shares of any
class of stock of the corporation issued in whole or in part in exchange
for securities, there may, at the discretion of the board of directors of
the corporation, be included in the value of said securities, for the
purpose of determining the number of shares of such class stock of the
corporation issuable in exchange therefor, the amount, if any, of
brokerage commissions (not exceeding an amount equal to the rates payable
in connection with the purchase of comparable securities on the New York
Stock Exchange) or other similar costs of acquisition of such securities
paid by the holder of said securities in acquiring the same.
Section 4. Redemption of Shares. Each share of each class of Common
Stock of the corporation now or hereafter issued shall be subject to
redemption, as provided in the Articles of Incorporation of the
corporation.
Section 5. Suspension of Right of Redemption. The Board of Directors
of the corporation may suspend the right of the holders of any class of
Common Stock of the corporation to require the corporation to redeem
shares of such class:
(1) for any period (a) during which the New York Stock
Exchange is closed other than customary weekend and holiday
closings, or (b) during which trading on the New York Stock
Exchange is restricted;
(2) for any period during which an emergency, as defined
by rules of the Securities and Exchange Commission or any
successor thereto, exists as a result of which (a) disposal by
the corporation of securities owned by it is not reasonably
practicable, or (b) it is not reasonably practicable for the
corporation fairly to determine the value of its net assets; or
(3) for such other periods as the Securities and Exchange
Commission or any successor thereto may by order permit for the
protection of security holders of the corporation.
Section 6. Computation of Net Asset Value. For purposes of these
bylaws, the following rules shall apply:
A. The net asset value of each share of each class of
Common Stock of the corporation shall be determined at such time
or times as may be disclosed in the then currently effective
Prospectus relating to such class of Common Stock of this
corporation. The Board of Directors may also, from time to time
by resolution, designate a time or times intermediate of the
opening and closing of trading on the New York Stock Exchange on
each day that said Exchange is open for trading as of which the
net asset value of each share of each class of Common Stock of
the corporation shall be determined or estimated.
Any determination or estimation of net asset value as
provided in this subparagraph A shall be effective at the time
as of which such determination or estimation is made.
The net asset value of each share of each class of Common
Stock of the corporation for purposes of the issue of such class
of Common Stock shall be the net asset value which becomes
effective as provided in this Subparagraph A, next succeeding
receipt of the subscription to such share of such class Common
Stock. The net asset value of each share of each class of
Common Stock of the corporation tendered for redemption shall be
the net asset value which becomes effective as provided in this
Subparagraph A, next succeeding the tender of such share of such
class of Common Stock for redemption.
B. The net asset value of each share of each class of
Common Stock of the corporation, as of the close of business on
any day, shall be the quotient obtained by dividing the value at
such close of the net assets belonging to such class (meaning
the assets belonging to such class and any other assets
allocated to such class less the liabilities belonging to such
class and any other liabilities allocated to such class
excluding capital and surplus) of the corporation by the total
number of shares of such class outstanding at such close.
(i) The assets belonging to any class of Common
Stock shall be that portion of the total assets of the
corporation as determined in accordance with the
provisions of Article IV of the Articles of
Incorporation of the corporation. The assets of the
corporation shall be deemed to include (a) all cash on
hand, on deposit, or on call, (b) all bills and notes
and accounts receivable, (c) all shares of stock and
subscription rights and other securities owned or
contracted for by the corporation, other than its own
common stock, (d) all stock and cash dividends and
cash distributions, to be received by the corporation,
and not yet received by it but declared to
stockholders of record on a date on or before the date
as of which the net asset value is being determined,
(e) all interest accrued on any interest-bearing
securities owned by the corporation, and (f) all other
property of every kind and nature including prepaid
expenses; the value of such assets to be determined in
accordance with the corporation's registration
statement filed with the Securities and Exchange
Commission.
(ii) The liabilities belonging to any class of
Common Stock shall be that portion of the total
liabilities of the corporation as determined in
accordance with the provisions of Article IV of the
Articles of Incorporation of the corporation. The
liabilities of the corporation shall be deemed to
include (a) all bills and notes and accounts payable,
(b) all administration expenses payable and/or accrued
(including investment advisory fees), (c) all
contractual obligations for the payment of money or
property including the amount of any unpaid dividend
declared upon the corporation's stock and payable to
stockholders of record on or before the day as of
which the value of the corporation's stock is being
determined, (d) all reserves, if any, authorized or
approved by the Board of Directors for taxes,
including reserves for taxes at current rates based on
any unrealized appreciation in the value of the assets
of the corporation, and (e) all other liabilities of
the corporation of whatever kind and nature except
liabilities represented by outstanding capital stock
and surplus of the corporation.
(iii) For the purposes hereof: (a) shares of
each class of Common Stock subscribed for shall be
deemed to be outstanding as of the time of acceptance
of any subscription and the entry thereof on the books
of the corporation and the net price thereof shall be
deemed to be an asset belonging to such class; and (b)
shares of each class of Common Stock surrendered for
redemption by the corporation shall be deemed to be
outstanding until the time as of which the net asset
value for purposes of such redemption is determined or
estimated.
C. The net asset value of each share of each class of
Common Stock of the corporation, as of any time other than the
close of business on any day, may be determined by applying to
the net asset value as of the close of business on the preceding
business day, computed as provided in Paragraph B of this
Section of these bylaws, such adjustments as are authorized by
or pursuant to the direction of the Board of Directors and
designed reasonably to reflect any material changes in the
market value of securities and other assets held and any other
material changes in the assets or liabilities of the corporation
and in the number of its outstanding shares which shall have
taken place since the close of business on such preceding
business day.
D. In addition to the foregoing, the Board of Directors
is empowered, in its absolute discretion, to establish other
bases or times, or both, for determining the net asset value of
each share of each class of the Common Stock of the corporation.
INVESTMENT ADVISORY AGREEMENT
Agreement made this 11th day of February, 1998 between
Hughes Value Fund, Inc., a Maryland corporation (the "Fund"),
and Hughes Investment Advisors LLC a New Jersey Limited Liability Company
(the "Adviser").
W I T N E S S E T H:
WHEREAS, the Fund is in the process of registering with the
Securities and Exchange Commission under the Investment Company Act of
1940 (the "Act") as an open-end management investment company consisting
initially of one series Hughes Value Fund; and
WHEREAS, the Fund desires to retain the Adviser, which is an
investment adviser registered under the Investment Advisers Act of 1940,
as the investment adviser for the Fund.
NOW, THEREFORE, the Fund and the Adviser do mutually promise
and agree as follows:
1. Employment. The Fund hereby employs the Adviser to
manage the investment and reinvestment of the assets of the Fund for the
period and on the terms set forth in this Agreement. The Adviser hereby
accepts such employment for the compensation herein provided and agrees
during such period to render the services and to assume the obligations
herein set forth.
2. Authority of the Adviser. The Adviser shall supervise and
manage the investment portfolio of the Fund, and, subject to such policies
as the directors of the Fund may determine, direct the purchase and
sale of investment securities in the day-to-day management of the Fund.
The Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized,
have no authority to act for or represent the Fund in any way or
otherwise be deemed an agent of the Fund. However, one or more
shareholders, officers, directors or employees of the Adviser
may serve as directors and/or officers of the Fund, but without
compensation or reimbursement of expenses for such services from the
Fund. Nothing herein contained shall be deemed to require the Fund
to take any action contrary to its Articles of Incorporation or By-Laws or
any applicable statute or regulation, or to relieve or deprive the
directors of the Fund of their responsibility for, and control of, the
affairs of the Fund.
3. Expenses to be paid by the Adviser. The Adviser, at its own
expense and without reimbursement from the Fund, shall furnish
office space, and all necessary office facilities, equipment and executive
personnel for managing the investments of the Fund.
4. Expenses to be paid by The Fund. The Fund shall pay
expenses incident to its operations and business including without
limitation: the costs of preparing and distributing prospectuses mailed to
shareholders, the expense of registering its shares with the Securities and
Exchange Commission and in various states, director and officer liability
insurance, reports to government authorities, reports to shareholders, proxy
statements, compensation of directors other than those affiliated with the
Adviser, interest charges, taxes, legal expenses, association membership
dues, auditing and accounting services, brokerage and other expenses
connected with the execution of portfolio securities transactions, custodial
fees, expenses of dividend disbursing agents, registrars and stock transfer
agents and the cost of keeping all necessary shareholder records and
accounts, bond insurance required by regulation, expenses of maintaining
registration of the Fund under the 1940 Act and 1933 Act and Adviser
fees pursuant to paragraph 6.
5. Limitation of expenses of the Fund. The total expenses of
the Fund, excluding taxes, interest and extraordinary litigation expenses,
during any of the Fund's fiscal years, shall not exceed the lesser of
(i) 1.50% of its average daily net asset value in such year or (ii) the most
restrictive limits prescribed by any state in which the Fund's shares are
then being offered for sale, or the Adviser agrees to reimburse the Fund
for any sums expended for such expenses in excess of that amount.
6. Compensation of the Adviser. For the services and
facilities to be rendered and the charges and expenses to be assumed by
the Adviser hereunder, the Fund, shall pay to the Adviser an advisory fee,
paid monthly, based on the average net assets of the Fund, as determined by
valuations made as of the close of each business day of the month. The
advisory fee shall be 1/12 of 1% (1% per annum) of such average net assets.
For any month in which this Agreement is not in effect for the entire month,
such fee shall be reduced proportionately on the basis of the number of
calendar days during which it is in effect and the fee computed upon the
average net assets of the business days during which it is so in effect.
7. Ownership of Shares of the Fund. Except in connection with
the initial capitalization of the Fund, the Adviser shall not take, and
shall not permit any of its shareholders, officers, directors or employees
to take, a long or short position in the shares of the Fund, except for
the purchase of shares of the Fund for investment purposes at the same
price as that available to the public at the time of purchase.
8. Exclusivity. The services of the Adviser to the Fund
hereunder are not to be deemed exclusive and the Adviser shall be free to
furnish similar services to others as long as the services hereunder are
not impaired thereby. Although the Adviser has permitted and is
permitting the Fund to use the name "Hughes," it is understood
and agreed that the Fund will not use such name if the Adviser ceases to be
the Fund's sole investment adviser. During the period that this Agreement is
in effect, the Adviser shall be the Fund's sole investment adviser.
9. Liability. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject to
liability to the Fund or to any shareholder of the Fund for any act or
omission in the course of, or connected with, rendering services
hereunder, or for any losses that may be sustained in the purchase,
holding or sale of any security.
10. Brokerage Commissions. The Adviser may cause the Fund to
pay a broker-dealer which provides brokerage and research services, as
such services are defined in Section 28(e) of the Securities Exchange Act
of 1934 (the "Exchange Act"), to the Adviser a commission for effecting a
securities transaction in excess of the amount another broker-dealer would
have charged for effecting such transaction, if the Adviser determines in
good faith that such amount of commission is reasonable in relation to the
value of brokerage and research services provided by the executing
broker-dealer viewed in terms of either that particular transaction or his
overall responsibilities with respect to the accounts as to which he
exercises investment discretion (as defined in Section 3(a)(35) of the
Exchange Act).
11. Amendments. This Agreement may be amended by the mutual
consent of the parties; provided, however, that in no event may it be
amended without the approval of the directors of the Fund in the manner
required by the Act, and, if required by the Act, by the vote of the
majority of the outstanding voting securities of the Fund, as defined in
the Act.
12. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by the directors of the Fund or by
a vote of the majority of the outstanding voting securities of the Fund,
as defined in the Act, upon giving sixty (60) days' written notice to the
Adviser. This Agreement may be terminated by the Adviser at any time upon
the giving of sixty (60) days' written notice to the Fund. This
Agreement shall terminate automatically in the event of its assignment (as
defined in Section 2(a)(4) of the Act). Subject to prior termination as
hereinbefore provided, this Agreement shall continue in effect for two (2)
years from the date hereof and indefinitely thereafter, but only so long
as the continuance after such two (2) year period is specifically approved
annually by (i) the directors of the Fund or by the vote of the
majority of the outstanding voting securities of the Fund, as defined in
the Act, and (ii) the directors of the Fund in the manner required by
the Act, provided that any such approval may be made effective not more
than sixty (60) days thereafter.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day first above written.
Hughes Investment Advisors LLC Hughes Value Fund, Inc.
(the "Adviser") (the "Fund")
By: /s/ Charles J Hughes By: /s/ Charles J Hughes
(President) (President)
Attest: /s/ Frank G Solecki
(Secretary)
CUSTODY AGREEMENT
This agreement made this 30th day of January, 1998 between Hughes Funds, Inc.
currently consisting of the Hughes Value Fund (hereinafter called
"Customer") and CoreStates Bank, N.A. (hereinafter called "Agent").
WITNESSETH:
1. Appointment of Agent
Customer hereby appoints Agent as its agent and custodian, and Agent hereby
accepts such appointment and agrees to act as agent and custodian on the
terms hereinafter specified.
2. Custody of Assets
Agent shall act as custodian of all cash, securities, evidences of indebted-
ness and other property, including all income thereon and proceeds from the
sale or maturity thereof (collectively, the "Assets") from time to time
delivered to or received by it for Customer. The Assets shall be held in the
appropriate custodial account established from time to time upon Customer's
written request and shall be segregated at all times (except for cash and
Assets held in book form which shall be appropriately designated as
property of Customer) from the securities and property of any other person
or entity. If any of the assets are securities eligible for deposit in a
central depository system, Agent is hereby authorized to deposit those
securities in that system.
3. Reports
Agent shall forward or cause to be forwarded to Customer any financial reports,
proxy statements, tender offers or other materials received by it with respect
to Assets registered in the name of the Nominees. Agent shall promptly
forward or cause to be forwarded to Customer all proxies with respect to such
Assets excecuted in blank by the appropriate Nominees together with all
pertinent information and documents received by agent in connection with
such proxies.
4. Income of Assets
Agent will collect the income and after deducting any charges and expenses,
remit the net income to the Customer or reinvest the income or transfer the
net income to principal periodically in accordance with the Customer's
instructions.
(a) Unless otherwise instructed in writing, Agent shall retain in the
appropriate account of Customer any stock dividends, subscription rights
and other non-cash distributions on the Assets, or the proceeds from the
sale of any distributions.
(b) Agent or its Nominee is hereby authorized to sign any declarations,
endorsements, affidavits, certificates of ownership or other documents
which may be required with respect to all coupons, registered interest,
dividends or other income on the Assets.
5. Purchases and Sales of Assets
Agent shall promptly effect purchases and sales of the Assets in accordance
with Customer's instructions from time to time, and shall take all steps
necessary or advisable to collect the proceeds of any Assets which are
sold, redeemed or which have matured and shall promptly deposit said
proceeds in the appropriate account designated by Customer from time to
time, provided that Agent shall not be responsible for the collection of
Assets called for redemption or otherwise payable (other than by reason
of sale or other disposition by Agent) unless notice thereof is published
in national financial reporting services to which Agent subscribes, or
notice is otherwise received by Agent. Agent shall not be under any duty
to advise or recommend any sales or purchases of Assets for Customer's
account.
6. Limitation of Liability; Responsibilities
(a) Agent shall not be liable for any loss or damage suffered by Customer as
the result of any act or omission of any broker or other agent engaged by
Customer in effecting purchases, sales or exchanges of Assets except to
the extent of any liability caused by (1) the negligent, reckless or willful
conduct of Agent or its subagent or subcustodian, or (ii) the failure of
Agent or its subagent or subcustodian to perform any act required in this
Agreement. Agent shall not be liable for loss or damage caused directly
or indirectly by invasion, insurrection, riot, war, nuclear disaster,
order of civil authority or any other causes beyond its control.
(b) Agent shall not be responsible to file any tax returns or pay any
taxes due in connection with the Assets held hereunder and the income
therefrom.
(c) Agent shall be under no obligation to advise the Customer of due or
tender dates for those Assets which have tender options attached to,
stamped on, or incorporated in the Asset itself.
7. Statements
Agent shall deliver to Customer a monthly statement of all accounts main-
tained hereunder showing all receipts, disbursements and other transactions
affecting the Assets during the preceding month and a statement of the
cost and market value of each of the Assets at the end of the preceding
month. The scope, content and frequency of the statements required
hereunder may be changed from time to time upon the mutual written agreement
of the parties hereto.
8. Withdrawal of Assets
(a) Any securities and evidences of indebtedness included in the Assets may
be withdrawn from Agent in accordance with Customer's Instructions; provided,
however, that except as provided below, such Instructions shall direct that
the delivery of any such securities and evidence of indebtedness by Agent
shall be made only to (I) a bank shown in Exhibit 1, or its Nominee, (ii)
a broker, shown in Exhibit 1, or its Nominee, (iii) in the case of
commercial paper, to the obligor upon payment. In the event the Instructions
direct the delivery of Assets to any person or entity other than as set
forth above, such Instructions shall be in writing and countersigned by
a President, Vice President, Secretary or Treasurer of Customer or otherwise
be authorized pursuant to a resolution duly adopted and provided to
Agent in accordance with paragraph 10(c) below.
(b) Upon receipt of such Instructions and subject to the terms and conditions
thereof, Agent shall deliver the items specified therein to the person or
entity designated and shall obtain a proper receipt therefore.
(c) In connection with the sale of any Assets, Agent shall make delivery of
such Assets only against payment therefore, in federal funds or by certified
check or bank cashier's check, provided that, consistent with customary
practice at the place of delivery, Agent may (i) make delivery for inspection
prior to sale at buyer's location, upon delivery to Agent of a proper receipt
therefore, to a member of registered national securities exchange or bank
or trust company. In no event shall Agent be liable hereunder for not
delivering Assets in accordance with Customer's Instructions where such
delivery is withheld by reason of the purchaser's inability or unwillingness
to make a payment therefore in federal funds or by certified or bank
cashier's check or as otherwise provided in this paragraph 8(c).
(d) Any cash included in the Assets may be withdrawn from Agent in accordance
with written Instructions provided, however, that subject to a transfer
or other disposition of securities by bookkeeping entry in connection with
Agent's participation (through its agent) the Federal Reserve/Treasury
book-entry system, Agent shall make payments of cash to, or from the
account of, Customer only (I) upon the purchase of securities or other
Assets and delivery of such securities or other Assets to Agent in proper
form for transfer, (ii) to Customer's account with CoreStates Bank, N.A.
or with such other bank as Customer may designate by written Instructions
from time to time, (iii) for the payment of Agent's expenses and fees
authorized in this Agreement; (iv) for payments in connection with the
conversion, exchange or surrender of securities included in the Assets;
or (v) for other proper purposes. In making any cash payments, Agent shall
first receive Instructions requesting such payment and stating the purpose
therefore, and in the case of a payment under clause (v) above, such
Instructions shall, except as otherwise authorized pursuant to a resolution
duly adopted by the Customer or provided to Agent in accordance with
paragraph 10(c) below, be in writing and shall be countersigned by the
President, Vice President, Secretary or Treasurer of Customer.
(e) Agent shall promptly notify the Treasurer of the Customer of all
withdrawals from or deliveries to Agent for Customer's account hereunder.
9. Indemnity
With respect to any Assets received by Agent and registered in the name
of Agent or Agent's subagent or subcustodian or nominee or held on behalf of
Customer in Book Entry at a central depository system, Agent shall be
fully responsible and liable for and shall indemnify and hold Customer
harmless against any loss, damage or expense (including attorney's fees
and amonts paid with Agent's consent in settlement of any claim or action)
which Customer may sustain resulting from (I) any act of Agent, its subagent
or subcustodian or nominee, or any employee or other agent of any
of them which has not been authoirzed hereunder, or (ii) any failure by
Agent, or its subagent or subcustodian or nominee, to perform any of its
obligations under this Agreement. Except with respect to the extent same
may result, directly or indirectly from any negligent act or omission or
willful or reckless misconduct of Agent, its subagent or subcustodian or
nominee, or any employee or other agent or any of them or any failure of
Agent or its subagent or subcustodian or nominee, to perform any of Agent's
obligations under this Agreement, Customer shall indemnify and hold Agent
or any subagent, subcustodian or nominee harmless against any loss, damage
or expense (including attorney's fees and amounts paid, with Customer's
consent, in settlement of any claim or action) which Agent or any subagent
subcustodian or nominee may sustain resulting from its performance in
accordance with this Agreement.
10. Instructions, Notices and Authorized Persons
(a) As used in this Agreement, the term "Instructions" or "Instructed"
means a request or order given or delivered to Agent by the President,
Vice President, Secretary Treasurer, or a duly appointed investment
advisor or Customer. Unless specifically required herein to be in writing,
Instructions may be oral or written; provided, that any oral Instructions
shall be promptly confirmed in writing. Failure to provide a written
confirmation of oral Instruction shall not validate any such Instructions.
(b) Any notices, confirmations and receipts required hereunder to be
delivered by Agent to Customer, unless otherwise specifically provided,
shall be delivered by Agent to the Treasurer of Customer.
(c) Customer will from time to time file with Agent a certified copy of a
Corporate Resolution authorizing person or persons to give proper instructions
and specifying the class of instructions that may be given by each person
to Agent under this Agreement.
(d) Agent may rely and shall be protected in acting upon any oral or written
(including telegraph and other mechanical) instructions, request, letter
of transmittal, certificate, opinion of counsel, statement, instrument,
report, notice, consent, order or other paper or document reasonably
believed by it to be genuine and to have been signed, forwarded, or
presented by Customer.
11. Fees and Expenses
As compensation for its services under this Agreement, Agent may retain
those fees which are specified in its published or otherwise generally
applicable fee schedule in effect at the time its services are being
rendered. Customer recognizes that his schedule might be changed from
time to time with prior notice to Customer.
Asset Administration Fee: 1 basis point on the first $2.5 billion of
average, daily market value
Transaction Fees: $4.00 per book entry trade
$10.00 per trade & maturity of Federal Reserve Bank
$30.00 per physical trade
$10.00 per trade & maturity through PTC
$ 4.00 per pay down on martgage backed security
$ 5.50 per repurchase collateral (in/out)
$ 7.50 per wire transfer
$ 5.50 per dividend reinvestment
$ 2.50 pass through for Federal Reserve Bank
$ 8.00 per futures contract
$15.00 per option contract
Minimum Annual Fee: $2,500
12. Amendments or Termination
This agreement contains the entire understanding between Customer and Agent
concerning the subject matter of this Agreement, supersedes all other
Custody Agreements of dates previous and may be amended only in writing
signed by both parties. No term or provision of this agreement may be modified
or waived unless in writing and signed by the party against whom such waiver or
modification is sought to enforce. Either party's failure to insist at any time
upon strict compliance with is Agreement or with any of the terms hereunder,
or any continued course of such conduct on the part of either party shall
in no event constitute or be considered a waiver by either party of any
of its rights hereunder. This Agreement may be terminated at any time
provided such effective time shall be not less than 30 days from the date
of written notice of termination.
13. Applicable Law
The Agent represents that it has all the necessary power and authority to
perform its obligations under this Agreement, that the excecution and
delivery by it of this Agreement and the performance by it of its
obligations hereunder have been duly authorized by all necessary action
and will not violate any law, regulation or other restriction or
provision applicable to it or by which it is bound, and that this Agreement
constitues a legal, valid and binding obligation enforceable against Agent
in accordance with its terms. This agreement shall be interpreted and
enforced in accordance with the laws of the Commonwealth of Pennsylvania.
Attest:__________________________ /s/ Charles J Hughes
President Hughes Funds, Inc.
Attest:__________________________ /s/ Paul Cahill
Vice President CoreStates Bank
TRANSFER AGENT AGREEMENT
THIS AGREEMENT is made and entered into on this 11th day of
February, 1998, by and between Hughes Funds, Inc. currently consisting of the
Hughes Value Fund (hereinafter referred to as the
"Fund") and Hughes Investment Advisors LLC, a Limited Liability Company
organized under the laws of the State of New Jersey (hereinafter referred
to as the "Agent").
WHEREAS, the Fund is in the process of registering with the Securities
and Exchange Commission under the Investment Company Act of 1940 (the "Act")
an open-ended management investment company; and
WHEREAS, the Agent is among other things, a transfer and dividend
disbursing agent.
NOW, THEREFORE, the Fund and the Agent do mutually promise and agree
as follows:
1. Terms of Appointment; Duties of the Agent
Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints the Agent to act as transfer agent and
dividend disbursing agent.
The Agent shall perform all of the customary services of a transfer
agent and dividend disbursing agent, and as relevant, agent in connection
with accumulation, open account or similar plans (including without
limitation any periodic investment plan or periodic withdrawal program),
including but not limited to:
A. Receive orders for the purchase of shares;
B. Process purchase orders and issue the appropriate number of
certificated or uncertificated shares with such uncertificated shares
being held in the appropriate shareholder account;
C. Process redemption requests received in good order;
D. Pay monies;
E. Process transfers of shares in accordance with the shareowner's
instructions;
F. Process exchanges between funds within the same family of funds;
G. Issue and/or cancel certificates as instructed; replace lost,
stolen or destroyed certificates upon receipt of satisfactory
indemnification or surety bond;
H. Prepare and transmit payments for dividends and distributions
declared by the Fund;
I. Make changes to shareholder records, including, but not limited
to, address changes in plans (i.e., systematic withdrawal, automatic
investment, dividend reinvestment, etc.);
J. Record the issuance of shares of the Fund and maintain, pursuant
to Securities Exchange Act of 1934 Rule 17ad-10(e), a record of the total
number of shares of the Fund which are authorized, issued and outstanding;
K. Prepare shareholder meeting lists and, if applicable, mail,
receive and tabulate proxies;
L. Mail shareholder reports and prospectuses to current
shareholders;
M. Prepare and file U.S. Treasury Department forms 1099 and other
appropriate information returns required with respect to dividends and
distributions for all shareholders;
N. Provide shareholder account information upon request and prepare
and mail confirmations and statements of account to shareholders for all
purchases, redemptions and other confirmable transactions as agreed upon
with the Fund; and
O. Provide a Blue Sky System which will enable the Fund to monitor
the total number of shares sold in each state. In addition, the Fund
shall identify to the Agent in writing those transactions and assets to be
treated as exempt from the Blue Sky reporting to the Fund for each state.
The responsibility of the Agent for the Fund's Blue Sky state registration
status is solely limited to the initial compliance by the Fund and the
reporting of such transactions to the Fund.
2. Compensation. For the services to be rendered by the Agent hereunder,
The Fund shall pay to the Agent a fee, paid monthly, based on the average net
assets of the Fund, as determined by valuations made as of the close of each
business day of the month. The Agent fee shall be 1/12 of 0.1%
(0.1% annually) of such average net assets up to and including $30,000,000,
and 1/12 of 0.05% (0.05% annually) of such average net assets of the Fund in
excess of $30,000,000; provided, however, that for any month in which this
Agreement is not in effect for the entire month, such fee shall be reduced
proportionately on the basis of the number of calendar days during which it
is in effect and the fee computed upon the daily net assets of the business
days during which it is so in effect.
It is understood that the Agent will not receive any compensation for
services provided until June 30, 1999.
3. Representations of Agent.
The Agent represents and warrants to the Fund that:
A. It is a limited liability company duly organized, existing and
in good standing under the laws of New Jersey;
B. It is a registered transfer agent under the Securities Exchange
Act of 1934 as amended.
C. It is duly qualified to carry on its business in the state of
New Jersey;
D. It is empowered under applicable laws and by its charter and
operating agreement to enter into and perform this Agreement;
E. All requisite company proceedings have been taken to authorize
it to enter and perform this Agreement; and
F. It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations
under this Agreement.
G. It will comply with all applicable requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934, as
amended, the Investment Company Act of 1940, as amended, and any laws,
rules, and regulations of governmental authorities having jurisdiction.
4. Representations of the Fund
The Fund represents and warrants to the Agent that:
A. The Fund is an open-ended diversified investment company under
the Investment Company Act of 1940;
B. The Fund is a corporation organized, existing, and in good
standing under the laws of Maryland;
C. The Fund is empowered under applicable laws and by its Corporate
Charter and bylaws to enter into and perform this Agreement;
D. All necessary proceedings required by the Corporate Charter have
been taken to authorize it to enter into and perform this Agreement;
E. The Fund will comply with all applicable requirements of the
Securities and Exchange Acts of 1933 and 1934, as amended, the Investment
Company Act of 1940, as amended, and any laws, rules and regulations of
governmental authorities having jurisdiction; and
F. A registration statement under the Securities Act of 1933 will
be effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with
respect to all shares of the Fund being offered for sale.
5. Covenants of Fund and Agent
The Agent shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended,
and the rules thereunder, the Agent agrees that all such records prepared
or maintained by the Agent relating to the services to be performed by the
Agent hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such section and rules
and will be surrendered to the Fund on and in accordance with its request.
6. Indemnification; Remedies Upon Breach
The Agent shall exercise reasonable care in the performance of its
duties under this Agreement. The Agent shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which this Agreement relates, including losses
resulting from mechanical breakdowns or the failure of communication or
power supplies beyond the Agent's control, except a loss resulting from
the Agent's refusal or failure to comply with the terms of this Agreement
or from bad faith, negligence, or willful misconduct on its part in the
performance of its duties under this Agreement. Notwithstanding any other
provision of this Agreement, the Fund shall indemnify and hold harmless
the Agent from and against any and all claims, demands, losses, expenses,
and liabilities (whether with or without basis in fact or law) of any and
every nature (including reasonable attorneys' fees) which the Agent may
sustain or incur or which may be asserted against the Agent by any person
arising out of any action taken or omitted to be taken by it in performing
the services hereunder (i) in accordance with the foregoing standards, or
(ii) in reliance upon any written or oral instruction provided to the
Agent by any duly authorized officer of the Fund, such duly authorized
officer to be included in a list of authorized officers furnished to the
Agent and as amended from time to time in writing by resolution of the
Board of Directors of the Fund.
Further, the Fund will indemnify and hold the Agent harmless against
any and all losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses) resulting from any claim, demand,
action, or suit as a result of the negligence of the Fund or principal
underwriter (unless contributed to by the Agent's breach of this Agreement
or other Agreements between the Fund and the Agent, or the Agent's own
negligence or bad faith); or as a result of the Agent acting upon
telephone instructions relating to the exchange or redemption of shares
received by the Agent and reasonably believed by the Agent under a
standard of care customarily used in the industry to have originated from
the record owner of the subject shares; or as a result of acting in
reliance upon any genuine instrument or stock certificate signed,
countersigned, or executed by any person or persons authorized to sign,
countersign, or execute the same.
In the event of a mechanical breakdown or failure of communication or
power supplies beyond its control, the Agent shall take all reasonable
steps to minimize service interruptions for any period that such
interruption continues beyond the Agent's control. The Agent will make
every reasonable effort to restore any lost or damaged data and correct
any errors resulting from such a breakdown at the expense of the Agent.
The Agent agrees that it shall, at all times, have reasonable contingency
plans with appropriate parties, making reasonable provision for emergency
use of electrical data processing equipment to the extent appropriate
equipment is available. Representatives of the Fund shall be entitled to
inspect the Agent's premises and operating capabilities at any time during
regular business hours of the Agent, upon reasonable notice to the Agent.
Regardless of the above, the Agent reserves the right to reprocess
and correct administrative errors at its own expense.
In order that the indemnification provisions contained in this
section shall apply, it is understood that if in any case the Fund may be
asked to indemnify or hold the Agent harmless, the Fund shall be fully and
promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the Agent will use all
reasonable care to notify the Fund promptly concerning any situation which
presents or appears likely to present the probability of such a claim for
indemnification against the Fund. The Fund shall have the option to
defend the Agent against any claim which may be the subject of this
indemnification. In the event that the Fund so elects, it will so notify
the Agent and thereupon the Fund shall take over complete defense of the
claim, and the Agent shall in such situation initiate no further legal or
other expenses for which it shall seek indemnification under this section.
The Agent shall in no case confess any claim or make any compromise in any
case in which the Fund will be asked to indemnify the Agent except with
the Fund's prior written consent.
The Agent shall indemnify and hold the Fund harmless from and against
any and all claims, demands, losses, expenses, and liabilities (whether
with or without basis in fact or law) of any and every nature (including
reasonable attorneys' fees) which may be asserted against the Fund by any
person arising out of any action taken or omitted to be taken by the Agent
as a result of the Agent's refusal or failure to comply with the terms of
this Agreement, its bad faith, negligence, or willful misconduct.
7. Confidentiality
The Agent agrees on behalf of itself and its employees to treat
confidentially all records and other information relative to the Fund and
its shareholders and shall not be disclosed to any other party, except
after prior notification to and approval in writing by the Fund, which
approval shall not be unreasonably withheld and may not be withheld where
the Agent may be exposed to civil or criminal contempt proceedings for
failure to comply after being requested to divulge such information by
duly constituted authorities.
Additional Series. Hughes Funds, Inc. is authorized to issue separate
series of shares of beneficial interest representing interests in separate
investment portfolios. The parties intend that each portfolio established
by the Corporation, now or in the future, be covered by the terms and
conditions of this agreement.
8. Records
The Agent shall keep records relating to the services to be performed
hereunder, in the form and manner, and for such period as it may deem
advisable and is agreeable to the Fund but not inconsistent with the rules
and regulations of appropriate government authorities, in particular,
Section 31 of The Investment Company Act of 1940 as amended (the
"Investment Company Act"), and the rules thereunder. The Agent agrees
that all such records prepared or maintained by The Agent relating to the
services to be performed by The Agent hereunder are the property of the
Fund and will be preserved, maintained, and made available with such
section and rules of the Investment Company Act and will be promptly
surrendered to the Fund on and in accordance with its request.
9. New Jersey Law to Apply
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the state of
New Jersey.
10. Amendment, Assignment, Termination and Notice
A. This Agreement may be amended by the mutual written consent of
the parties.
B. This Agreement may be terminated upon ninety (90) day's written
notice given by one party to the other.
C. This Agreement and any right or obligation hereunder may not be
assigned by either party without the signed, written consent of the other
party.
D. Any notice required to be given by the parties to each other
under the terms of this Agreement shall be in writing, addressed and
delivered, or mailed to the principal place of business of the other
party.
E. In the event that the Fund gives to the Agent its written
intention to terminate and appoint a successor transfer agent, the Agent
agrees to cooperate in the transfer of its duties and responsibilities to
the successor, including any and all relevant books, records and other
data established or maintained by the Agent under this Agreement.
F. Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and
material will be paid by the Fund.
Hughes Funds, Inc. Hughes Investment Advisors LLC
By: /s/ Charles J Hughes By: /s/ Charles J Hughes
President President
Attest: /s/ Frank G Solecki
Secretary
ADMINISTRATION AGREEMENT
Agreement made this 11th day of February, 1998, between Hughes
Funds, Inc., a Maryland Corporation currently consisting of the Hughes Value
Fund (hereinafter referred to as the "Fund") and Hughes Investment
Advisors LLC, a New Jersey Limited Liability Company (the "Administrator").
W I T N E S S E T H:
WHEREAS, the Fund is in the process of registering with the
Securities and Exchange Commission under the Investment Company Act of
1940 (the "Act") as an open-end investment company; and
WHEREAS, the Fund desires to retain the Administrator to be
the Administrator for the Fund and as such to perform the services set
forth in this Agreement.
NOW, THEREFORE, the Fund and the Administrator do mutually
promise and agree as follows:
1. Employment. The Fund hereby employs the Administrator
to be the Administrator for the Fund for the period and on the terms set
forth in this Agreement. The Administrator hereby accepts such employment
for the compensation herein provided and agrees during such period to
render the services and to assume the obligations herein set forth.
2. Authority and Duties of the Administrator. The
Administrator shall supervise all aspects of the operations of the Fund
except those performed by the Fund's investment adviser under the Fund's
investment advisory agreement, subject to such policies as the board of
directors of the Company may determine. The Administrator shall for all
purposes herein be deemed to be an independent contractor and shall,
unless otherwise expressly provided or authorized, have no authority to
act for or represent the Fund in any way or otherwise be deemed
to be an agent of the Fund. However, one or more shareholders,
officers, directors or employees of the Administrator may
serve as directors and/or officers of the Fund, but without
compensation or reimbursement of expenses for such services from the
Fund. Nothing herein contained shall be deemed to require the Fund
to take any action contrary to its Articles of Incorporation or any
applicable statute or regulation, or to relieve or deprive the board of
directors of the Fund of its responsibility for and control of the
affairs of the Fund.
In connection with its supervision of the operations of the
Fund, the Administrator shall perform the following services for the Fund:
(a) Prepare and maintain the books, accounts and other
documents specified in Rule 31a-1, under the Act in accordance with
the requirements of Rule 31a-1 and Rule 31a-2 under the Act;
(b) Calculate the Fund's net asset value in accordance with the
provisions of the Fund's Articles of Incorporation and By-Laws and
its Registration Statement;
(c) Respond to stockholder inquiries forwarded to it by the
Fund:
(d) Prepare the financial statements contained in reports to
stockholders of the Fund:
(e) Prepare for execution by the Fund and file all of the
Fund's federal and state tax returns;
(f) Prepare reports to and filings with the Securities and
Exchange Commission;
(g) Prepare reports to and filings with state Blue Sky
authorities;
(h) Furnish statistical and research data, clerical, accounting
and bookkeeping services and stationery and office supplies; and
(i) Keep and maintain the Fund's financial accounts and
records, and generally assist in all aspects of the Fund's operations
to the extent agreed to by the Administrator and the Fund.
3. Expenses. The Administrator, at its own expense and
without reimbursement from the Fund, shall furnish office
space, and all necessary office facilities, equipment and executive
personnel for performing the services required to be performed by it under
the Agreement. The Administrator shall not be required to pay any
expenses of the Fund. The expenses of the Fund's operations borne by the
Fund include by way of illustration and not limitation, directors fees
paid to those directors who are not officers of the Company, the
professional costs of preparing and the costs of printing its registration
statements required under the Securities Act of 1933 and the Act (and
amendments thereto), the expense of registering its shares with the
Securities and Exchange Commission and in the various states, the printing
and distribution cost of prospectuses mailed to existing shareholders, the
cost of stock certificates (if any), director and officer liability
insurance, the printing and distribution and distribution costs of reports
to stockholders, reports to government authorities and proxy statements,
interest charges, taxes, legal expenses, association membership dues,
auditing services, insurance premiums, brokerage and other expenses
connected with the execution of portfolio securities transactions, fees
and expenses of the custodian of the Fund's assets, printing and mailing
expenses and charges and expenses of dividend disbursing agents,
registrars and stock transfer agents.
4. Compensation of the Administrator. For the services to be
rendered by the Administrator hereunder, the Fund shall pay to the
Administrator an administration fee, paid monthly, based on the average net
assets of the Fund, as determined by valuations made as of the close of each
business day of the month. The administration fee shall be 1/12 of 0.1%
(0.1% Annually) of such average net assets up to and including $30,000,000,
and 1/12 of 0.05% (0.05% annually) of such average net assets of the Company
in excess of $30,000,000; provided, however, that for any month in which this
Agreement is not in effect for the entire month, such fee shall be reduced
proportionately on the basis of the number of calendar days during which it
is in effect and the fee computed upon the daily net assets of the business
days during which it is so in effect.
It is understood that the Administrator will not receive any compensation
for services provided until June 30, 1999.
5. Exclusivity. The services of the Administrator to the Fund
hereunder are not to be deemed exclusive and the Administrator shall be
free to furnish similar services to others as long as the services
hereunder are not impaired thereby. During the period that this Agreement
is in effect, the Administrator shall be the Fund's sole administrator.
6. Liability. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Administrator, the Administrator shall not be
subject to liability to the Fund or to any shareholder of the Fund for any
act or omission in the course of, or connected with, rendering services
hereunder, or for any losses that may be sustained in the purchase,
holding or sale of any security.
7. Amendments. This Agreement may be amended by the mutual
consent of the parties; provided, however, that in no event may it be
amended without the approval of the board of directors of the Fund in
the manner required by the Act.
8. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by the board of directors of the
Company or by a vote of the majority of the outstanding voting securities
of the Company as defined in the Act, upon the giving of sixty (60) days'
written notice to the Administrator. This Agreement may be terminated by
the Administrator at any time upon the giving of sixty (60) days' written
notice to the Company. This Agreement shall terminate automatically in
the event of its assignment (as defined in Section 2(a)(4) of the Act).
Subject to prior termination as hereinbefore provided, the Agreement shall
continue in effect for two (2) years from the date hereof and indefinitely
thereafter, but only so long as the continuance after such two (2) year
period is specifically approved annually by (i) the board of directors of
the Company. Upon termination of the Agreement the Administrator shall
deliver to the Company all books, accounts and other documents then
maintained by it pursuant to Section 2 hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day first above written.
Hughes Funds, Inc. Hughes Investment Advisors LLC
(Fund) (Administrator)
By: /s/ Charles J Hughes By: /s/ Charles J Hughes
(President) (President)
Attest: /s/ Frank G Solecki
(Secretary)
The Law Offices of David D Jones
14340 Torrey Chase Blvd. Suite 170
Houston Texas 77014
281-444-1894
Hughes Value Fund, Inc. March 12,1998
741 Cox Road
Moorestown NJ 08057
Dear Sirs:
As counsel to Hughes Value Fund,Inc.(the "Company"), a corporation
organized under the laws of the State of Maryland, I have been asked to render
my opinion with respect to the issuance of an indefinite number of shares of
beneficial interest of the Company (the "Shares") representing proportionate
interests in the Hughes Value Fund (the "Fund"). The Shares of the
Fund are a series of the Company consisting of one class of shares, the No-Load
Class, all as more fully described in the Prospectus and Statement of Additional
Information contained in the Registration Statement on Form N-1A, to which this
opinion is an exhibit, to be filed with the Securities and Exchange Commission.
I have examined the Company's Articles of Incorporation, dated December 15,
1997, the Prospectus and Statement of Additional Information contained in the
Registration Statement, and such other documents, records and certificates as
deemed necessary for the purposes of this opinion.
Based on the foregoing, I am of the opinion that the Shares, when issued,
delivered and paid for in accordance with the terms of the Prospectus and
Statement of Additional Information, will be legally issued, fully paid, and
non-assessable by the Company.
Very Truly Yours,
/s/ David D Jones
Attorney & Counselor at Law
Exhibit 13
Hughes Value Fund, Inc.
Subscription Agreement
----------------------
1. Subscription for Shares. We agree to purchase from the Hughes Value
Fund, Inc. 5,000 shares each of capital stock of the Fund for a price of $10
per share, on the terms and conditions set forth herein and in the preliminary
prospectus described below, and agree to tender $50,000 each in payment
therefor at such time as the board of directors or the president determines.
We understand that the Fund filed a registration statement with the
Securities and Exchange Commission on Form N-1A, which contains the preliminary
prospectus describing the Fund and the stock. We acknowledge receipt of a copy
of the preliminary prospectus.
We recognize that the Fund will not be fully operational until it commences
a public offering of its shares. Accordingly, a number of features of the Fund
described in the preliminary prospectus, including, without limitation, the
declaration and payment of dividends, and redemption of shares upon request of
shareholders, are not, in fact, in existence at the present time and will not be
instituted until the Fund's registration statement becomes effective under the
Securities Act of 1933.
2. Representations and Warranties. We represent and warrant as follows:
(a) We are aware that no federal or state agency has made any finding
or determination as to the fairness for investment, nor any recommendation
nor endorsement, of the shares:
(b) We have such knowledge and experience of financial and business
matters as will enable me to utilize the information made available to me
in connection with the offering of the shares to evaluate the merits and
risks of the prospective investment and to make an informed investment
decision;
(c) We recognize that the Fund has only recently been organized and
has no financial or operating history and, further, that investment in the
Fund involves certain risks, and we have taken full cognizance of and
understand all of the risks related to the purchase of the shares and we
acknowledge that we have suitable financial resources and anticipated
income to bear the economic risk of such an investment;
(d) We are purchasing the shares for our own account, for investment,
and not with any intention of redemption, distribution, or resale of the
shares, either in whole or in part;
(e) We will not sell the shares purchased without registration
of them under the Securities Act of 1933 or exemption therefrom;
(f) We have been furnished with and have read this agreement, the
preliminary prospectus and such other documents relating to the Fund as we
have requested and as have been provided to us by the Fund;
(g) We have also had the opportunity to ask questions of, and receive
answers from, officers of the Fund concerning the Fund and the terms of the
offering.
3. Rejection of Subscription. We recognize that the Fund reserves the
right to reject or limit any subscription.
4. Social Security Numbers. We certify under penalties of perjury that
the numbers shown on this form are our correct social security numbers
and that we are not subject to backup withholding as result of a failure to
report all interest and dividend income to the Internal Revenue Service.
Charles J Hughes ###-##-####
741 Cox Road (Social Security Number)
Moorestown NJ 08057
Daniel J Hughes ###-##-####
403 Pond View Drive (Social Security Number)
Moorestown NJ 08057
Dated: February 11, 1998 /s/ Charles J Hughes
/s/ Daniel J Hughes
Exhibit 13.1
HUGHES VALUE FUND, INC.
741 Cox Road
Moorestown NJ 08057
NEW ACCOUNT PURCHASE APPLICATION 609-234-3903
609-234-0437 Fax
Dated:
----------------------------
MAKE CHECKS PAYABLE TO, AND MAIL TO: Hughes Value Fund, INC.,
741 Cox Road, Moorestown NJ 08057
- --------------------------------------------------------------------------------
1 AMOUNT OF PURCHASE: $_________ ($2,000 minimum for new account, except for
Individual Retirement Accounts (IRAs) where the minimum is $1,000)
- --------------------------------------------------------------------------------
2 REGISTRATION: (check one)
[ ]Individual or
Joint Account:
-------------------------- ---------------------------------
(Individual) (Joint Tenant, if any)
[ ]Transfer (or Gift) to Minor: , Custodian for
------------ ----------------------
(Custodian) (Minor)
Under the Uniform Transfers (or Gifts) to Minors Act of
----------------------
(State of residence)
[ ]IRA: Custodian for
------------------------------ ------------------------------
(Custodian) (Individual)
IRA IRA Rollover (circle one)
[ ]Other: (Corporations, Trusts, or others):
-------------------------------------
(Trustee(s) - please include agreement
date, corporation, partnership or
other entity)
- --------------------------------------------------------------------------------
3 ADDRESS OF RECORD:
-----------------------------------------------------------
City State Zip Telephone ( )
----------------- ------ ---------- ----------------
4 CITIZENSHIP: [ ] United States [ ] Other (specify)
- --------------------------------------------------------------------------------
5 SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER:
-------------------------------
Page 1 of 2
(Please complete both sides of this application)
NEW ACCOUNT PURCHASE APPLICATION
6 DISTRIBUTIONS - Dividends and capital gain distributions will be reinvested
automatically in additional shares (whole and fractional) unless the Fund is
otherwise instructed in writing. If you wish all or a portion of distributions
to be paid in cash, please so indicate.
[ ] Pay income dividends [ ] Pay any capital gains
in cash distributions in cash
- --------------------------------------------------------------------------------
7 AGREEMENT - By signing this Application, I certify that I have received and
read the prospectus and agree to its terms and that all information provided in
the Application is correct.
- - ------------------------------------------------------------------------------
8 TAX CERTIFICATIONS - Under penalties of perjury, I certify that:
1. the number shown on this Application is my correct Social Security or other
tax identification number (or I am waiting for a number to be issued to me),
and
2. I am not subject to backup withholding, either because the IRS has not
notified me that I am subject to backup withholding for failure to report
dividend or interest income, or because the IRS has notified me that I am no
longer subject to backup withholding.
The IRS does not require your consent to any provision of this document other
than the certifications required to avoid backup withholding (under the heading
"Tax Certifications").
- --------------------------------------------------------------------------------
SIGNATURE:
-------------------------------- ---------------------------------------
(signature of shareholder) (signature of joint investor, if any)
- --------------------------------------------------------------------------------
Each transaction in your account will be confirmed in writing. The Fund does not
issue stock certificates. All full and fractional shares are held in book entry
form.
Page 2 of 2
(Please complete both sides of this application)
INDIVIDUAL RETIREMENT ACCOUNT TRUSTEE AGREEMENT
The following constitutes an agreement establishing an Individual Retirement
Account (under Section 408(a) of the Internal Revenue Code) between the
Depositor and the Trustee.
Form 5305 INDIVIDUAL RETIREMENT TRUST ACCOUNT
(Under Section 408(a) of the Internal Revenue Code)
- ------------------------------------------------------------------------------
INSTRUCTIONS
(Section references are to the Internal Revenue Code unless otherwise noted.)
Purpose of Form.
Form 5305 is a model trust account agreement that meets the requirements
of section 408(a) and has been automatically approved by the IRS. An
individual retirement account (IRA) is established after the form is fully
executed by both the individual (Grantor) and the trustee and must be completed
no later than the due date of the individual's income tax return for the tax
year. Do not file Form 5305 with the IRS. Instead, keep it for your records.
For more information on IRAs, including the required disclosure you can get
from your trustee, get Pub. 590, Individual Retirement Arrangements (IRAs).
Definitions.
Trustee. The trustee must be a bank or savings and loan association, as
defined in section 408(a) or any person who has the approval of the IRS to
act as trustee ("Trustee").
Grantor. The Grantor is the person who establishes the Trust account.
Identifying Number-The Grantor's social security number.
IRA for Nonworking Spouse.
Form 5305 may be used to establish the IRA trust for a nonworking spouse.
Contributions to an IRA trust account for a nonworking spouse must be made to
a separate IRA trust account established by the nonworking spouse.
ARTICLE I
1.01 The Trustee may accept additional cash contributions on behalf of the
Grantor for a tax year of the Grantor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in Section 402(c) (but only after December 31,1992),
403(a)(4),403(b)(8),408(d)(3), or an employer contribution to a simplified
employee pension plan as described in Section 408(k). Rollover
contributions before January 1, 1993, include rollovers described in
Section 402(a)(5), 402(a)(6), 402(a)(7),403(a)(4),403(b)(8), 408(d)(3), or
an employer contribution to a simplified employee pension plan as described
in Section 408(k).
ARTICLE II
2.01 The Grantor's interest in the balance in the trust account is
nonforfeitable.
ARTICLE III
3.01 No part of the trust funds may be invested in life insurance
contracts, nor may the assets of the trust account be commingled with
other property except in a common trust fund or common investment fund
(within the meaning of Section 408(a)(5)).
3.02 No part of the trust funds may be invested in collectibles (within the
meaning of section 408(m)) except as otherwise permitted by Section 408
(m)(3) which provides an exception for certain gold and silver coins and
coins issued under the laws of any state.
ARTICLE IV
4.01 Notwithstanding any provision of this agreement to the contrary, the
distribution of the Grantor's interest in the trust account shall be
made in accordance with the following requirements and shall otherwise
comply with Section 408(a)(6) and Proposed Regulations Section 1.408-8,
including the incidental death benefit provisions of Proposed Regulations
Section 1.401(a)(9)-2, the provisions of which are incorporated by
reference.
4.02 Unless otherwise elected by the time of distributions are required to
begin to the Grantor under Section 4.03, or to the surviving spouse under
Section 4.03, other than in the case of a life annuity, life expectancies
shall be recalculated annually.
Such election shall be irrevocable as to the Grantor and the surviving
spouse and shall apply to all subsequent years. The life expectancy of a
nonspouse beneficiary may not be recalculated.
4.03 The Grantor's entire interest in the trust account must be, or begin
to be, distributed by the Grantor's required beginning date, (April 1
following the calendar year end in which the Depositor reaches age 70
1/2). By that date, the Grantor may elect, in a manner acceptable to the
trustee, to have the balance in the trust account distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the life of the
Grantor.
(c) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the joint and last
survivor lives of the Grantor and his or her designated
beneficiary.
(d) Equal or substantially equal annual payments over a specified period
that may not be longer than the Grantor's life expectancy.
(e) Equal or substantially equal annual payments over a specified period
that may not be longer than the joint life and last survivor
expectancy of the Grantor and his or her designated beneficiary.
4.04 If the Grantor dies before his or her entire interest is distributed to
him or her, the entire remaining interest will be distributed as follows:
(a) If the Grantor dies on or after distribution of his or her interest
has begun, distribution must continue to be made in accordance with
Section 4.03.
(b) If the Grantor dies before distribution of his or her interest has
begun, the entire remaining interest will, at the election of the
Grantor or, if the Grantor has not so elected, at the election of
the beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year containing the
fifth anniversary of the Grantor's death, or
(ii) Be distributed in equal or substantially equal payments over
the life or life expectancy of the designated beneficiary or
beneficiaries starting by December 31 of the year following
the year of the Grantor's death. If, however, the
beneficiary is the Grantor's surviving spouse, then this
distribution is not required to begin before December 31 of
the year in which the Grantor would have turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of Section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on
the Grantor's required beginning date, even though payments may
actually have been made before that date.
(d) If the Grantor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving
spouse, no additional cash contributions or rollover contributions
may be accepted in the account.
4.05 In the case of a distribution over life expectancy in equal or
substantially equal annual payments, to determine the minimum annual
payment for each year, divide the Grantor's entire interest in the
trust as of the close of business on December 31 of the
preceding year by the life expectancy of the Grantor (or the joint life
and last survivor expectancy of the Grantor and the Grantor's
designated beneficiary, or the life expectancy of the designated
beneficiary, whichever applies). In the case of distributions under
Section 4.03, determine the initial life expectancy (or joint life and
last survivor expectancy) using the attained ages of the Grantor and
designated beneficiary as of their birthdays in the year the Grantor
reaches age 70 1/2. In the case of a distribution in accordance with
Section 4.04(b)(ii), determine life expectancy using the attained age of
the designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence.
4.06 The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to
satisfy the minimum distribution requirements described above. This method
permits an individual to satisfy these requirements by taking from one
individual retirement account the amount required to satisfy the
requirement for another.
ARTICLE V
5.01 The Grantor agrees to provide the Trustee with information necessary
for the Trustee to prepare any reports required under Section 408(i) and
Regulations Section 1.408-5 and 1.408-6.
5.02 The Trustee agrees to submit reports to the Internal Revenue Service and
the Grantor prescribed by the Internal Revenue Service.
ARTICLE VI
6.01 Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be
controlling. Any additional articles that are not consistent with Section
408(a) and related regulations will be invalid.
ARTICLE VII
7.01 This agreement will be amended from time to time to comply with the
provisions of the Code and related regulations. Other amendments may be
made with the consent of the persons whose signatures appear below.
ARTICLE VIII
8.01 Applicable Law: This Trust Agreement shall be governed by the laws of the
state where the Trustee resides.
8.02 Annual Accounting: The Trustee shall, at least annually, provide the
Grantor or Beneficiary (in the case of death) with an accounting
of such Grantor's account. Such accounting shall be deemed to be
accepted by the Grantor, if the Grantor or Beneficiary does not object
in writing within 60 days after the mailing of such accounting
statement.
8.03 Amendment: The Grantor irrevocably delegates to the Trustee the right
and power to amend this Trust Agreement. Except as hereafter provided,
the Trustee will give the Grantor 30 days prior written notice of any
amendment. In case of a retroactive amendment required by law, the
Trustee will provide written notice to the Grantor of the amendment
within 30 days after the amendment is made, or if later, by the time
that notice of the amendment is required to be given under regulations
or other guidence provided by the IRS. The Grantor shall be deemed
to have consented to any such amendment unless the Grantor notifies
the Trustee to the contrary within 30 days after notice to the
Grantor and requests a distribution or transfer of the balance in
the account.
8.04 Registration and Removal of Trustee:
(a) The Trustee may resign at any time by giving at least 30 days
notice to the Grantor. The Trustee may resign and appoint a
successor trustee or custodian to serve under this agreement or under
another governing instrument selected by the successor trustee or
custodian by giving the Grantor written notice at least 30 days prior
to the effective date of such resignation and appointment, which
notice shall also include a copy of such other governing instrument,
if applicable, and the related disclosure statement. The Grantor shall
then have 30 days from the date of such notice to either request a
complete distribution of the account balance or designate a different
successor trustee or custodian. If the Grantor does not request
distribution of the account or designate a different successor within
such 30 days, the Grantor shall be deemed to have consented to the
appointment of the successor trustee or custodian and the terms of
any new governing instrument, and neither the Grantor nor the
successor shall be required to excecute any written document to
complete the transfer of the account to the successor trustee or
custodian. The successor trustee or custodian may rely on any
information, including beneficiary designations, previously provided
by the Grantor.
(b) The Grantor may at any time remove the Trustee and replace the
Trustee with a successor trustee or custodian of the Grantor's choice
by giving 30 days written notice to the Trustee. In such event, the
Trustee shall then deliver the assets of the account as directed by
the Grantor. However, the Trustee may retain a portion of the assets
of the IRA as a reserve for payment of any anticipated remaining fees
and expenses, and shall pay over any remainder of this reserve to the
successor trustee or custodian upon satisfaction of such fees and
expenses.
8.05 Trustee's Fees and Expenses
(a) The Grantor agrees to pay the Trustee any and all fees specified
in the Trustee's current published fee schedule (listed below)
for establishing and maintaining this IRA, including any fees for
distributions from, transfers from, and terminations of this IRA. The
Trustee may change its fee schedule at any time by giving the Grantor 30
days prior written notice.
Trustee fee schedule:
1. Annual maintenance fee - $10.00 per account
2. Transfer to successor custodian - $10.00
3. Distributions to participants
- Premature distribution - $10.00
- Lump-sum distribution - $10.00
Extraordinary charges resulting from unusual administrative
responsibilities not contemplated by this schedule will be subject to
such additional charges as will resonably compensate the Trustee for the
services performed.
(b) All such fees, taxes, and other administrative expenses charged
to the account shall be collected either from the assets in the
account or from any contributions to or distributions from such
account if not paid by the Grantor, but the Grantor shall be
responsible for any deficiency.
(c) In the event that for any reason the Trustee is not certain as to
who is entitled to receive all or part of the Trust Funds, the Trustee
reserves the right to withhold any payment from the Trust, to request
a court ruling to determine the disposition of the Trust assets, and
to charge the Trust for any expenses incurred in obtaining such legal
determination.
8.06 Withdrawal Requests: All requests for withdrawal shall be in writing
on the form provided by the Trustee. Such written notice must also
contain the reason for the withdrawal and the method of distribution
being requested.
8.07 Age 70 1/2 Default Provisions:
(a) Unless the Trustee (or the Grantor, if the Trustee permits) elects
otherwise, life expectancies for purposes of calculating the required
minimum distribution shall not be recalculated.
(b) If the Grantor does not choose any of the distribution methods
under Section 4.03 of this Trust Agreement by April 1st following the
calendar year in which he/she reaches age 70 1/2, distribution shall
be made to the Grantor based on such Grantor's single life expectancy.
8.08 Death Benefit Default Provisions: Unless the Trustee (or the
Beneficiary, if the Trustee permits) elects otherwise, life expect-
ancies for purposes of calculating the required minimum death
distribution shall not be recalculated. If the Grantor dies before
his or her required beginning date and the beneficiary does not select
a method of distribution described in section 4.04 (b)(i) or (ii) by
December 31st following the year of death, then distributions will be
made pursuant to proposed regulation 1.401(a)(9)-1.
8.09 Responsibilities: Grantor agrees that all information and instructions
given to the Trustee by the Grantor is complete and accurate and that
the Trustee shall not be responsible for any incomplete or inaccurate
information provided by the Grantor or Grantor's beneficiary (ies).
Grantor agrees to be responsible for all tax consequences arising
from contributions to and distributions from this Trust Account
and acknowledges that no tax advice has been provided by the Trustee.
8.10 Designation of Beneficiary: Except as may be otherwise required by
State law, in the event of the Grantor's death, the balance in the
account shall be paid to the beneficiary or beneficiaries designated by
the Grantor on a beneficiary designation acceptable to and filed with
the Trustee. The Grantor may change the Grantor's beneficiary or
beneficiaries at any time by filing a new beneficiary designation with
the Trustee. If no beneficiary designation is in effect, if none of the
named beneficiaries survive the Grantor, or if the Trustee cannot locate
any of the named beneficiaries after reasonable search, any balance in
the account will be payable to the Grantor's estate.
ARTICLE IX
SELF-DIRECTED IRA PROVISIONS
9.01 Investment of Contributions: At the direction of the Grantor (or the
direction of the beneficiary upon the Grantor's death), the Trustee
shall invest all contributions to the account and earnings thereon
in investments acceptable to the Trustee, which may include marketable
securities traded on a recognized exchange or "over the counter"
(excluding any securities issued by the Trustee), covered call options,
certificates of deposit, and other investments to which the Trustee
consents, in such amounts as are specifically selected and specified
by Grantor in orders to the Trustee in such form as may be acceptable
to the Trustee, without any duty to diversify and without regard to
whether such property is authorized by the laws of any jurisdiction
as a trust investment. The Trustee shall be responsible for the
excecution of such orders and for maintaining adequate records thereof.
However, if any such orders are not received as required, or, if
received, are unclear in the opinion of the Trustee, all or a portion
of the contribution may be held uninvested without liability for loss
of income or appreciation, and without liability for interest pending
receipt of such orders or clarification, or the contribution may be
returned. The Trustee may, but need not, establish programs under
which cash deposits in excess of a minimum set by it will be periodically
and automatically invested in interest-bearing investment funds.
The Trustee shall have no duty other than to follow the written
investment directions of the Grantor, and shall be under no duty to
question said instructions and shall not be liable for any investment
losses sustained by the Grantor.
9.02 Registration: All assets of the account shall be registered in the
name of the Trustee or of a suitable nominee. The same nominee may
be used with respect to assets of other investors whether or not
held under agreements similar to this one or in any capacity whatsoever.
However, each Grantor's account shall be separate and distinct; a
separate account therefor shall be maintained by the Trustee, and the
assets thereof shall be held by the Trustee in individual or bulk
segregation either in the Trustee's vaults or in depositories approved
by the Securities and Exchange Commission under the Securities Exchange
Act of 1934.
9.03 Investment Advisor: The Grantor may appoint an Investment Advisor,
qualified under Section 3(38) of the Employee Retirement Income Security
Act of 1974, to direct the investment of his IRA. The Grantor shall
notify the Trustee in writing of any such appointment by providing
the Trustee a copy of the instruments appointing the Investment
Advisor and evidencing the Investment Advisor's acceptance of such
appointment, an acknowledgement by the Investment Advisor that it is
a fiduciary of the account, and a certificate evidencing the Investment
Advisor's current registraton under the Investment Advisor's Act of
1940. The Trustee shall comply with any investment directions furnished
to it by the Investment Advisor, unless and until it receives written
notification from the Grantor that the Investment Advisor's appointment
has been terminated. The Trustee shall have no duty other than to
follow the written investment directions of such Investment Advisor
and shall be under no duty to question said instructions, and the
Trustee shall not be liable for any investment losses sustained by
the Grantor.
9.04 No Investment Advice: The Trustee does not assume any responsibility
for rendering advice with respect to the investment and reinvestment
of Grantor's account and shall not be liable for any loss which results
from Grantor's exercise of control over his account. The Trustee and
Grantor may specifically agree in writing that the Trustee shall render
such advice, but the Grantor shall still have and exercise exclusive
responsibility for control over the investment of the assets of his
account, and the Trustee shall not have any duty to question his
investment directives.
9.05 Prohibited Transactions: Notwithstanding anything contained herein to
the contrary, the Trustee shall not lend any part of the corpus or
income of the account to; pay any compensation for personal services
rendered to the account to; make any part of its services available
on a preferential basis to; acquire for the account any property,
other than cash, from; or sell any property to, any Grantor, any
member of a Grantor's family, or a corporation controlled by any
Grantor through the ownership, directly or indirectly, of 50 percent
or more of the total combined voting power of all classes of stock
entitled to vote, or of 50 percent or more of the total value of shares
of all classes of stock of such corporation.
9.06 Unrelated Business Income Tax: If the Grantor directs investment of the
account in any investment which results in unrelated business taxable
income, it shall be the responsibiliity of the Grantor to so advise
the Trustee and to provide the Trustee with all information necessary
to prepare and file any required returns or reports for the account.
As the Trustee may deem necessary; and at the Grantor's expense, the
Trustee may request a taxpayer identificaton number for the account,
file any returns, reports, and applications for extension, and pay
any taxes or estimated taxes owed with respect to the account. The
Trustee may retain suitable accountants, attorneys, or other agents
to assist it in performing such responsibilities.
9.07 Disclosures and Voting: The Trustee shall deliver or cause to be
executed and delivered to Grantor all notices, prospectuses, financial
statements, proxies and proxy soliciting materials relating to assets
credited to the account. The Trustee shall not vote any shares of
stock or take any other action, pursuant to such documents, with
respect to such assets except upon receipt by the Trustee of adequate
written instructions from Grantor.
9.08 Miscellaneous Expenses: In addition to those expenses set out in
section 8.05 of this plan, the Grantor agrees to pay any and all
expenses incurred by the trustee in connection with the investment
of the account, including expenses of preparation and filing any
returns and reports with regard to unrelated business income,
including taxes and estimated taxes, as well as any transfer taxes
incurred in connection with the investment or reinvestment of the
assets of the account.
9.09 Nonbank Trustee Provision: If the Trustee is a nonbank trustee, the
Grantor shall substitute another trustee or custodian in place of
the Trustee upon receipt of notice from the Commissioner of the
Internal Revenue Service or his delegate that such substitution
is required because the Trustee has failed to comply with the
requirements of Income Tax Regulations Section 1.408-2(e), or is
not keeping such records, making such returns, or rendering such
statements as are required by applicable law, regulations, or other
rulings. The successor trustee or custodian shall be a bank, insured
credit union, or other person satisfactory to the Secretary of the
Treasury pursuant to Secion 408(a)(2) of the Code. Upon receipt by
the Trustee of written acceptance by its successor or such successor's
appointment, Trustee shall transfer and pay over to such successor
the assets of the account (less amounts retained pursuant to Section
8.04 of the Trust Agreement) and all records (or copies thereof) of
the Trustee pertaining thereto, provided that the successor trustee
or custodian agrees not to dispose of any such records without the
Trustee's consent.
