Registration No. ________
ICA No. ________
As filed with the Securities and Exchange Commission on April 3, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 /X/
Pre-Effective Amendment No. / /
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Post-Effective Amendment No. / /
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 /X/
Amendment No. / /
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(Check Appropriate Box or Boxes)
Millennium RHIM Funds, Inc.
(Exact Name of Registrant as Specified in Charter)
303 Twin Dolphin Drive - Suite 530
Redwood Shores, CA 94065
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(Address of Principal Executive Offices)(Zip Code)
(650) 594-1600
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(Registrant's Telephone Number, Including Area Code)
Robert A. Dowlett
Millennium RHIM Funds, Inc.
303 Twin Dolphin Drive - Suite 530
Redwood Shores, CA 94065
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(Name and Address of Agent For Service)
With a copy to:
Thomas R. Westle, Esq.
Battle Fowler LLP
75 East 55th Street
New York, NY 10022
As soon as practicable after the effective date
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(Approximate Date of Proposed Public Offering)
Shares of Common Stock
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(Title of Securities Being Registered)
692546.1
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It is proposed that this filing will become effective (check
appropriate box):
/ / immediately upon filing pursuant to paragraph (b).
/ / on (date) pursuant to paragraph (b).
/ / 60 days after filing pursuant to paragraph (a)(1).
/ / on (date) pursuant to paragraph (a)(1).
/ / 75 days after filing pursuant to paragraph (a)(2).
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
The Registrant 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.
692546.1
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MILLENNIUM RHIM FUNDS, INC.
REGISTRATION STATEMENT ON FORM N-1A
Cross Reference Sheet for Items Required by Form N-1A
Item No. Caption in Prospectus
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1 Cover page
2 Expense Table
3 Financial Highlights
4 General Information; Investment Objective and Policies; Other
Investment Techniques
5 Management of the Funds
5A Management of the Funds
6 General Information; Investor Guide; How to Purchase Shares of
Each Fund; Services Available to Shareholders; Distributions and
Taxes
7 How to Purchase Shares of Each Fund; Services Available to
Shareholders; Distributions and Taxes
8 Services Available to Shareholders; Distributions and Taxes; How
to Redeem Your Shares
9 Not Applicable
Caption in Statement of Additional Information
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10 Cover page
11 Table of Contents
12 Cover Page
13 Investment Objective and Policies
14 Management
15 General Information
16 Management
17 Portfolio Transactions and Brokerage
18 General Information
19 Net Asset Value; General Information
20 Taxation
21 Management
22 Performance Information
23 Financial Statements
692546.1
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THE MILLENNIUM RHIM FUNDS, INC.
THE MILLENNIUM GROWTH FUND
THE MILLENNIUM GROWTH & INCOME FUND
This Prospectus sets forth basic information about each of the Millennium Growth
Fund and the Millennium Growth & Income Fund that prospective investors should
know before investing. It should be read and retained for future reference. Each
Fund is a separate series of The Millennium RHIM Funds, Inc., an open-end
registered management investment company incorporated under the laws of the
State of Maryland. A Statement of Additional Information ("SAI") dated , 1998,
as may be amended from time to time, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. This Statement of
Additional Information is available without charge upon request by calling the
Fund at (800) 801-5992. The SEC maintains an Internet site (http://www.sec.gov)
that contains the SAI, other material incorporated by reference and other
information about companies that file electronically with the SEC.
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.
Prospectus
, 1998
685815.4
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TABLE OF CONTENTS
Expense Table ....................................................... 3
Financial Highlights................................................. 5
Investment Objective and Policies ....................................6
Other Investment Techniques.......................................... 7
Management of the Funds...............................................9
Investor Guide ......................................................10
How to Purchase Shares of Each Fund..................................11
Services Available to Shareholders...................................12
How to Redeem Your Shares........................................... 13
Distributions and Taxes............................................. 15
General Information................................................. 16
685815.4
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The Millennium RHIM Funds, Inc.
303 Twin Dolphin Drive, Suite 530
Redwood Shores, CA 94065
Fund Literature (800) 801-5992
Shareholder Services (888) 229-2105
The Millennium Growth Fund (the "Growth Fund") is a mutual fund with the
investment objective of growth of capital. The Millennium Growth & Income Fund
(the "Growth & Income Fund") is a mutual fund with the investment objective of
growth of capital and dividend income. Each Fund attempts to achieve its
objective by investing in equity securities. See "Investment Objective and
Policies." There can be no assurance that either Fund will achieve its
investment objective.
EXPENSE TABLE
Expenses are one of several factors to consider when investing in a Fund. There
are two types of expenses involved: shareholder transaction expenses, such as
sales loads, and annual operating expenses, such as investment advisory fees.
Each Fund is a no-load mutual fund and has no shareholder transaction expenses.
<TABLE>
<S> <C> <C>
Annual Operating Expenses Growth &
(As a percentage of average Growth Income
net assets) Fund Fund*
------ --------
Investment Advisory Fees 0.95% 0.95%
Other Expenses (after expense
reimbursement) 0.50% 0.50%
----- -----
Total Fund Operating Expenses (after expense
reimbursement) 1.45% 1.45%
===== =====
</TABLE>
The purpose of the above fee table is to provide an understanding of the various
annual operating expenses which may be borne directly or indirectly by an
investment in each Fund. Actual expenses may be more or less than those shown.
Each Fund's total operating expenses are not expected to exceed 1.45% of average
net assets annually,
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* Estimated
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but in the event that they do, the Advisor has agreed to reduce its fees to
insure that the expenses for a Fund will not exceed 1.45%. "Other Expenses" in
the above table have been estimated for the first fiscal year of the Growth &
Income Fund. If the Advisor did not limit a Fund's expenses, it is expected that
"Other Expenses" in the above table would be 1.45% and "Total Operating
Expenses" would be 2.40%. If the Advisor does waive any of its fees, each Fund
may reimburse the Advisor in future years. See "Management of the Funds."
Example
This table illustrates the net operating expenses that would be incurred by an
investment in each Fund over different time periods assuming a $1,000
investment, a 5% annual return, and redemption at the end of each time period.
Growth Fund Growth & Income Fund
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1 Year $15 $15
3 Years $46 $46
The Example shown above should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown. In
addition, federal regulations require the Example to assume a 5% annual return,
but a Fund's actual return may be higher or lower. See "Management of the
Funds."
The minimum initial investment in each Fund is $2,500, with subsequent minimum
investments of $100 or more ($1,000 and $100, respectively, for retirement
plans). Shares will be redeemed at their net asset value.
685815.4
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FINANCIAL HIGHLIGHTS
The Millennium Growth Fund
The following financial information is provided solely with respect to The
Millennium Growth Fund, is based upon financial information contained in the
SemiAnnual Report to Shareholders (Unaudited) and relates solely to the Ridgeway
Helms Millennium Fund, the predecessor fund to the Growth Fund, which was
reorganized into the Growth Fund on ____________, 1998.
For a capital share outstanding throughout the period (Unaudited)
July 16, 1997* through December 31, 1997
<TABLE>
<S> <C>
Net asset value, beginning of period $10.00
Loss from investment operations:
Net investment loss (0.04)
Net realized and unrealized gain
on investments (1.02)
Total from investment operations (1.06)
Net asset value, end of period $ 8.94
Total Return (10.60%)**
Ratios/supplemental data:
Net assets, end of period (thousands) $6,439
Ratio of expenses to average net assets:
Before expense reimbursement 2.73%***
After expense reimbursement 1.45%***
Ratio of net investment loss to average net assets:
Before expense reimbursement (2.07%)***
After expense reimbursement (0.78%)***
Portfolio turnover rate 70.13%
Average commission rate paid per share $0.0285
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*Commencement of operations.
**Not Annualized.
***Annualized.
</TABLE>
685815.4
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INVESTMENT OBJECTIVE AND POLICIES
The Millennium Growth Fund
What is the Growth Fund's investment objective? The investment objective of the
Growth Fund is to seek growth of capital. There can be no assurance that the
Growth Fund will achieve its objective.
How does the Growth Fund seek to achieve its objective? Ridgeway Helms
Investment Management, Inc. (the "Advisor") selects equity securities for the
Growth Fund's portfolio that it believes are experiencing, or have the potential
to experience, growth in earnings that exceed the average growth rate of
companies within the Standard & Poor's 500 Composite Stock Price Index. The
Advisor will also consider the relationship between the price/earnings ratio of
the security and its expected growth rate.
The Millennium Growth & Income Fund
What is the Growth & Income Fund's investment objective? The investment
objective of the Growth & Income Fund is to seek growth of capital and dividend
income. There can be no assurance that the Growth & Income Fund will achieve its
objective.
How does the Growth & Income Fund seek to achieve its objective? The Advisor
selects equity securities for the Growth & Income Fund's portfolio that it
believes are experiencing, or have the potential to experience, growth in
earnings that exceed the average growth rate of companies within the Standard &
Poor's 500 Composite Stock Price Index and that will provide dividend income.
The Advisor will consider the relationship between the price/ earnings ratio of
the security and its expected growth rate.
What are the investment policies of each Fund? In seeking investments for each
Fund, the Advisor's primary emphasis is on evaluating a company's management,
growth prospects, business operations, competitive forces, revenues, earnings,
cash flow and balance sheet in relation to its share price. The Advisor may
select stocks which it believes offer substantial growth in any or all of the
above criteria and/or stocks which it believes are undervalued relative to its
current price.
Each Fund will invest in small, medium and large companies; the minimum market
capitalization of a portfolio security is expected to be $25 million. A small
company is considered to be one which has a market capitalization of less than
$500 million at the time of investment. Currently, the Advisor expects
approximately 20% of the
685815.4
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Growth Fund's portfolio to be invested in small companies, but the Advisor could
invest up to two-thirds of such Fund's assets in stocks of small companies. The
Advisor expects that no more than 20% of the Growth & Income Fund's portfolio
will be invested in small companies. To the extent that either Fund does invest
in small capitalization stocks, there is the risk that its portfolio will be
less marketable and may be subject to greater fluctuations in price than a
portfolio holding stocks of larger issuers. Small capitalization stocks often
pay no dividends, but contrary to the investment goal of the Growth & Income
Fund, income is not a primary goal of the Growth Fund. The Advisor does not
expect either Fund's annual turnover rate to exceed 100%.
There is, of course, no assurance that each Fund's objective will be achieved.
Because prices of common stocks and other securities fluctuate, the value of an
investment in each Fund will vary as the market value of its investment
portfolio changes.
Other securities a Fund might purchase. Under normal market conditions, each
Fund will invest at least 85% of its total assets in equity securities,
consisting of common stocks and securities having the characteristics of common
stocks, such as convertible securities, rights and warrants. If the Advisor
believes that market conditions warrant a temporary defensive posture, each Fund
may invest without limit in high quality, short-term debt securities and money
market instruments. These short-term debt securities and money market
instruments include commercial paper, certificates of deposit, bankers'
acceptances, U.S. Government securities and repurchase agreements. More
information about these investments is contained in the SAI.
OTHER INVESTMENT TECHNIQUES
Options on Securities and Securities Indices. Each Fund may buy call options on
securities in order to fix the cost of a future purchase or to attempt to
enhance return. Each Fund may buy put options on securities to hedge against a
decline in the value of securities it owns. Each Fund may also write (sell) put
and covered call options on securities in which it is authorized to invest. Each
Fund may also purchase and write options on U.S. securities indices. Options
transactions will be entered into for hedging purposes and not for speculation.
A Fund's ability to use these instruments successfully will depend on an
investment manager's ability to predict accurately movements in the prices of
securities, interest rates and the securities markets. There is no assurance
that liquid secondary markets for options will always exist, and the correlation
between hedging instruments and the securities or sectors being hedged may be
imperfect. The requirement to cover obligations may impede portfolio management
or the ability to meet redemption requests.
685815.4
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Lending Securities. To increase its income, each Fund may lend securities from
its portfolio to brokers, dealers and other financial institutions. No more than
one-third of a Fund's total assets may be loaned. Each Fund's loans of portfolio
securities will be collateralized at all times by high quality liquid
securities. Under the present regulatory requirements which govern loans of
portfolio securities, the loan collateral must, on each business day, at least
equal the value of the loaned securities and must consist of cash, letters of
credit of domestic banks or domestic branches of foreign banks, or securities of
the U.S. Government or its agencies. To be acceptable as collateral, letters of
credit must obligate a bank to pay amounts demanded by a Fund if the demand
meets the terms of the letter. Such terms and the issuing bank would have to be
satisfactory to each Fund. Any loan might be secured by any one or more of the
three types of collateral. The terms of each Fund's loans must permit the Fund
to reacquire loaned securities on five days' notice or in time to vote on any
serious matter and must meet certain tests under the Internal Revenue Code of
1986 (the "Code").
Selling Short. Each Fund may sell securities short by borrowing securities it
does not own and selling them. A Fund is then obligated to replace the
securities borrowed by purchasing them at the market price at the time of
replacement. If the securities sold short increase in value between the time of
sale and the time a Fund purchases them, the Fund will incur a loss. On the
other hand, if the securities decline in value, a Fund may repurchase them at a
lower price and realize a profit. There are limits on the extent to which each
Fund may engage in short sales, as described in the SAI.
Borrowing Money. Each Fund may borrow money from banks for leverage, up to
one-third of its total assets. The use of borrowing by a Fund involves special
risk considerations that may not be associated with other funds having similar
objectives and policies. Since substantially all of each Fund's assets fluctuate
in value, whereas the interest obligation resulting from a borrowing will be
fixed by the terms of the Fund's agreement with its lender, the asset value per
share of each Fund will tend to increase more when its portfolio assets decrease
in value than would otherwise be the case if the Fund did not borrow funds. In
addition, interest costs on borrowings may fluctuate with changing market rates
of interest and may partially offset or exceed the return earned on borrowed
funds. Under adverse market conditions, a Fund might have to sell portfolio
securities to meet interest or principal payments at a time when fundamental
investment considerations would not favor such sales. Each Fund is required to
segregate high quality liquid assets with its custodian equal to the amount it
has borrowed.
Investment restrictions. Each Fund has adopted certain investment restrictions,
which are described fully in the SAI. Like each Fund's investment objective,
certain of these restrictions are fundamental and may be changed only by a
majority vote of
685815.4
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such Fund's outstanding shares. As a fundamental policy, each Fund is a
non-diversified fund, which may involve greater risks and volatility than would
be found in a diversified fund.
MANAGEMENT OF THE FUNDS
The Board of Directors of the Company establishes each Fund's policies and
supervises and reviews the management of each Fund.
The Advisor. Ridgeway Helms Investment Management, Inc. (the "Advisor"), 303
Twin Dolphin Drive, Suite 530, Redwood Shores, California 94065, was organized
under the laws of the State of ____________ and registered as an investment
advisor with the Securities and Exchange Commission in 1995(?) to provide advice
to affiliated mutual funds and similar investment products. The Advisor, acting
through its advisory affiliate, Ridgeway Helms Securities Corporation, has
provided asset management services to individuals and institutional investors
since June, 1995. Robert A. Dowlett and N. Joseph Nahas are principally
responsible for the management of each Fund's portfolio. Mr. Dowlett (who
controls the Advisor) is the President of the Advisor and has been active in the
investment field professionally for the past five years. Prior to founding the
Advisor, he was a financial consultant and guided portfolio manager with Smith
Barney Inc. Mr. Nahas has also been active professionally in the investment
field for the past five years. Prior to joining the Advisor as First Vice
President in August, 1996, he was First Vice President Investments of Round Hill
Securities (since November, 1994) and prior to that a financial consultant and
guided portfolio manager with Smith Barney Inc.
The Advisor provides each Fund with advice on buying and selling securities,
manages the investments of each Fund, furnishes the Funds with office space and
certain administrative services, and provides most of the personnel needed by
each Fund. As compensation, each Fund pays the Advisor a monthly management fee
based upon the average daily net assets of such Fund at the annual rate of
0.95%.
The Administrator. American Data Services, Inc. (the "Administrator") prepares
various federal and state regulatory filings, reports and returns for each Fund,
prepares reports and materials to be supplied to the directors, monitors the
activities of the Funds' custodian, shareholder servicing agent and accountants,
and coordinates the preparation and payment of Fund expenses and reviews each
Fund's expense accruals. For its services, the Administrator receives a monthly
fee from each Fund at the annual rate of 0.35% based upon the average daily net
assets of each Fund.
Other operating expenses. Each Fund is responsible for its own operating
expenses, including but not limited to, the advisory and administration fees;
custody, record keeping and shareholder servicing agent fees; legal and auditing
expenses; federal
685815.4
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and state registration fees; and fees to the Company's disinterested directors.
The Advisor may reduce its fees or reimburse a Fund for expenses at any time in
order to reduce the Fund's expenses. Reductions made by the Advisor in its fees
or payments or reimbursements of expenses that are a Fund's obligation are
subject to reimbursement by the Fund provided the Fund is able to do so and
remain in compliance with any applicable expense limitations.
Brokerage transactions. The Advisor considers a number of factors in determining
which brokers or dealers to use for each Fund's portfolio transactions. While
these are more fully discussed in the SAI, the factors include, but are not
limited to, the reasonableness of commissions, quality of services and
execution, and the availability of research which the Advisor may lawfully and
appropriately use in its investment advisory capacities. Provided a Fund
receives prompt execution at competitive prices, the Advisor may also consider
the sale of Fund shares as a factor in selecting broker-dealers for each Fund's
portfolio transactions. Subject to overall requirements of obtaining the best
combination of price and execution on a particular transaction, each Fund may
place portfolio transactions through Ridgeway Helms Securities Corporation, an
affiliate of the Advisor, in accordance with procedures adopted by the Board of
Directors.
INVESTOR GUIDE
How to purchase shares of each Fund. There are several ways to purchase shares
of a Fund. An Application Form, which accompanies this Prospectus, is used if
you send money directly to the Fund by mail or by wire. If you have questions
about how to invest, or about how to complete the Application Form, please call
an account representative at (888) 229-2105. Ridgeway Helms Securities
Corporation, 303 Twin Dolphin Drive, Redwood Shores, California 94065, an
affiliate of the Advisor, is the principal underwriter ("Distributor") of each
Fund's shares.
You may send money to each Fund by mail. If you wish to invest by mail, simply
complete the Application Form and mail it with a check (made payable to The
Millennium (insert name) Fund) to the Fund's Shareholder Servicing Agent,
American Data Services, Inc. at the following address:
The Millennium (insert name) Fund
P.O. Box 640947
Cincinnati, OH 45264-0947
You may wire money to a Fund. Before sending a wire, you should call the
appropriate Fund you wish to purchase at (888) 229-2105 between 9:00 a.m. and
5:00 p.m., Eastern time, on a day when the New York Stock Exchange ("NYSE") is
open for trading, in order to receive an account number. It is important to call
and receive
685815.4
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this account number, because if your wire is sent without it or without the name
of the appropriate Fund, there may be a delay in investing the money you wire.
You should then ask your bank to wire money to:
Star Bank, N.A. Cinti/Trust
ABA # 0420-0001-3
for credit to The Millennium (insert name) Fund
DDA # 486479777
for further credit to [your name and account number]
Each Fund will charge you a $10.00 wire fee. In addition, your bank may charge
you a fee for sending a wire to a Fund.
You may purchase shares through an investment dealer. You may be able to invest
in shares of a Fund through an investment dealer, if the dealer has made
arrangements with the Distributor. The dealer may place an order for you with
each Fund; the price you will pay will be the net asset value which is next
calculated after receipt of the order from the dealer. It is the responsibility
of the dealer to place your order promptly. A dealer may charge you a fee for
placing your order, but you could avoid paying such a fee by sending an
Application Form and payment directly to the appropriate Fund. The dealer may
also hold the shares you purchase in its omnibus account rather than in your
name in the records of each Fund's transfer agent. Each Fund may reimburse the
dealer for maintaining records of your account as well as for other services
provided to you.
Your dealer is responsible for sending your money to each Fund promptly after
placing the order to purchase shares, and the Fund may cancel the order if
payment is not received from the dealer promptly.
Minimum investments. The minimum initial investment in each Fund is $2,500. The
minimum subsequent investment is $100. However, if you are investing in an
Individual Retirement Account ("IRA"), or you are starting an Automatic
Investment Plan (see below), the minimum initial and subsequent investments are
$1,000 and $100, respectively.
Subsequent investments. You may purchase additional shares of a Fund by sending
a check, with the stub from an account statement, to the appropriate Fund at the
address above. Please also write your account number on the check. (If you do
not have a stub from an account statement, you can write your name, address and
account number on a separate piece of paper and enclose it with your check.) If
you want to send additional money for investment by wire, it is important for
you to call the Fund at (888) 229-2105. You may also make additional purchases
through an investment dealer, as described above.
685815.4
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<PAGE>
When is money invested in a Fund? Any money received for investment in a Fund
from an investor, whether sent by check or by wire, is invested at the net asset
value of the Fund which is next calculated after the money is received (assuming
the check or wire correctly identifies the appropriate Fund and account). Orders
received from dealers are invested at the net asset value next calculated after
the order is received. The net asset value is calculated at the close of regular
trading of the NYSE, currently 4:00 p.m., Eastern time. A check or wire received
after the NYSE closes is invested as of the next calculation of each Fund's net
asset value.
What is the net asset value of a Fund? Each Fund's net asset value per share is
calculated by dividing the value of the Fund's total assets, less its
liabilities, by the number of its shares outstanding. In calculating the net
asset value, portfolio securities are valued using current market values, if
available. Securities for which market quotations are not readily available are
valued at fair values determined in good faith by or under the supervision of
the Board of Directors of the Company. The fair value of short-term obligations
with remaining maturities of 60 days or less is considered to be their amortized
cost.
Other information. The Distributor may waive the minimum investment requirements
for purchases by certain group or retirement plans. All checks must be drawn on
U.S. banks. Third party checks will not be accepted. A charge may be imposed if
a check used to make an investment does not clear. Each Fund and the Distributor
reserve the right to reject any investment, in whole or in part. Federal tax law
requires that investors provide a certified taxpayer identification number and
other certifications on opening an account in order to avoid backup withholding
of taxes. See the Application Form for more information about backup
withholding. A Fund is not required to issue share certificates; all shares are
normally held in non-certificated form on the books of the Fund, for the account
of the shareholder. Each Fund may, under certain circumstances, accept
investments of securities appropriate for the Fund's portfolio, in lieu of cash.
Prior to making such a purchase, you should call the Advisor to determine if
such an investment may be made.
SERVICES AVAILABLE TO SHAREHOLDERS
Retirement Plans. You may obtain a prototype IRA plan from the Funds. Shares of
each Fund are also eligible investments for other types of retirement plans.
Automatic investing by check. You may make regular monthly investments in each
Fund using the "Automatic Investment Plan." A check is automatically drawn on
your personal checking account each month for a predetermined amount (but not
less than $100), as if you had written it directly. Upon receipt of the
withdrawn funds, the Fund automatically invests the money in additional shares
of the Fund at the current net asset value. Applications for this service are
available from each Fund.
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There is no charge by a Fund for this service. Each Fund may terminate or modify
this privilege at any time, and shareholders may terminate their participation
by notifying the Shareholder Servicing Agent in writing, sufficiently in advance
of the next withdrawal.
Automatic withdrawals. Each Fund offers a Systematic Withdrawal Program whereby
shareholders may request that a check drawn in a predetermined amount be sent to
them each month or calendar quarter. To start this Program, your account must
have Fund shares with a value of at least $10,000, and the minimum amount that
may be withdrawn each month or quarter is $50. This Program may be terminated or
modified by a shareholder or a Fund at any time without charge or penalty. A
withdrawal under the Systematic Withdrawal Program involves a redemption of
shares of a Fund, and may result in a gain or loss for federal income tax
purposes. In addition, if the amount withdrawn exceeds the dividends credited to
your account, the account ultimately may be depleted.
Exchange Privilege. You may exchange your shares of the Growth Fund or the
Growth & Income Fund (in amounts of $1,000 or more) for shares of the other Fund
or shares of RNC Liquid Assets Fund, Inc. ("RNC Fund"), a money market fund not
affiliated with the Funds or the Advisor, if shares of RNC Fund are offered in
the state where you live. Prior to making an exchange, you should obtain and
read carefully the prospectus of RNC Fund. The exchange privilege is not an
offering or recommendation of RNC Fund by the Funds or the Advisor. For more
information, call the Shareholder Servicing Agent at (888) 229-2105.
How to Redeem Your Shares
You have the right to redeem all or any portion of your shares of each Fund at
its net asset value on each day the NYSE is open for trading.
Redemption in writing. You may redeem your shares by simply sending a written
request to the appropriate Fund. You should give your account number and state
whether you want all or part of your shares redeemed. The letter should be
signed by all of the shareholders whose names appear in the account
registration. You should send your redemption request to:
The Millennium (insert name) Fund
c/o American Data Services, Inc.
The Hauppauge Corporate Center
150 Motor Parkway, Suite 109
Hauppauge, NY 11788-0132
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Signature guarantee. If the value of the shares you wish to redeem exceeds
$5,000, the signatures on the redemption request must be guaranteed by an
"eligible guarantor institution." These institutions include banks,
broker-dealers, credit unions and savings institutions. A broker-dealer
guaranteeing a signature must be a member of a clearing corporation or maintain
net capital of at least $100,000. Credit unions must be authorized to issue
signature guarantees. Signature guarantees will be accepted from any eligible
guarantor institution which participates in a signature guarantee program. A
notary public is not an acceptable guarantor.
Redemption by telephone. If you complete the Redemption by Telephone portion of
each Fund's Application Form, you may redeem shares on any business day the NYSE
is open by calling the Fund's Shareholder Servicing Agent at (888) 229-2105
before 4:00 p.m. Eastern time. Redemption proceeds will be mailed or wired, at
your direction, on the next business day to the bank account you designated on
the Application Form. The minimum amount that may be wired is $1,000 (wire
charges, if any, will be deducted from redemption proceeds). Telephone
redemptions cannot be made for IRA accounts.
By establishing telephone redemption privileges, you authorize each Fund and its
Shareholder Servicing Agent to act upon the instruction of any person who makes
the telephone call to redeem shares from your account and transfer the proceeds
to the bank account designated in the Application Form. Each Fund and the
Shareholder Servicing Agent will use procedures to confirm that redemption
instructions received by telephone are genuine, including recording of telephone
instructions and requiring a form of personal identification before acting on
these instructions. If these normal identification procedures are followed,
neither a Fund nor the Shareholder Servicing Agent will be liable for any loss,
liability, or cost which results from acting upon instructions of a person
believed to be a shareholder with respect to the telephone redemption privilege.
Each Fund may change, modify, or terminate these privileges at any time upon at
least 60-days' notice to shareholders.
You may request telephone redemption privileges after your account is opened;
however, the authorization form will require a separate signature guarantee.
Shareholders may experience delays in exercising telephone redemption privileges
during periods of abnormal market activity.
What price is used for a redemption? The redemption price is the net asset value
of each Fund's shares, next determined after shares are validly tendered for
redemption. All signatures of account holders must be included in the request,
and a signature guarantee, if required, must also be included for the request to
be valid.
When are redemption payments made? As noted above, redemption payments for
telephone redemptions are sent on the day after the telephone call is received.
685815.4
-14-
<PAGE>
Payments for redemptions sent in writing are normally made promptly, but no
later than seven days after the receipt of a request that meets requirements
described above. However, a Fund may suspend the right of redemption under
certain extraordinary circumstances in accordance with rules of the Securities
and Exchange Commission.
If shares were purchased by wire, they cannot be redeemed until the day after
the Application Form is received. If shares were purchased by check and then
redeemed shortly after the check is received, each Fund may delay sending the
redemption proceeds until it has been notified that the check used to purchase
the shares has been collected, a process which may take up to 15 days. This
delay may be avoided by investing by wire or by using a certified or official
bank check to make the purchase.
Redemptions through dealers. If you hold shares through an investment dealer,
you will have to redeem your shares through that investment dealer. The net
asset value you receive will be the next calculated after receipt of the order
from the dealer. The dealer is responsible for forwarding any documents required
in connection with a redemption, including a signature guarantee, promptly, and
a Fund may cancel the order if these documents are not received promptly.
Other information about redemptions. A redemption may result in recognition of a
gain or loss for federal income tax purposes. Due to the relatively high cost of
maintaining smaller accounts, the shares in your account (unless it is a
retirement plan or Uniform Gifts or Transfers to Minors Act account) may be
redeemed by a Fund if, due to redemptions you have made, the total value of your
account is reduced to less than $500. If a Fund determines to make such an
involuntary redemption, you will first be notified that the value of your
account is less than $500, and you will be allowed 30 days to make an additional
investment to bring the value of your account to at least $500 before the Fund
takes any action.
DISTRIBUTIONS AND TAXES
Dividends and other distributions. Dividends from net investment income, if any,
are normally declared and paid by each Fund in December. Capital gains
distributions, if any, are also normally made in December, but a Fund may make
an additional payment of dividends or distributions if it deems it desirable at
another time during any year.
Dividends and capital gain distributions (net of any required tax withholding)
are automatically reinvested in additional shares of each Fund at the net asset
value per share on the reinvestment date unless you have previously requested in
writing to the Shareholder Servicing Agent that payment be made in cash.
685815.4
-15-
<PAGE>
Any dividend or distribution paid by a Fund has the effect of reducing the net
asset value per share on the record date by the amount of the dividend or
distribution. You should note that a dividend or distribution paid on shares
purchased shortly before that dividend or distribution was declared will be
subject to income taxes even though the dividend or distribution represents, in
substance, a partial return of capital to you.
Taxes. Each Fund intends to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Code. As long as a Fund continues
to qualify, and as long as a Fund distributes all of its income each year to the
shareholders, the Fund will not be subject to any federal income or excise
taxes. Distributions made by a Fund will be taxable to shareholders whether
received in shares (through dividend reinvestment) or in cash. Distributions
derived from net investment income, including net short-term capital gains, are
taxable to shareholders as ordinary income. A portion of these distributions may
qualify for the intercorporate dividends-received deduction. Distributions
designated as capital gains dividends are taxable as long-term capital gains
regardless of the length of time shares of a Fund have been held. Although
distributions are generally taxable when received, certain distributions made in
January are taxable as if received the prior December. You will be informed
annually of the amount and nature of each Fund's distributions. Additional
information about taxes is set forth in the SAI. You should consult your own
advisors concerning federal, state and local taxation of distributions from each
Fund.
GENERAL INFORMATION
The Company. The Company was incorporated under the laws of the State of
Maryland on February 20, 1998. The Ridgeway Helms Millennium Fund, the
predecessor fund to the Growth Fund, was originally a series of the Advisers
Series Trust (organized as a Delaware business trust on October 3, 1996). Such
Fund was reorganized as a series of the Company on June , 1998, upon the
approval of the majority of the then-current shareholders of such Fund. The
Articles of Incorporation permit the Company to issue its shares of common stock
in any number of series. Currently, the Growth Fund and the Growth & Income Fund
are the only series of the Company. The Board of Directors may, from time to
time, issue other series, the assets and liabilities of which will be separate
and distinct from any other series.
Shareholder Rights. Shares issued by each Fund have no preemptive, conversion,
or subscription rights. Shareholders have equal and exclusive rights as to
dividends and distributions as declared by a Fund and to the net assets of the
Fund upon liquidation or dissolution. Each Fund, as a separate series of the
Company, votes separately on matters affecting only the Fund (e.g., approval of
the Investment Advisory Agreement); all series of the Company vote as a single
class on matters affecting all series jointly or the Company as a whole (e.g.,
election or removal of
685815.4
-16-
<PAGE>
Directors). Voting rights are not cumulative, so that the holders of more than
50% of the shares voting in any election of Directors can, if they so choose,
elect all of the Directors. While the Company is not required and does not
intend to hold annual meetings of shareholders, such meetings may be called by
the Directors in their discretion, or upon demand by the holders of 10% or more
of the outstanding shares of the Company for the purpose of electing or removing
Directors.
Performance Information. From time to time, each Fund may publish its total
return in advertisements and communications to investors. Total return
information will include each Fund's average annual compounded rate of return
over the most recent four calendar quarters and over the period from the Fund's
inception of operations. Each Fund may also advertise aggregate and average
total return information over different periods of time. Each Fund's total
return will be based upon the value of the shares acquired through a
hypothetical $1,000 investment at the beginning of the specified period and the
net asset value of those shares at the end of the period, assuming reinvestment
of all distributions. Total return figures will reflect all recurring charges
against a Fund's income. You should note that the investment results of a Fund
will fluctuate over time, and any presentation of a Fund's total return for any
prior period should not be considered as a representation of what an investor's
total return may be in any future period.
Shareholder Inquiries. Shareholder inquiries should be directed to the
Shareholder Servicing Agent at (888) 229-2105.
Year 2000 Compliance. As the year 2000 approaches, an issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Failure to adequately address this issue could have
potentially serious repercussions. The Advisor is in the process of working with
each Fund's service providers to prepare for the year 2000. Based on information
currently available, the Advisor does not expect that the Funds will incur
significant operating expenses or be required to incur materials costs to be
year 2000 compliant. Although the Advisor does not anticipate that the year 2000
issue will have a material impact on a Fund's ability to provide service at
current levels, there can be no assurance that steps taken in preparation for
the year 2000 will be sufficient to avoid any adverse impact on each Fund.
685815.4
-17-
<PAGE>
ADVISOR
Ridgeway Helms Investment Management, Inc.
303 Twin Dolphin Drive, Suite 530
Redwood Shores, CA 94065
DISTRIBUTOR
Ridgeway Helms Securities Corporation
303 Twin Dolphin Drive, Suite 530
Redwood Shores, California 94065
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
ADMINISTRATOR & TRANSFER AGENT
American Data Services, Inc.
The Hauppauge Corporate Center
150 Motor Parkway, Suite 109
Hauppauge, NY 11788-0132
AUDITORS
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, NY 10017
LEGAL COUNSEL
Battle Fowler LLP
75 East 55th Street
New York, N.Y. 10022
685815.4
-18-
<PAGE>
THE MILLENNIUM RHIM FUNDS, INC.
THE MILLENNIUM GROWTH FUND
THE MILLENNIUM GROWTH & INCOME FUND
Statement of Additional Information
Dated __________, 1998
This Statement of Additional Information is not a prospectus, and it should be
read in conjunction with the prospectus dated __________, 1998, as may be
amended from time to time, of The Millennium Growth Fund (the "Growth Fund") and
The Millennium Growth & Income Fund (the "Growth & Income Fund", and
individually or collectively, a "Fund" or the "Funds"), each a series of The
Millennium RHIM Funds, Inc. (the "Company"). On __________, 1998, the
shareholders of the Ridgeway Helms Millennium Fund, a series of Advisors Series
Trust, approved the reorganization of such fund into the Growth Fund. Ridgeway
Helms Investment Management, Inc. (the "Advisor") is the Advisor to each Fund. A
copy of the prospectus may be obtained from each Fund at 303 Twin Dolphin Drive,
Suite 530, Redwood Shores, CA 94104; telephone (800) 801-5992.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Cross-reference to sections
Page in the prospectus
---- ---------------------------
<S> <C> <C>
Investment Objective and Policies.................... B-2 Investment Objective and Policies
Management........................................... B-10 Management of the Funds
Portfolio Transactions and Brokerage................. B-12 Management of the Fund
Net Asset Value...................................... B-13 Investor Guide
Taxation ........................................... B-14 Distributions and Taxes
Performance Information.............................. B-16 General Information
General Information.................................. B-19 General Information
Financial Statements................................. B-19 Not Applicable
Appendix............................................. B-18 Not Applicable
</TABLE>
685812.3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Growth Fund is growth of capital. The
investment objective of the Growth & Income Fund is growth of capital and
dividend income. There is no assurance that either Fund will achieve its
objective. The discussion below supplements information contained in the
prospectus as to investment policies of each Fund.
Convertible Securities and Warrants
Each Fund may invest in convertible securities and warrants. A convertible
security is a fixed income security (a debt instrument or a preferred stock)
which may be converted at a stated price within a specified period of time into
a certain quantity of the common stock of the same or a different issuer.
Convertible securities are senior to common stocks in an issuer's capital
structure, but are usually subordinated to similar non-convertible securities.
While providing a fixed income stream (generally higher in yield than the income
derivable from common stock but lower than that afforded by a similar
nonconvertible security), a convertible security also gives an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation of the issuing company depending upon a market price advance in the
convertible security's underlying common stock.
A warrant gives the holder a right to purchase at any time during a
specified period a predetermined number of shares of common stock at a fixed
price. Unlike convertible debt securities or preferred stock, warrants do not
pay a fixed dividend. Investments in warrants involve certain risks, including
the possible lack of a liquid market for resale of the warrants, potential price
fluctuations as a result of speculation or other factors, and failure of the
price of the underlying security to reach or have reasonable prospects of
reaching a level at which the warrant can be prudently exercised (in which event
the warrant may expire without being exercised, resulting in a loss of the
Fund's entire investment therein).
Short-Term Investments
Each Fund may invest in any of the following securities and instruments:
Bank Certificates or Deposit, Bankers' Acceptances and Time Deposits. A
Fund may acquire certificates of deposit, bankers' acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by a Fund will be
dollar-denominated obligations of domestic or foreign banks or financial
institutions which at the time of purchase have capital, surplus and undivided
profits in excess of $100 million (including assets of both domestic and foreign
branches), based on latest published reports, or less than $100 million if the
principal amount of such bank obligations are fully insured by the U.S.
Government. If a Fund holds instruments of foreign banks or financial
institutions, it may be subject to additional investment risks that are
different in some respects from those incurred by a fund which invests only in
debt obligations of U.S. domestic issuers. See "Foreign Investments" below. Such
risks include future political and economic developments, the possible
imposition of withholding taxes by the particular country in which the issuer is
located on interest income payable on the securities, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities.
Domestic banks and foreign banks are subject to different governmental
regulations with respect to the amount and types of loans which may be made and
interest rates which may be charged. In addition, the profitability of the
banking industry depends largely upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important part
in the operations of the banking industry.
As a result of federal and state laws and regulations, domestic banks are,
among other things, required to maintain specified levels of reserves, limited
in the amount which they can loan to a single borrower, and subject to
685812.3
B-2
<PAGE>
other regulations designed to promote financial soundness. However, such laws
and regulations do not necessarily apply to foreign bank obligations that a Fund
may acquire.
In addition to purchasing certificates of deposit and bankers' acceptances,
to the extent permitted under its investment objective and policies stated above
and in its prospectus, each Fund may make interest-bearing time or other
interest-bearing deposits in commercial or savings banks. Time deposits are
non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate.
Savings Association Obligations. Each Fund may invest in certificates of
deposit (interest-bearing time deposits) issued by savings banks or savings and
loan associations that have capital, surplus and undivided profits in excess of
$100 million, based on latest published reports, or less than $100 million if
the principal amount of such obligations is fully insured by the U.S.
Government.
Commercial Paper, Short-Term Notes and Other Corporate Obligations. Each
Fund may invest a portion of its assets in commercial paper and short-term
notes. Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper and short-term notes will normally have
maturities of less than nine months and fixed rates of return, although such
instruments may have maturities of up to one year.
Commercial paper and short-term notes will consist of issues rated at the
time of purchase "A-2" or higher by S&P, "Prime-1" or "Prime-2" by Moody's, or
similarly rated by another nationally recognized statistical rating organization
or, if unrated, will be determined by the Advisor to be of comparable quality.
These rating symbols are described in the Appendix attached hereto.
Corporate obligations include bonds and notes issued by corporations to
finance longer-term credit needs than supported by commercial paper. While such
obligations generally have maturities of ten years or more, a Fund may purchase
corporate obligations which have remaining maturities of one year or less from
the date of purchase and which are rated "AA" or higher by S&P or "Aa" or higher
by Moody's.
Government Obligations
Each Fund may make short-term investments in U.S. Government obligations.
Such obligations include Treasury bills, certificates of indebtedness, notes and
bonds, and issues of such entities as the Government National Mortgage
Association ("GNMA"), Export-Import Bank of the United States, Tennessee Valley
Authority, Resolution Funding Corporation, Farmers Home Administration, Federal
Home Loan Banks, Federal Intermediate Credit Banks, Federal Farm Credit Banks,
Federal Land Banks, Federal Housing Administration, Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation, and the Student
Loan Marketing Association.
Each of these obligations, such as those of the GNMA, are supported by the
full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of United States, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the FNMA, are supported by
the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.
The Fund may invest in sovereign debt obligations of foreign countries. A
sovereign debtor's willingness or ability to repay principal and interest in a
timely manner may be affected by a number of factors, including its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which it may be
subject. Emerging market governments could default on their sovereign debt. Such
sovereign debtors also may be dependent on expected disbursements from foreign
governments, multilateral agencies and other entities abroad to reduce principal
and interest arrearages on their debt. The commitments on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a sovereign debtor's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to meet
such conditions could result in the cancellation of such third
685812.3
B-3
<PAGE>
parties' commitments to lend funds to the sovereign debtor, which may further
impair such debtor's ability or willingness to service its debt in a timely
manner.
Foreign Investments and Currencies
Each Fund may invest in securities of foreign issuers, provided that they
are publicly traded in the United States.
Depositary Receipts. Depositary Receipts ("DRs") include American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") or other forms of depositary receipts. DRs are
receipts typically issued in connection with a U.S. or foreign bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation.
Risks of Investing in Foreign Securities. Investments in foreign securities
involve certain inherent risks, including the following:
Political and Economic Factors. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. The internal politics of certain foreign countries may not be as
stable as those of the United States. Governments in certain foreign countries
also continue to participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
goods or imposition of taxes, and could have a significant effect on market
prices of securities and payment of interest. The economies of many foreign
countries are heavily dependent upon international trade and are accordingly
affected by the trade policies and economic conditions of their trading
partners. Enactment by these trading partners of protectionist trade legislation
could have a significant adverse effect upon the securities markets of such
countries.
Currency Fluctuations. Each Fund may invest in securities denominated in
foreign currencies. Accordingly, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of a Fund's assets denominated in that currency. Such changes will also
affect a Fund's income. The value of a Fund's assets may also be affected
significantly by currency restrictions and exchange control regulations enacted
from time to time.
Taxes. The interest and dividends payable on certain of a Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to the Fund's shareholders.
Options on Securities
Purchasing Put and Call Options. Each Fund may purchase covered "put" and
"call" options with respect to securities which are otherwise eligible for
purchase by the Fund subject to certain restrictions. Each Fund will engage in
trading of such derivative securities exclusively for hedging purposes.
If a Fund purchases a put option, the Fund acquires the right to sell the
underlying security at a specified price at any time during the term of the
option (for "American-style" options) or on the option expiration date (for
"European-style" options). Purchasing put options may be used as a portfolio
investment strategy when the Advisor perceives significant short-term risk but
substantial long-term appreciation for the underlying security. The put option
acts as an insurance policy, as it protects against significant downward price
movement while it allows full participation in any upward movement. If a Fund is
holding a security which it feels has strong fundamentals, but for some reason
may be weak in the near term, the Fund may purchase a put option on such
security, thereby giving itself the right to sell such security at a certain
strike price throughout the term of the option. Consequently, a Fund will
exercise the put only if the price of such security falls below the strike price
of the put. The difference between the put's strike price and the market price
of the underlying security on the date a Fund exercises the put, less
transaction costs, will be the amount by which the Fund will be able to hedge
against a decline in the underlying security. If during the period of the option
the market price for the underlying security remains at or above the put's
strike price, the put will expire worthless, representing a loss of the price
the Fund paid for the put, plus transaction
685812.3
B-4
<PAGE>
costs. If the price of the underlying security increases, the profit a Fund
realizes on the sale of the security will be reduced by the premium paid for the
put option less any amount for which the put may be sold.
If a Fund purchases a call option, it acquires the right to purchase the
underlying security at a specified price at any time during the term of the
option. The purchase of a call option is a type of insurance policy to hedge
against losses that could occur if the Fund has a short position in the
underlying security and the security thereafter increases in price. Each Fund
will exercise a call option only if the price of the underlying security is
above the strike price at the time of exercise. If during the option period the
market price for the underlying security remains at or below the strike price of
the call option, the option will expire worthless, representing a loss of the
price paid for the option, plus transaction costs. If the call option has been
purchased to hedge a short position of a Fund in the underlying security and the
price of the underlying security thereafter falls, the profit the Fund realizes
on the cover of the short position in the security will be reduced by the
premium paid for the call option less any amount for which such option may be
sold.
Prior to exercise or expiration, an option may be sold when it has
remaining value by a purchaser through a "closing sale transaction," which is
accomplished by selling an option of the same series as the option previously
purchased. Each Fund generally will purchase only those options for which the
Advisor believes there is an active secondary market to facilitate closing
transactions.
Writing Call Options. Each Fund may write covered call options. A call
option is "covered" if a Fund owns the security underlying the call or has an
absolute right to acquire the security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount as are held in a segregated account by the Custodian). The writer of
a call option receives a premium and gives the purchaser the right to buy the
security underlying the option at the exercise price. The writer has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. If the writer of
an exchange-traded option wishes to terminate his obligation, he may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. A writer may not effect a closing
purchase transaction after it has been notified of the exercise of an option.
Effecting a closing transaction in the case of a written call option will
permit a Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. Also, effecting a
closing transaction will permit the cash or proceeds from the concurrent sale of
any securities subject to the option to be used for other investments of a Fund.
If a Fund desires to sell a particular security from its portfolio on which it
has written a call option, it will effect a closing transaction prior to or
concurrent with the sale of the security.
A Fund will realize a gain from a closing transaction if the cost of the
closing transaction is less than the premium received from writing the option or
if the proceeds from the closing transaction are more than the premium paid to
purchase the option. A Fund will realize a loss from a closing transaction if
the cost of the closing transaction is more than the premium received from
writing the option or if the proceeds from the closing transaction are less than
the premium paid to purchase the option. However, because increases in the
market price of a call option will generally reflect increases in the market
price of the underlying security, any loss to a Fund resulting from the
repurchase of a call option is likely to be offset in whole or in part by
appreciation of the underlying security owned by the Fund.
Risks Of Investing in Options. There are several risks associated with
transactions in options on securities. Options may be more volatile than the
underlying securities and, therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation than an investment in the
underlying securities themselves. There are also significant differences between
the securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its objective.
In addition, a liquid secondary market for particular options may be absent for
reasons which include the following: there may be insufficient trading interest
in certain options; restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; trading halts, suspensions or
other restrictions may be imposed with respect to particular classes or series
of options of underlying securities; unusual or unforeseen circumstances may
interrupt normal operations on an exchange; the facilities of an exchange or
clearing corporation may not at all times be adequate to handle current trading
volume; or one or more exchanges could, for economic or other reasons, decide or
be compelled at some
685812.3
B-5
<PAGE>
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although outstanding
options that had been issued by a clearing corporation as a result of trades on
that exchange would continue to be exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves the exercise
of skill and judgment, and even a well-conceived transaction may be unsuccessful
to some degree because of market behavior or unexpected events.
Dealer Options. Each Fund will engage in transactions involving dealer
options as well as exchange-traded options. Certain additional risks are
specific to dealer options. While a Fund might look to a clearing corporation to
exercise exchange-traded options, if the Fund were to purchase a dealer option
it would need to rely on the dealer from which it purchased the option to
perform if the option were exercised. Failure by the dealer to do so would
result in the loss of the premium paid by a Fund as well as loss of the expected
benefit of the transaction.
Exchange-traded options generally have a continuous liquid market while
dealer options may not. Consequently, a Fund may generally be able to realize
the value of a dealer option it has purchased only by exercising or reselling
the option to the dealer who issued it. Similarly, when a Fund writes a dealer
option, the Fund may generally be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to whom the Fund originally wrote the option. While each Fund will seek to enter
into dealer options only with dealers who will agree to and which are expected
to be capable of entering into closing transactions with the Fund, there can be
no assurance that a Fund will at any time be able to liquidate a dealer option
at a favorable price at any time prior to expiration. Unless a Fund, as a
covered dealer call option writer, is able to effect a closing purchase
transaction, it will not be able to liquidate securities (or other assets) used
as cover until the option expires or is exercised. In the event of insolvency of
the other party, a Fund may be unable to liquidate a dealer option. With respect
to options written by a Fund, the inability to enter into a closing transaction
may result in material losses to the Fund. For example, because a Fund must
maintain a secured position with respect to any call option on a security it
writes, the Fund may not sell the assets which it has segregated to secure the
position while it is obligated under the option. This requirement may impair a
Fund's ability to sell portfolio securities at a time when such sale might be
advantageous.
The Staff of the Securities and Exchange Commission (the "Commission") has
taken the position that purchased dealer options are illiquid securities. Each
Fund may treat the cover used for written dealer options as liquid if the dealer
agrees that the Fund may repurchase the dealer option it has written for a
maximum price to be calculated by a predetermined formula. In such cases, the
dealer option would be considered illiquid only to the extent the maximum
purchase price under the formula exceeds the intrinsic value of the option.
Accordingly, each Fund will treat dealer options as subject to the Fund's
limitation on illiquid securities. If the Commission changes its position on the
liquidity of dealer options, each Fund will change its treatment of such
instruments accordingly.
Spread Transactions. Each Fund may purchase covered spread options from
securities dealers. These covered spread options are not presently
exchange-listed or exchange-traded. The purchase of a spread option gives a Fund
the right to put securities that it owns at a fixed dollar spread or fixed yield
spread in relationship to another security that the Fund does not own, but which
is used as a benchmark. The risk to a Fund, in addition to the risks of dealer
options described above, is the cost of the premium paid as well as any
transaction costs. The purchase of spread options will be used to protect a Fund
against adverse changes in prevailing credit quality spreads, i.e., the yield
spread between high quality and lower quality securities. This protection is
provided only during the life of the spread options.
Repurchase Agreements
Each Fund may enter into repurchase agreements with respect to its
portfolio securities. Pursuant to such agreements, a Fund acquires securities
from financial institutions such as banks and broker-dealers as are deemed to be
creditworthy by the Advisor, subject to the seller's agreement to repurchase and
the Fund's agreement to resell such securities at a mutually agreed upon date
and price. The repurchase price generally equals the price paid by a Fund plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the
685812.3
B-6
<PAGE>
underlying portfolio security). Securities subject to repurchase agreements will
be held by the Custodian or in the Federal Reserve/Treasury Book-Entry System or
an equivalent foreign system. The seller under a repurchase agreement will be
required to maintain the value of the underlying securities at not less than
102% of the repurchase price under the agreement. If the seller defaults on its
repurchase obligation, a Fund will suffer a loss to the extent that the proceeds
from a sale of the underlying securities are less than the repurchase price
under the agreement. Bankruptcy or insolvency of such a defaulting seller may
cause a Fund's rights with respect to such securities to be delayed or limited.
Repurchase agreements are considered to be loans under the 1940 Act.
When-Issued Securities, Forward Commitments and Delayed Settlements
Each Fund may purchase securities on a "when-issued," forward commitment or
delayed settlement basis. In this event, the Custodian will set aside cash or
liquid portfolio securities equal to the amount of the commitment in a separate
account. Normally, the Custodian will set aside portfolio securities to satisfy
a purchase commitment. In such a case, a Fund may be required subsequently to
place additional assets in the separate account in order to assure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash.
Each Fund does not intend to engage in these transactions for speculative
purposes but only in furtherance of its investment objective. Because a Fund
will set aside cash or liquid portfolio securities to satisfy its purchase
commitments in the manner described, the Fund's liquidity and the ability of the
Advisor to manage it may be affected in the event the Fund's forward
commitments, commitments to purchase when-issued securities and delayed
settlements ever exceeded 15% of the value of its net assets.
Each Fund will purchase securities on a when-issued, forward commitment or
delayed settlement basis only with the intention of completing the transaction.
If deemed advisable as a matter of investment strategy, however, a Fund may
dispose of or renegotiate a commitment after it is entered into, and may sell
securities it has committed to purchase before those securities are delivered to
the Fund on the settlement date. In these cases a Fund may realize a taxable
capital gain or loss. When a Fund engages in when-issued, forward commitment and
delayed settlement transactions, it relies on the other party to consummate the
trade. Failure of such party to do so may result in a Fund's incurring a loss or
missing an opportunity to obtain a price credited to be advantageous.
The market value of the securities underlying a when-issued purchase,
forward commitment to purchase securities, or a delayed settlement and any
subsequent fluctuations in their market value is taken into account when
determining the market value of a Fund starting on the day the Fund agrees to
purchase the securities. A Fund does not earn interest on the securities it has
committed to purchase until they are paid for and delivered on the settlement
date.
Short Sales
Each Fund is authorized to make short sales of securities it owns or has
the right to acquire at no added cost through conversion or exchange of other
securities it owns (referred to as short sales "against the box") and to make
short sales of securities which it does not own or have the right to acquire.
In a short sale that is not "against the box," a Fund sells a security
which it does not own, in anticipation of a decline in the market value of the
security. To complete the sale, a Fund must borrow the security (generally from
the broker through which the short sale is made) in order to make delivery to
the buyer. The Fund is then obligated to replace the security borrowed by
purchasing it at the market price at the time of replacement. The Fund is said
to have a "short position" in the securities sold until it delivers them to the
broker. The period during which a Fund has a short position can range from one
day to more than a year. Until the security is replaced, the proceeds of the
short sale are retained by the broker, and the Fund is required to pay to the
broker a negotiated portion of any dividends or interest which accrue during the
period of the loan. To meet current margin requirements, each Fund is also
required to deposit with the broker additional cash or securities so that the
total deposit with the broker is maintained daily at 150% of the current market
value of the securities sold short (100% of the current market value if a
security is held in the account that is convertible or exchangeable into the
security sold short within 90 days without restriction other than the payment of
money).
685812.3
B-7
<PAGE>
Short sales by a Fund that are not made "against the box" create
opportunities to increase the Fund's return but, at the same time, involve
specific risk considerations and may be considered a speculative technique.
Since a Fund in effect profits from a decline in the price of the securities
sold short without the need to invest the full purchase price of the securities
on the date of the short sale, the Fund's net asset value per share will tend to
increase more when the securities it has sold short decrease in value, and to
decrease more when the securities it has sold short increase in value, than
would otherwise be the case if it had not engaged in such short sales. The
amount of any gain will be decreased, and the amount of any loss increased, by
the amount of any premium, dividends or interest a Fund may be required to pay
in connection with the short sale. Furthermore, under adverse market conditions,
a Fund might have difficulty purchasing securities to meet its short sale
delivery obligations, and might have to sell portfolio securities to raise the
capital necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor such sales.
If a Fund makes a short sale "against the box," the Fund would not
immediately deliver the securities sold and would not receive the proceeds from
the sale. The seller is said to have a short position in the securities sold
until it delivers the securities sold, at which time it receives the proceeds of
the sale. To secure its obligation to deliver securities sold short, a Fund will
deposit in escrow in a separate account with the Custodian an equal amount of
the securities sold short or securities convertible into or exchangeable for
such securities. A Fund can close out its short position by purchasing and
delivering an equal amount of the securities sold short, rather than by
delivering securities already held by the Fund, because the Fund might want to
continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short.
A Fund's decision to make a short sale "against the box" may be a technique
to hedge against market risks when the Advisor believes that the price of a
security may decline, causing a decline in the value of a security owned by the
Fund or a security convertible into or exchangeable for such security. In such
case, any future losses in the Fund's long position would be reduced by a gain
in the short position. The extent to which such gains or losses in the long
position are reduced will depend upon the amount of securities sold short
relative to the amount of the securities a Fund owns, either directly or
indirectly, and, in the case where the Fund owns convertible securities, changes
in the investment values or conversion premiums of such securities.
Illiquid Securities
Each Fund may not invest more than 15% of the value of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise illiquid. The Advisor will monitor the amount of
illiquid securities in each Fund's portfolio, under the supervision of the
Company's Board of Directors, to ensure compliance with the Fund's investment
restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a Fund might be unable
to dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemption requests
within seven days. A Fund might also have to register such restricted securities
in order to dispose of them, resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the Commission under the Securities
Act, the Company's Board of
685812.3
B-8
<PAGE>
Directors may determine that such securities are not illiquid securities
notwithstanding their legal or contractual restrictions on resale. In all other
cases, however, securities subject to restrictions on resale will be deemed
illiquid.
Risks of Investing in Small Companies
As stated in the prospectus, each Fund may purchase securities of companies
with market capitalization as low as $25 million. Additional risks of such
investments include the markets on which such securities are frequently traded.
In many instances the securities of smaller companies are traded only
over-the-counter or on a regional securities exchange, and the frequency and
volume of their trading is substantially less than is typical of larger
companies. Therefore, the securities of smaller companies may be subject to
greater and more abrupt price fluctuations. When making large sales, a Fund may
have to sell portfolio holdings at discounts from quoted prices or may have to
make a series of small sales over an extended period of time due to the trading
volume of smaller company securities. Investors should be aware that, based on
the foregoing factors, an investment in each Fund may be subject to greater
price fluctuations than an investment in a fund that invests exclusively in
larger, more established companies. The Advisor's research efforts may also play
a greater role in selecting securities for each Fund than in a fund that invests
in larger, more established companies.
Investment Restrictions
The Company (on behalf of each Fund) has adopted the following restrictions
as fundamental policies, which may not be changed without the favorable vote of
the holders of a "majority," as defined in the 1940 Act, of the outstanding
voting securities of a Fund. Under the 1940 Act, the "vote of the holders of a
majority of the outstanding voting securities" means the vote of the holders of
the lesser of (i) 67% of the shares of a Fund represented at a meeting at which
the holders of more than 50% of its outstanding shares are represented or (ii)
more than 50% of the outstanding shares of a Fund.
As a matter of fundamental policy, each Fund is non-diversified. Each
Fund's investment objective is also fundamental.
In addition, each Fund may not:
1. Issue senior securities, borrow money or pledge its assets, except that
(i) a Fund may borrow from banks in amounts not exceeding one-third of its total
assets (including the amount borrowed); and (ii) this restriction shall not
prohibit a Fund from engaging in options transactions or short sales;
2. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions and except that a Fund may borrow
money from banks to purchase securities;
3. Act as underwriter (except to the extent a Fund may be deemed to be an
underwriter in connection with the sale of securities in its investment
portfolio);
4. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities);
5. Purchase or sell real estate or interests in real estate or real estate
limited partnerships (although a Fund may purchase and sell securities which are
secured by real estate and securities of companies which invest or deal in real
estate);
6. Purchase or sell commodities or commodity futures contracts, except that
a Fund may purchase and sell foreign currency contracts in accordance with any
rules of the Commodity Futures Trading Commission;
7. Make loans of money (except for purchases of debt securities consistent
with the investment policies of a Fund and except for repurchase agreements); or
8. Make investments for the purpose of exercising control or management.
685812.3
B-9
<PAGE>
Each Fund also observes the following restrictions as a matter of operating
but not fundamental policy, pursuant to positions taken by federal regulatory
authorities:
Each Fund may not:
1. Invest in the securities of other investment companies or purchase any
other investment company's voting securities or make any other investment in
other investment companies except to the extent permitted by federal law; or
2. Invest more than 15% of its assets in securities which are restricted as
to disposition or otherwise are illiquid or have no readily available market
(except for securities which are determined by the Board of Directors to be
liquid).
MANAGEMENT
The overall management of the business and affairs of the Company is vested
with its Board of Directors. The Board approves all significant agreements
between the Company and persons or companies furnishing services to it,
including the agreements with the Advisor, Administrator, Custodian and Transfer
Agent. The day to day operations of the Company are delegated to its officers,
subject to each Fund's investment objective and policies and to general
supervision by the Board of Directors.
The Directors and officers of the Company their ages and positions with the
Company, their business addresses and principal occupations during the past five
years are:
<TABLE>
<CAPTION>
Name, address and age Position Principal Occupation During Past Five Years
<S> <C> <C>
Robert A. Dowlett* Director President, Ridgeway Helms Investment Management, Inc.
303 Twin Dolphin Drive since 1995. Prior thereto, financial consultant and portfolio
Suite 530 manager with Smith Barney Inc.
Redwood Shores, CA 94065
Age __
N. Joseph Nahas* Director First Vice President, Ridgeway Helms Investment Management,
303 Twin Dolphin Drive Inc. since August 1996. Prior thereto, First Vice President
Suite 530 Investments of Round Hill Securities (since November 1994) and
Redwood Shores, CA 94065 prior thereto, a financial consultant and portfolio manager with
Age __ Smith Barney Inc.
</TABLE>
<TABLE>
<CAPTION>
Proposed Disinterested Directors
<S> <C> <C>
Mark N. Rigel Director Manufacturing Representative; Cherry Semiconductor since 1992.
2700 Augustine Dr.,
Suite 210
Santa Clara, CA 95045
Age 38
Bob Behrooz Director Senior Software Engineer, Northern Telecom since 1996; prior
2305 Mission College Blvd. thereto from 1992 to 1996 Senior Software Engineer, KSI, Inc.
Mail Stop C1230
Santa Clara, CA 095045
Age 42
- --------
* Denotes a Director who is an "interested person" of the Trust under the 1940 Act.
</TABLE>
685812.3
B-10
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION OF DISINTERESTED DIRECTORS
<S> <C>
Name and Position Aggregate Compensation from The Company****
</TABLE>
[TO COME]
The Advisor
Subject to the supervision of the Board of Directors, investment management
and related services for each Fund are provided by the Advisor, pursuant to an
Investment Advisory Agreement (the "Advisory Agreement") entered into between
the Advisor and the Company, on behalf of each Fund.
Under each Advisory Agreement, the Advisor agrees to invest the assets of
each Fund in accordance with the investment objective, policies and restrictions
of such Fund as set forth in the Fund's and Company's governing documents,
including, without limitation, the Company's Article of Incorporation and
By-Laws; each Fund's prospectus, statement of additional information, and
undertakings; and such other limitations, policies and procedures as the
Directors of the Company may impose from time to time in writing to the Advisor.
In providing such services, the Advisor shall at all times adhere to the
provisions and restrictions contained in the federal securities laws, applicable
state securities laws, the Code, and other applicable law.
Without limiting the generality of the foregoing, the Advisor has agreed to
(i) furnish each Fund with advice and recommendations with respect to the
investment of the Fund's assets, (ii) effect the purchase and sale of portfolio
securities; (iii) manage and oversee the investments of each Fund, subject to
the ultimate supervision and direction of the Company's Board of Directors; (iv)
vote proxies and take other actions with respect to each Fund's securities; (v)
maintain the books and records required to be maintained with respect to the
securities in each Fund's portfolio; (vi) furnish reports, statements and other
data on securities, economic conditions and other matters related to the
investment of each Fund's assets which the Directors or the officers of the
Company may reasonably request; and (vi) render to the Company's Board of
Directors such periodic and special reports as the Board may reasonably request.
The Advisor has also agreed, at its own expense, to maintain such staff and
employ or retain such personnel and consult with such other persons as it shall
from time to time determine to be necessary to the performance of its
obligations under each Advisory Agreement. Personnel of the Advisor may serve as
officers of the Company provided they do so without compensation from the
Company. Without limiting the generality of the foregoing, the staff and
personnel of the Advisor shall be deemed to include persons employed or retained
by the Advisor to furnish statistical information, research, and other factual
information, advice regarding economic factors and trends, information with
respect to technical and scientific developments, and such other information,
advice and assistance as the Advisor or the Company's Board of Directors may
desire and reasonably request. With respect to the operation of each Fund, the
Advisor has agreed to be responsible for the expenses of printing and
distributing extra copies of the Fund's prospectus, statement of additional
information, and sales and advertising materials (but not the legal, auditing or
accounting fees attendant thereto) to prospective investors (but not to existing
shareholders); and the costs of any special Board of Directors meetings or
shareholder meetings convened for the primary benefit of the Advisor.
As compensation for the Advisor's services, each Fund pays it an advisory
fee at the rate specified in the prospectus. In addition to the fees payable to
the Advisor and the Administrator, the Company is responsible for its operating
expenses, including: fees and expenses incurred in connection with the issuance,
registration and transfer of its shares; brokerage and commission expenses; all
expenses of transfer, receipt, safekeeping, servicing and accounting for the
cash, securities and other property of the Company for the benefit of each Fund
including all fees and expenses of its custodian, shareholder services agent and
accounting services agent; interest charges on any borrowings; costs and
expenses of pricing and calculating its daily net asset value and of maintaining
its books of
- --------
** Estimated for the current fiscal year. The company has no pension or
retirement plan. No other entity affiliated with the Company pays any
compensation to the Directors.
685812.3
B-11
<PAGE>
account required under the 1940 Act; taxes, if any; a pro rata portion of
expenditures in connection with meetings of each Fund's shareholders and the
Company's Board of Directors that are properly payable by a Fund; salaries and
expenses of officers and fees and expenses of members of the Company's Board of
Directors or members of any advisory board or committee who are not members of,
affiliated with or interested persons of the Advisor or Administrator; insurance
premiums on property or personnel of each Fund which inure to its benefit,
including liability and fidelity bond insurance; the cost of preparing and
printing reports, proxy statements, prospectuses and statements of additional
information of each Fund or other communications for distribution to existing
shareholders; legal, auditing and accounting fees; trade association dues; fees
and expenses (including legal fees) of registering and maintaining registration
of its shares for sale under federal and applicable state and foreign securities
laws; all expenses of maintaining and servicing shareholder accounts, including
all charges for transfer, shareholder recordkeeping, dividend disbursing,
redemption, and other agents for the benefit of each Fund, if any; and all other
charges and costs of its operation plus any extraordinary and non-recurring
expenses, except as otherwise prescribed in each Advisory Agreement.
The Advisor may agree to waive certain of its fees or reimburse each Fund
for certain expenses, in order to limit the expense ratio of the Fund. In that
event, subject to approval by the Company's Board of Directors, each Fund may
reimburse the Advisor in subsequent years for fees waived and expenses
reimbursed, provided the expense ratio before reimbursement is less than the
expense limitation in effect at that time.
The Advisor is controlled by Robert A. Dowlett.
Under each Advisory Agreement, the Advisor will not be liable to the
Company or a Fund or any shareholder for any act or omission in the course of,
or connected with, rendering services or for any loss sustained by the Company
except in the case of a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages will be limited as
provided in the 1940 Act) or of willful misfeasance, bad faith or gross
negligence, or reckless disregard of its obligations and duties under the
Agreement.
Each Advisory Agreement will initially remain in effect for a period not to
exceed two years. Thereafter, if not terminated, each Advisory Agreement will
continue automatically for successive annual periods, provided that such
continuance is specifically approved at least annually (i) by a majority vote of
the Independent Directors cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by the Board of Directors or by vote of a
majority of the outstanding voting securities of each Fund.
Each Advisory Agreement is terminable by vote of the Board of Directors or
by the holders of a majority of the outstanding voting securities of a Fund at
any time without penalty, on 60 days written notice to the Advisor. Each
Advisory Agreement also may be terminated by the Advisor on 60 days written
notice to the Company. Each Advisory Agreement terminates automatically upon its
assignment (as defined in the 1940 Act).
The Administrator. The Administrator, American Data Services, Inc., has
agreed to be responsible for providing such services as the Directors may
reasonably request, including but not limited to (i) maintaining the Company's
books and records (other than financial or accounting books and records
maintained by any custodian, transfer agent or accounting services agent); (ii)
overseeing the Company's insurance relationships; (iii) preparing for the
Company (or assisting counsel and/or auditors in the preparation of) all
required tax returns, proxy statements and reports to the Company's shareholders
and Directors and reports to and other filings with the Commission and any other
governmental agency (the Company agreeing to supply or cause to be supplied to
the Administrator all necessary financial and other information in connection
with the foregoing); (iv) preparing such applications and reports as may be
necessary to permit the offer and sale of the shares of the Company under the
securities or "blue sky" laws of the various states selected by the Company (the
Company agreeing to pay all filing fees or other similar fees in connection
therewith); (v) responding to all inquiries or other communications of
shareholders, if any, which are directed to the Administrator, or if any such
inquiry or communication is more properly to be responded to by the Company's
custodian, transfer agent or accounting services agent, overseeing their
response thereto; (vi) overseeing all relationships between the Company and any
custodian(s), transfer agent(s) and accounting services agent(s), including the
negotiation of agreements and the supervision of the performance of such
agreements; and (vii)
685812.3
B-12
<PAGE>
authorizing and directing any of the Administrator's directors, officers and
employees who may be elected as Directors or officers of the Company to serve in
the capacities in which they are elected. All services to be furnished by the
Administrator under this Agreement may be furnished through the medium of any
such directors, officers or employees of the Administrator.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Each Advisory Agreement states that the Advisor shall be responsible for
broker-dealer selection and for negotiation of brokerage commission rates,
provided that the Advisor shall not direct orders to an affiliated person of the
Advisor without general prior authorization to use such affiliated broker or
dealer by the Company's Board of Directors. The Advisor's primary consideration
in effecting a securities transaction will be execution at the most favorable
price. In selecting a broker-dealer to execute each particular transaction, the
Advisor may take the following into consideration: the best net price available;
the reliability, integrity and financial condition of the broker-dealer; the
size of and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of each Fund on
a continuing basis. The price to a Fund in any transaction may be less favorable
than that available from another broker-dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.
Subject to such policies as the Advisor and the Board of Directors of the
Company may determine, the Advisor shall not be deemed to have acted unlawfully
or to have breached any duty created by an Advisory Agreement or otherwise
solely by reason of its having caused a Fund to pay a broker or dealer that
provides (directly or indirectly) brokerage or research services to the Advisor
an amount of commission for effecting a portfolio transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction, if the Advisor determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Advisor's overall responsibilities with respect to
a Fund. The Advisor is further authorized to allocate the orders placed by it on
behalf of a Fund to such brokers or dealers who also provide research or
statistical material, or other services, to the Company, the Advisor, or any
affiliate of either. Such allocation shall be in such amounts and proportions as
the Advisor shall determine, and the Advisor shall report on such allocations
regularly to the Board of Directors of the Company, indicating the
broker-dealers to whom such allocations have been made and the basis therefor.
The Advisor is also authorized to consider sales of shares of a Fund as a factor
in the selection of brokers or dealers to execute portfolio transactions,
subject to the requirements of best execution, i.e., that such brokers or
dealers are able to execute the order promptly and at the best obtainable
securities price.
On occasions when the Advisor deems the purchase or sale of a security to
be in the best interest of a Fund as well as other clients of the Advisor, the
Advisor, to the extent permitted by applicable laws and regulations, may
aggregate the securities to be so purchased or sold in order to obtain the most
favorable price or lower brokerage commissions and the most efficient execution.
In such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Advisor in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to a Fund and to such other clients.
NET ASSET VALUE
The net asset value of each Fund's shares will fluctuate and is determined
as of the close of trading on the New York Stock Exchange (the "NYSE")
(currently 4:00 p.m. Eastern time) each business day. The NYSE annually
announces the days on which it will not be open for trading. The most recent
announcement indicates that it will not be open on the following days: New
Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
However, the NYSE may close on days not included in that announcement.
The net asset value per share is computed by dividing the value of the
securities held by a Fund plus any cash or other assets (including interest and
dividends accrued but not yet received) minus all liabilities (including accrued
expenses) by the total number of shares in the Fund outstanding at such time.
Generally, each Fund's investments are valued at market value or, in the
absence of a market value, at fair value as determined in good faith by the
Advisor pursuant to procedures approved by or under the direction of the Board.
685812.3
B-13
<PAGE>
Each Fund's securities, including ADRs, EDRs and GDRs, which are traded on
securities exchanges are valued at the last sale price on the exchange on which
such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any reported sales, at the mean between
the last available bid and asked price. Securities that are traded on more than
one exchange are valued on the exchange determined by the Advisor to be the
primary market. Securities traded in the over-the-counter market are valued at
the mean between the last available bid and asked price prior to the time of
valuation. Securities and assets for which market quotations are not readily
available (including restricted securities which are subject to limitations as
to their sale) are valued at fair value as determined in good faith by or under
the direction of the Board.
Short-term debt obligations with remaining maturities in excess of 60 days
are valued at current market prices, as discussed above. Short-term securities
with 60 days or less remaining to maturity are, unless conditions indicate
otherwise, amortized to maturity based on their cost to each Fund if acquired
within 60 days of maturity or, if already held by the Fund on the 60th day,
based on the value determined on the 61st day.
An option that is written by a Fund is generally valued at the last sale
price or, in the absence of the last sale price, the last offer price. An option
that is purchased by a Fund is generally valued at the last sale price or, in
the absence of the last sale price, the last bid price. If an options exchange
closes after the time at which a Fund's net asset value is calculated, the last
sale or last bid and asked prices as of that time will be used to calculate the
net asset value.
All other assets of a Fund are valued in such manner as the Board in good
faith deems appropriate to reflect their fair value.
TAXATION
Each Fund intends to qualify to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). To qualify as a regulated investment company, a Fund must distribute to
shareholders at least 90% of its investment company taxable income (which
includes, among other items, dividends, taxable interest and the excess of net
short-term capital gains over net long-term capital losses), and meet certain
diversification of assets, source of income, and other requirements of the Code.
By meeting these requirements, a Fund generally will not be subject to Federal
income tax on its investment company taxable income and net capital gains (the
excess of net long-term capital gains over net short-term capital losses)
designated by the Fund as capital gain dividends and distributed to
shareholders. If a Fund does not meet all of these Code requirements, it will be
taxed as an ordinary corporation and its distributions will be taxed to
shareholders as ordinary income. In determining the amount of capital gains to
be distributed, any capital loss carryover from prior years will be applied
against capital gains to reduce the amount of distributions paid. In addition,
any losses incurred in the taxable year subsequent to October 31 will be
deferred to the next taxable year and used to reduce distributions in the
subsequent year.
In order to qualify for treatment as a RIC, a Fund must distribute annually
to shareholders at least 90% of its investment company taxable income and must
meet several additional requirements. Among these requirements are, in general,
the following: (1) at least 90% of a Fund's gross income each taxable year must
be derived from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities or foreign
currencies, or other income derived with respect to its business of investing in
securities or currencies; (2) at the close of each quarter of a Fund's taxable
year, at least 50% of the value of its total assets must be represented by cash
and cash items, U.S. Government securities, securities of other RICs and other
securities, limited in respect of any one issuer, to an amount that does not
exceed 5% of the value of the Fund's assets and that does not represent more
than 10% of the outstanding voting securities of such issuer; and (3) at the
close of each quarter of a Fund's taxable year, not more than 25% of the value
of its assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer.
Amounts, other than tax-exempt interest, not distributed on a timely basis
in accordance with a calendar year distribution requirement may be subject to a
nondeductible 4% excise tax. To prevent imposition of the excise tax, each Fund
must distribute for the calendar year an amount equal to the sum of (1) at least
98% of its ordinary income (excluding any capital gains or losses) for the
calendar year, (2) at least 98% of the excess of its capital gains over capital
losses (adjusted for certain ordinary losses) for the one-year period ending
October 31 of such year, and (3)
685812.3
B-14
<PAGE>
all ordinary income and capital gain net income (adjusted for certain ordinary
losses) for previous years that were not distributed during such years. A
distribution will be treated as paid on December 31 of a calendar year if it is
declared by a Fund during October, November or December of that year to
shareholders of record on a date in such a month and paid by the Fund during
January of the following year. Such distributions will be taxable to
shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received.
Distributions of investment company taxable income generally are taxable to
shareholders as ordinary income. Distributions may be eligible for the
dividends-received deduction available to corporations. To the extent dividends
received by a Fund are attributable to foreign corporations, a corporation that
owns shares in a Fund will not be entitled to the dividends received deduction
with respect to its pro rata portion of such dividends, since the
dividends-received deduction is generally available only with respect to
dividends paid by domestic corporations. In addition, the dividends-received
deduction will be disallowed for shareholders who do not hold their shares in a
Fund for at least 45 days during the 90 day period beginning 45 days before a
share in the Fund becomes ex dividend with respect to such dividend.
Distributions of net capital gains, if any, designated by a Fund as capital
gain dividends are taxable to shareholders as long-term or mid-term capital
gains, regardless of the length of time the Fund's shares have been held by a
shareholder. All distributions are taxable to the shareholder whether reinvested
in additional shares or received in cash Shareholders will be notified annually
as to the Federal tax status of distributions.
Investors should be careful to consider the tax implications of buying
shares just prior to a distribution by a Fund. Distributions by a Fund reduce
the net asset value of the Fund's shares. Should a distributions reduce the net
asset value below a stockholder's cost basis, such distribution, nevertheless,
would be taxable to the shareholder as ordinary income or capital gain as
described above, even though, from an investment standpoint, it may constitute a
partial return of capital. The price of shares purchased at that time includes
the amount of the forthcoming distribution.
Upon the taxable disposition (including a sale or redemption) of shares of
a Fund, a shareholder may realize a gain or loss depending upon his basis in his
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands. Such gain or loss will be
long-term, mid-term, or short-term, generally depending upon the shareholder's
holding period for the shares. Noncorporate shareholders are subject to tax at a
minimum rate of 28% on capital gains resulting from the disposition of shares
held for more than 12 months but not more than 18 months, and at a maximum rate
of 20% on capital gains from the disposition of shares held for more than 18
months, (10% if the taxpayer is, and would be after accounting for such gains,
subject to the 15% tax bracket for ordinary income). However, a loss realized by
a shareholder on the disposition of Fund shares with respect to which capital
gain dividends have been paid will, to the extent of such capital gain
dividends, be treated as long-term capital loss if such shares have been held by
the shareholder for six months or less. Further, a loss realized on a
disposition will be disallowed to the extent the shares disposed of are replaced
(whether by reinvestment of distributions or otherwise) within a period of 61
days beginning 30 days before and ending 30 days after the shares are disposed
of. In such a case, the basis of the shares acquired will be adjusted to reflect
the disallow loss. Shareholders receiving distributions in the form of
additional shares will have a cost basis for Federal income tax purposes in each
share received equal to the net asset value of a share of the Funds on the
reinvestment date.
Certain of the options, futures, contracts, and forward foreign currency
exchange contracts in which a Fund may invest are so-called "section 1256
contracts". With certain exceptions, realized gains or losses on section 1256
contracts generally are considered 60% long-term and 40% short-term capital
gains or losses ("60/40"). Also, section 1256 contracts held by a Fund at the
end of each taxable year (and, generally, for purposes of the 4% excise tax, on
October 31 of each year) are "marked-to-market" with the result that unrealized
gains or losses are treated as though they were realized and the resulting gain
or loss is treated as 60/40 gain or loss. Investors should consult their own tax
advisers in this regard.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by a Fund. In addition, losses
685812.3
B-15
<PAGE>
realized by a Fund on a position that is part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to a Fund of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by a Fund which is taxed as ordinary income when
distributed to stockholders.
A Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
shareholders, and will be taxed to shareholders as ordinary income or long-term
capital gain, may be increased or decreased substantially as compared to a Fund
that did not engage in such hedging transactions.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues interest or other receivables
or accrues expenses or other liabilities denominated in a foreign currency and
the time the Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of certain forward contracts, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase, decrease, or eliminate the amount
of a Fund's investment company taxable income to be distributed to its
shareholders as ordinary income.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other similar income taxes imposed by the foreign
country.
Generally, a credit for foreign taxes is available but is subject to the
limitation that it may not exceed the shareholder's U.S. tax attributable to his
total foreign source taxable income. For this purpose, if Fund qualifies as a
regulated investment company, the source of the Fund's income flows through to
its shareholders. With respect to a Fund, gains from the sale of securities will
be treated as derived from U.S. sources and certain currency fluctuation gains,
including fluctuation gains from foreign currency-denominated debt securities,
receivables and payable, will be treated as ordinary income derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income (as defined for purposes of the foreign tax
credit) including foreign source passive income of a Fund. The foreign tax
credit may offset only 90% of the alternative minimum tax imposed on
corporations and individuals, and foreign taxes generally may not be deducted in
computing alternative minimum taxable income.
Each Fund is required to report to the Internal Revenue Service ("IRS") all
distributions to shareholders except in the case of certain exempt shareholders.
All such distributions generally are subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the Fund or a shareholder that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions whether reinvest in addition shares or taken in cash, will be
reduced by the amounts required to be withheld.
The foregoing discussion relates only to Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). Distributions by a Fund also
may be subject to state and local taxes and their treatment under state and
local income tax laws may differ from the
685812.3
B-16
<PAGE>
Federal income tax treatment. Shareholders should consult their tax advisors
with respect to particular questions of Federal, state and local taxation.
Shareholders who are not U.S. persons should consult their tax advisors
regarding U.S. and foreign tax consequences of ownership of shares of a Fund,
including the likelihood that distributions to them would be subject to
withholding of U.S. tax at a rate of 30% (or at a lower rate under a tax
treaty).
PERFORMANCE INFORMATION
Total Return
Average annual total return quotations used in each Fund's advertising and
promotional materials are calculated according to the following formula:
P(1 + T)n = ERV
where "P" equals a hypothetical initial payment of $1000; "T" equals average
annual total return; "n" equals the number of years; and "ERV" equals the ending
redeemable value at the end of the period of a hypothetical $1000 payment made
at the beginning of the period.
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication. Average annual
total return, or "T" in the above formula, is computed by finding the average
annual compounded rates of return over the period that would equate the initial
amount invested to the ending redeemable value. Average annual total return
assumes the reinvestment of all dividends and distributions.
Yield
Annualized yield quotations used in each Fund's advertising and promotional
materials are calculated by dividing the Fund's investment income for a
specified thirty-day period, net of expenses, by the average number of shares
outstanding during the period, and expressing the result as an annualized
percentage (assuming semi-annual compounding) of the net asset value per share
at the end of the period. Yield quotations are calculated according to the
following formula:
YIELD = 2 [(a-b + 1)6 - 1]
----
cd
where "a" equals dividends and interest earned during the period; "b" equals
expenses accrued for the period, net of reimbursements; "c" equals the average
daily number of shares outstanding during the period that are entitled to
receive dividends and "d" equals the maximum offering price per share on the
last day of the period.
Except as noted below, in determining net investment income earned during
the period ("a" in the above formula), each Fund calculates interest earned on
each debt obligation held by it during the period by (1) computing the
obligation's yield to maturity, based on the market value of the obligation
(including actual accrued interest) on the last business day of the period or,
if the obligation was purchased during the period, the purchase price plus
accrued interest; (2) dividing the yield to maturity by 360 and multiplying the
resulting quotient by the market value of the obligation (including actual
accrued interest). Once interest earned is calculated in this fashion for each
debt obligation held by a Fund, net investment income is then determined by
totaling all such interest earned.
For purposes of these calculations, the maturity of an obligation with one
or more call provisions is assumed to be the next date on which the obligation
reasonably can be expected to be called or, if none, the maturity date.
Other information
Performance data of a Fund quoted in advertising and other promotional
materials represents past performance and is not intended to predict or indicate
future results. The return and principal value of an investment in a Fund will
fluctuate, and an investor's redemption proceeds may be more or less than the
original investment
685812.3
B-17
<PAGE>
amount. In advertising and promotional materials each Fund may compare its
performance with data published by Lipper Analytical Services, Inc. ("Lipper")
or CDA Investment Technologies, Inc. ("CDA"). Each Fund also may refer in such
materials to mutual fund performance rankings and other data, such as
comparative asset, expense and fee levels, published by Lipper or CDA.
Advertising and promotional materials also may refer to discussions of a Fund
and comparative mutual fund data and ratings reported in independent periodicals
including, but not limited to, The Wall Street Journal, Money Magazine, Forbes,
Business Week, Financial World and Barron's.
GENERAL INFORMATION
The Company is a newly organized entity and has no prior business history.
The Articles of Incorporation permit the Directors to issue full and fractional
shares of common stock and to divide or combine the shares into a greater or
lesser number of shares without thereby changing the proportionate beneficial
interest in each Fund. Each share represents an interest in a Fund
proportionately equal to the interest of each other share. Upon the Fund's
liquidation, all shareholders would share pro rata in the net assets of the Fund
available for distribution to shareholders.
The Articles of Incorporation do not require the issuance of stock
certificates. If stock certificates are issued, they must be returned by the
registered owners prior to the transfer or redemption of shares represented by
such certificates.
If they deem it advisable and in the best interest of shareholders, the
Board of Directors may create additional series of shares which differ from each
other only as to dividends. The Board of Directors has created two series of
shares, and may create additional series in the future, which have separate
assets and liabilities. Income and operating expenses not specifically
attributable to a particular Fund are be allocated fairly among the Funds by the
Directors, generally on the basis of the relative net assets of each Fund.
Rule 18f-2 under the Investment Company Act provides that as to any
investment company which has two or more series outstanding and as to any matter
required to be submitted to shareholder vote, such matter is not deemed to have
been effectively acted upon unless approved by the holders of a "majority" (as
defined in the Rule) of the voting securities of each series affected by the
matter. Such separate voting requirements do not apply to the election of
Directors or the ratification of the selection of accountants. The Rule contains
special provisions for cases in which an advisory contract is approved by one or
more, but not all, series. A change in investment policy may go into effect as
to one or more series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected series.
Each Fund's custodian, Star Bank, 425 Walnut Street, Cincinnati, Ohio 45202
is responsible for holding such Funds' assets. American Data Services, Inc., The
Hauppauge Corporate Center, 150 Motor Parkway, Suite 109, Hauppaugue, NY 11788,
acts as each Fund's accounting services agent. The Company's independent
accountants, McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, NY 10017,
assist in the preparation of certain reports to the Securities and Exchange
Commission and each Fund's tax returns.
Shares of each Fund owned by the Directors and officers as a group were
less than 1% at _________, 1998.
On December 31, 1997 [this information needs to be updated prior to
printing], the following additional persons owned of record and/or beneficially
more than 5% of the Growth Fund's outstanding voting securities:
Hines, 1 Metrotech Center North, Brooklyn, NY 11201-3859, 10.88% record.
Middlemist, 1 Metrotech Center North, Brooklyn, NY 11201-3859, 10.20%
record.
FINANCIAL STATEMENTS
Shareholders will receive reports semi-annually showing the investments of
each Fund and other financial information. In addition, shareholders will
receive annual financial statements audited by the Fund's independent
685812.3
B-18
<PAGE>
auditors. The Semi-Annual Report to Shareholders dated December 31, 1997 for the
Ridgeway Helms Millennium Fund is incorporated herein by reference. Shareholder
Reports are available upon request at no charge.
685812.3
B-19
<PAGE>
APPENDIX
Description of Ratings
Moody's Investors Service, Inc.: Corporate Bond Ratings
Aaa--Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa---Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa and Aa
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
period of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Standard & Poor's Corporation: Corporate Bond Ratings
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Commercial Paper Ratings
Moody's commercial paper ratings are assessments of the issuer's ability to
repay punctually promissory obligations. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers: Prime 1--highest quality; Prime 2--higher
quality; Prime 3--high quality.
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment. Ratings are graded into four categories, ranging
from "A" for the highest quality obligations to "D" for the lowest.
Issues assigned the highest rating, A, are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers "1", "2" and "3" to indicate the relative degree of safety. The
designation A-1 indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. A "+" designation is applied to those issues
rated "A-1" which possess extremely strong safety characteristics.
685812.3
B-20
<PAGE>
Capacity for timely payment on issues with the designation "A-2" is strong.
However, the relative degree of safety is not as high as for issues designated
A-1. Issues carrying the designation "A-3" have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effect of changes in circumstances than obligations carrying the higher
designations.
685812.3
B-21
<PAGE>
PART C
Item 24. Financial Statements and Exhibits.
(a) Part A - Financial Highlights for the period ended
December 31, 1997 with respect to the
Ridgeway Helms Millennium Fund, the
predecessor by merger to the Millennium
Growth Fund.
Part B - The financial statements for the Ridgeway
Helms Millennium Fund, the predecessor by
merger to the Millennium Growth Fund are
incorporated herein by reference from the
Semi-Annual Report to Shareholders for the
Ridgeway Helms Millennium Fund.
Part C - None.
(b) Exhibits:
* (1) Articles of Incorporation;
* (2) Bylaws of the Company;
(3) Not Applicable.
(4) Not Applicable.
* (5) Form of Investment Advisory Agreement.
* (6) Form of Distribution Agreement.
(7) Not Applicable.
* (8) Form of Custody Agreement.
**(9.1) Administrative Service Agreement.
**(9.2) Transfer Agency Agreement.
**(10) Opinion of Battle Fowler LLP as to the
legality of the securities being registered,
including their consent to the filing thereof
and as to the use of their names in the
Prospectus.
**(11) Consent of McGladrey & Pullen, L.L.P.,
independent accountants.
- ---------------
* Filed herewith.
** To be filed by amendment
692546.1
<PAGE>
(12) Not Applicable.
**(13) Subscription Letter.
(14) Not Applicable.
**(15) Not Applicable
**(16) Schedule of competition of performance
quotations for each Fund.
**(17) Financial Data Schedule.
(18) Not Applicable.
Item 25. Persons Controlled by or Under Common Control With
Registrant.
Not applicable
Item 26. Number of Holders of Securities.
As of the date of this Registration Statement, no shares have been
issued by the Company.
Item 27. Indemnification.
(a) In accordance with Section 2-418 of the General Corporation
Law of the State of Maryland, Article NINTH of the Registrant's
Articles of Incorporation provides as follows:
"NINTH:(1) The Corporation shall indemnify (i) its currently
acting and former directors and officers, whether serving the
Corporation or at its request any other entity, to the fullest
extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the advance of
expenses under the procedures and to the fullest extent permitted
by law, and (ii) other employees and agents to such extent as
shall be authorized by the Board of Directors or the By-Laws and
as permitted by law. Nothing contained herein shall be construed
to protect any director or officer of the Corporation against any
liability to the Corporation or its security holders to which
he would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or
- ---------------
** To be filed by amendment.
692546.1
<PAGE>
reckless disregard of the duties involved in the conduct of his
office. The foregoing rights of indemnification shall not be
exclusive of any other rights to which those seeking
indemnification may be entitled. The Board of Directors may take
such action as is necessary to carry out these indemnification
provisions and is expressly empowered to adopt, approve and amend
from time to time such by-laws, resolutions or contracts
implementing such provisions or such indemnification arrangements
as may be permitted by law. No amendment of the charter of the
Corporation or repeal of any of its provisions shall limit or
eliminate the right of indemnification provided hereunder with
respect to acts or omissions occurring prior to such amendment or
repeal.
(2) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, and the Investment
Company Act of 1940, no director or officer of the Corporation
shall be personally liable to the Corporation or its stockholders
for money damages; provided, however, that nothing herein shall
be construed to protect any director or officer of the
Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. No
amendment of the charter of the Corporation or repeal of any of
its provisions shall limit or eliminate the limitation of
liability provided to directors and officers hereunder with
respect to any act or omission occurring prior to such amendment
or repeal."
(b) In the Distribution Agreement relating to the securities
being offered hereby, the Registrant agrees to indemnify and hold
harmless any person who controls Ridgeway Helms Securities
Corporation within the meaning of the Securities Act of 1933,
against certain types of civil liabilities arising in connection
with the Registration Statement or Prospectus.
Item 28. Business and Other Connections of Investment Adviser.
Ridgeway Helms Investment Management, Inc. serves as
investment adviser to the Company. Set forth below are the names
of the directors and officers of the Adviser:
692546.1
<PAGE>
Robert A. Dowlett President and CEO and Director
N. Joseph Nahas First Vice President
Item 29. Principal Underwriter.
(a) The principal underwriter of the Company's shares does not
currently act as a principal underwriter, depositor or
investment adviser for any other investment company.
(b) The following table contains information with respect to each
director, officer or partner of each principal underwriter
named in the answer to Item 21:
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
<S> <C> <C>
Robert A. Dowlett President & CEO Director, President &
Ridgeway Helms CEO
Securities
Corporation
303 Twin Dolphin Drive
Suite 530
Redwood Shores, CA 94065
</TABLE>
Item 30. Location of Accounts and Records.
The accounts and records of the Company required to be maintained by
Section 31(a) of the 1940 Act and the rules promulgated thereunder are located,
in whole or in part, at the office of the Investment Advisor and the Company at
303 Twin Dolphin Drive, Suite 530, Redwood Shores, CA 94065; except transfer
agency records which are maintained at the offices of the Administrator:
American Data Services, Inc., The Hauppauge Corporate Center, 150 Motor Parkway,
Hauppauge, New York 11788 and custodial records which are maintained at the
offices of the Custodian, Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio
45202.
Item 31 Management Services.
Not Applicable
692546.1
<PAGE>
Item 32. Undertakings.
The Company hereby undertakes:
(a) to file an amendment to the registration statement with
certified financial statements showing the initial capital
received before accepting subscriptions from any persons in
excess of 25 if the Company proposes to raise its initial
capital pursuant to Section 14(a)(3) of the 1940 Act;
(b) only to the extent required under the amendments to Form N-1A,
to file a post-effective amendment, using financial statements
which need not be certified, within four to six months from
the effective date of the Company's 1933 Act registration
statement.
(c) pursuant to Section 16(c) of the Investment Company Act of 1940,
as amended, to call a shareholder meeting for the purpose of
voting upon the question of removal of one or more directors
(and to assist shareholders in communications with each other)
if and when requested in writing to do so by the recordholders
of not less than 10% of the Company's outstanding shares.
692546.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Redwood Shores and State of California, on the 30th
day of March, 1998.
MILLENNIUM RHIM FUNDS, INC.
By:/s/ Robert A. Dowlett
Robert A. Dowlett, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<S> <C> <C>
/s/ Robert A. Dowlett 3/30/98
Robert A. Dowlett Director, Chairman of the (Date)
Board and Chief Executive
Officer
/s/ N. Joseph Nahas 3/30/98
Michael Miola Director, President, Chief (Date)
Financial Officer and
Secretary
</TABLE>
The above persons signing as Director are all of the members of the
Company's Board of Directors.
692546.1
<PAGE>
FORM OF
THE MILLENNIUM RHIM FUNDS, INC.
INVESTMENT ADVISORY AGREEMENT
Ridgeway Helms Investment Management, Inc.
THIS INVESTMENT ADVISORY AGREEMENT is made as of the _____ day of
_________, 1998, by and between THE MILLENNIUM RHIM FUNDS, INC., a Maryland
corporation (hereinafter called the "Corporation"), on behalf of the following
series of the Corporation, Millennium Growth Fund (the "Fund") and RIDGEWAY
HELMS INVESTMENT MANAGEMENT, INC., a California corporation (hereinafter called
the "Advisor").
WITNESSETH:
WHEREAS, the Corporation is an open-end management investment company,
registered as such under the Investment Company Act of 1940 (the "Investment
Company Act"); and
WHEREAS, the Fund is a series of the Corporation having separate
assets and liabilities; and
WHEREAS, the Advisor is registered as an investment adviser under the
Investment Advisers Act of 1940 and is engaged in the business of providing
investment advice to individual clients and investment companies; and
WHEREAS, the Corporation desires to retain the Advisor to render
advice and services to the Fund pursuant to the terms and provisions of this
Agreement, and the Advisor desires to furnish said advice and services;
NOW, THEREFORE, in consideration of the covenants and the mutual
promises hereinafter set forth, the parties to this Agreement, intending to be
legally bound hereby, mutually agree as follows:
1. Appointment of Advisor. The Corporation hereby employs the Advisor
and the Advisor hereby accepts such employment, to render investment advice and
related services with respect to the assets of the Fund for the period and on
the terms set forth in this Agreement, subject to the supervision and direction
of the Board of Directors.
699752.2
<PAGE>
2. Duties of Advisor.
(a) General Duties. The Advisor shall act as investment adviser
to the Fund and shall supervise investments of the Fund on behalf of the Fund in
accordance with the investment objective, policies and restrictions of the Fund
as set forth in the Fund's and Corporation's governing documents, including,
without limitation, the Corporation's Articles of Incorporation and By-Laws; the
Fund's prospectus, statement of additional information and undertakings; and
such other limitations, policies and procedures as the Directors may impose from
time to time in writing to the Advisor. In providing such services, the Advisor
shall at all times adhere to the provisions and restrictions contained in the
federal securities laws, applicable state securities laws, the Internal Revenue
Code, the Uniform Commercial Code and other applicable law.
Without limiting the generality of the foregoing, the Advisor shall:
(i) furnish the Fund with advice and recommendations with respect to the
investment of the Fund's assets and the purchase and sale of portfolio
securities for the Fund, including the taking of such steps as may be necessary
to implement such advice and recommendations (i.e., placing the orders); (ii)
manage and oversee the investments of the Fund, subject to the ultimate
supervision and direction of the Board of Directors; (iii) vote proxies for the
Fund, file ownership reports under Section 13 of the Securities Exchange Act of
1934 for the Fund, and take other actions on behalf of the Fund; (iv) maintain
the books and records required to be maintained by the Fund except to the extent
arrangements have been made for such books and records to be maintained by the
administrator or another agent of the Fund; (v) furnish reports, statements and
other data on securities, economic conditions and other matters related to the
investment of the Fund's assets which the Fund's administrator or distributor or
the officers of the Corporation may reasonably request; and (vi) render to the
Board of Directors such periodic and special reports with respect to the Fund's
investment activities as the Board may reasonably request, including at least
one in-person appearance annually before the Board of Directors.
(b) Brokerage. The Advisor shall be responsible for decisions to
buy and sell securities for the Fund, for broker-dealer selection, and for
negotiation of brokerage commission rates, provided that the Advisor shall not
direct order to an affiliated person of the Advisor without general prior
authorization to use such affiliated broker or dealer for the Board of
Directors. The Advisor's primary consideration in effecting a securities
transaction will be execution at the most favorable price. In selecting a
broker-dealer to execute each particular transaction, the Advisor may take the
following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Fund on a continuing
basis. The price to the Fund in any transaction may be less favorable than that
available from another broker-dealer if the difference is reasonably justified
by other aspects of the portfolio execution services offered.
699752.2
-2-
<PAGE>
Subject to such policies as the Board of Directors may determine, the
Advisor shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Fund to pay a broker or dealer that provides (directly or indirectly)
brokerage or research services to the Advisor an amount of commission for
effecting a portfolio transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction, if the
Advisor determines in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Advisor's overall responsibilities with respect to the Corporation. The Advisor
is further authorized to allocate the orders placed by it on behalf of the Fund
to such brokers or dealers who also provide research or statistical material, or
other services, to the Corporation, the Advisor, or any affiliate of either.
Such allocation shall be in such amounts and proportions as the Advisor shall
determine, and the Advisor shall report on such allocations regularly to the
Corporation, indicating the broker-dealers to whom such allocations have been
made and the basis therefor. The Advisor is also authorized to consider sales of
shares as a factor in the selection of brokers or dealers to execute portfolio
transactions, subject to the requirements of best execution, i.e., that such
brokers or dealers are able to execute the order promptly and at the best
obtainable securities price.
On occasions when the Advisor deems the purchase or sale of a security
to be in the best interest of one or more of the Fund as well as of other
clients, the Advisor, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be so purchased or sold in order to
obtain the most favorable price or lower brokerage commissions and the most
efficient execution. In such event, allocation of the securities so purchased or
sold, as well as the expenses incurred in the transaction, will be made by the
Advisor in the manner it considers to be the most equitable and consistent with
its fiduciary obligations to the Fund and to such other clients.
3. Representations of the Advisor.
(a) The Advisor shall use its best judgment and efforts in
rendering the advice and services to the Fund as contemplated by this Agreement.
(b) The Advisor shall maintain all licenses and registrations
necessary to perform its duties hereunder in good order.
(c) The Advisor shall conduct its operations at all times in
conformance with the Investment Advisers Act of 1940, the Investment Company Act
of 1940, and any other applicable state and/or self-regulatory organization
regulations.
(d) The Advisor shall maintain errors and omissions insurance in
an amount at least equal to that disclosed to the Board of Directors in
connection with their approval of this Agreement.
699752.2
-3-
<PAGE>
4. Independent Contractor. The Advisor shall, for all purposes herein,
be deemed to be an independent contractor, and shall, unless otherwise expressly
provided and authorized to do so, have no authority to act for or represent the
Corporation or the Fund in any way, or in any way be deemed an agent for the
Corporation or for the Fund. It is expressly understood and agreed that the
services to be rendered by the Advisor to the Fund under the provisions of this
Agreement are not to be deemed exclusive, and the Advisor shall be free to
render similar or different services to others so long as its ability to render
the services provided for in this Agreement shall not be impaired thereby.
5. Advisor's Personnel. The Advisor shall, at its own expense,
maintain such staff and employ or retain such personnel and consult with such
other persons as it shall from time to time determine to be necessary to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Advisor shall be
deemed to include persons employed or retained by the Advisor to furnish
statistical information, research, and other factual information, advice
regarding economic factors and trends, information with respect to technical and
scientific developments, and such other information, advice and assistance as
the Advisor or the Board of Directors may desire and reasonably request.
6. Expenses.
(a) With respect to the operation of the Fund, the Advisor shall
be responsible for (i) providing the personnel, office space and equipment
reasonably necessary for the operation of the Fund, (ii) the expenses of
printing and distributing extra copies of the Fund's prospectus, statement of
additional information, and sales and advertising materials (but not the legal,
auditing or accounting fees attendant thereto) to prospective investors (but not
to existing shareholders), and (iii) the costs of any special Board of Directors
meetings or shareholder meetings convened for the primary benefit of the
Advisor. If the Advisor has agreed to limit the operating expenses of the Fund,
the Advisor shall also be responsible on a monthly basis for any operating
expenses that exceed the agreed upon expense limit.
(b) The Fund is responsible for and has assumed the obligation
for payment of all of its expenses, other than as stated in Subparagraph 6(a)
above, including but not limited to: fees and expenses incurred in connection
with the issuance, registration and transfer of its shares; brokerage and
commission expenses; all expenses of transfer, receipt, safekeeping, servicing
and accounting for the cash, securities and other property of the Corporation
for the benefit of the Fund including all fees and expenses of its custodian,
shareholder services agent and accounting services agent; interest charges on
any borrowings; costs and expenses of pricing and calculating its daily net
asset value and of maintaining its books of account required under the
Investment Company Act; taxes, if any; a pro rata portion of expenditures in
connection with meetings of the Fund's shareholders and the Corporation's Board
of Directors that are properly payable by the Fund; salaries and expenses of
officers and
699752.2
-4-
<PAGE>
fees and expenses of members of the Board of Directors or members of any
advisory board or committee who are not members of, affiliated with or
interested persons of the Advisor; insurance premiums on property or personnel
of the Fund which inure to its benefit, including liability and fidelity bond
insurance; the cost of preparing and printing reports, proxy statements,
prospectuses and statements of additional information of the Fund or other
communications for distribution to existing shareholders; legal, auditing and
accounting fees; trade association dues; fees and expenses (including legal
fees) of registering and maintaining registration of its shares for sale under
federal and applicable state and foreign securities laws; all expenses of
maintaining and servicing shareholder accounts, including all charges for
transfer, shareholder recordkeeping, dividend disbursing, redemption, and other
agents for the benefit of the Fund, if any; and all other charges and costs of
its operation plus any extraordinary and non-recurring expenses, except as
herein otherwise prescribed.
(c) The Advisor may voluntarily absorb certain Fund expenses or
waive the Advisor's own advisory fee.
(d) To the extent the Advisor incurs any costs by assuming
expenses which are an obligation of the Fund as set forth herein, the Fund shall
promptly reimburse the Advisor for such costs and expenses, except to the extent
the Advisor has otherwise agreed to bear such expenses. To the extent the
services for which the Fund is obligated to pay are performed by the Advisor,
the Advisor shall be entitled to recover from the Fund to the extent of the
Advisor's actual costs for providing such services. In determining the Advisor's
actual costs, the Advisor may take into account an allocated portion of the
salaries and overhead of personnel performing such services.
7. Investment Advisory and Management Fee.
(a) The Fund shall pay to the Advisor, and the Advisor agrees to
accept, as full compensation for all investment management and advisory services
furnished or provided to the Fund pursuant to this Agreement, an annual
investment advisory fee at the rate set forth in Schedule A to this Agreement.
(b) The investment advisory fee shall be accrued daily by the
Fund and paid to the Advisor on the first business day of the succeeding month.
(c) The initial fee under this Agreement shall be payable on the
first business day of the first month following the effective date of this
Agreement and shall be prorated as set forth below. If this Agreement is
terminated prior to the end of any month, the fee to the Advisor shall be
prorated for the portion of any month in which this Agreement is in effect which
is not a complete month according to the proportion which the number of calendar
days in the month during which the Agreement is in effect bears to the number of
calendar days in the month, and shall be payable within ten (10) days after the
date of termination.
699752.2
-5-
<PAGE>
(d) The fee payable to the Advisor under this Agreement will be
reduced to the extent of any receivable owed by the Advisor to the Fund and as
required under any expense limitation applicable to the Fund.
(e) The Advisor voluntarily may reduce any portion of the
compensation or reimbursement of expenses due to it pursuant to this Agreement
and may agree to make payments to limit the expenses which are the
responsibility of the Fund under this Agreement. Any such reduction or payment
shall be applicable only to such specific reduction or payment and shall not
constitute an agreement to reduce any future compensation or reimbursement due
to the Advisor hereunder or to continue future payments. Any such reduction will
be agreed to prior to accrual of the related expense or fee and will be
estimated daily and reconciled and paid on a monthly basis.
(f) Any fee withheld or voluntarily reduced and any Fund expense
absorbed by the Advisor voluntarily or pursuant to an agreed upon expense cap
shall be reimbursed by the Fund to the Advisor, if so requested by the Advisor,
in the first, second or third (or any combination thereof) fiscal year next
succeeding the fiscal year of the withholding, reduction or absorption if the
aggregate amount actually paid by the Fund toward the operating expenses for
such fiscal year (taking into account the reimbursement) do not exceed the
applicable limitation on Fund expenses. Such reimbursement may be paid prior to
the Fund's payment of current expenses if so requested by the Advisor even if
such practice may require the Advisor to waive, reduce or absorb current Fund
expenses.
(g) The Advisor may agree not to require payment of any portion
of the compensation or reimbursement of expenses otherwise due to it pursuant to
this Agreement. Any such agreement shall be applicable only with respect to the
specific items covered thereby and shall not constitute an agreement not to
require payment of any future compensation or reimbursement due to the Advisor
hereunder.
8. No Shorting; No Borrowing. The Advisor agrees that neither it nor
any of its officers or employees shall take any short position in the shares of
the Fund. This prohibition shall not prevent the purchase of such shares by any
of the officers or employees of the Advisor or any trust, pension,
profit-sharing or other benefit plan for such persons or affiliates thereof, at
a price not less than the net asset value thereof at the time of purchase, as
allowed pursuant to rules promulgated under the Investment Company Act. The
Advisor agrees that neither it nor any of its officers or employees shall borrow
from the Fund or pledge or use the Fund's assets in connection with any
borrowing not directly for the Fund's benefit. For this purpose, failure to pay
any amount due and payable to the Fund for a period of more than thirty (30)
days shall constitute a borrowing.
9. Conflicts with Corporation's Governing Documents and Applicable
Laws. Nothing herein contained shall be deemed to require the Corporation or the
Fund to take any action contrary to the Corporation's Articles of Incorporation,
By-Laws, or any
699752.2
-6-
<PAGE>
applicable statute or regulation, or to relieve or deprive the Board of
Directors of the Corporation of its responsibility for and control of the
conduct of the affairs of the Corporation and the Fund. In this connection, the
Advisor acknowledges that the Directors retain ultimate plenary authority over
the Fund and may take any and all actions necessary and reasonable to protect
the interests of shareholders.
10. Reports and Access. The Advisor agrees to supply such information
to the Fund's administrator and to permit such compliance inspections by the
Fund's administrator as shall be reasonably necessary to permit the
administrator to satisfy its obligations and respond to the reasonable requests
of the Directors.
11. Advisor's Liabilities and Indemnification.
(a) The Advisor shall have responsibility for the accuracy and
completeness (and liability for the lack thereof) of the statements in the
Fund's offering materials (including the prospectus, the statement of additional
information, advertising and sales materials), except for information supplied
by the administrator or the Corporation or another third party for inclusion
therein.
(b) The Advisor shall be liable to the Fund for any loss
(including brokerage charges) incurred by the Fund as a result of any improper
investment made by the Advisor.
(c) In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the obligations or duties hereunder on the
part of the Advisor, the Advisor shall not be subject to liability to the
Corporation or 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 by the Fund.
(d) Each party to this Agreement shall indemnify and hold
harmless the other party and the shareholders, directors, officers and employees
of the other party (any such person, an "Indemnified Party") against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating and defending any alleged loss, liability, claim, damage or
expenses and reasonable counsel fees incurred in connection therewith) arising
out of the Indemnified Party's performance or nonperformance of any duties under
this Agreement provided, however, that nothing herein shall be deemed to protect
any Indemnified Party against any liability to which such Indemnified Party
would otherwise be subject by reason of willful misfeasance, bad faith or
negligence in the performance of duties hereunder or by reason of reckless
disregard of obligations and duties under this Agreement.
699752.2
-7-
<PAGE>
(e) No provision of this Agreement shall be construed to protect
any Director or officer of the Corporation, or officer of the Advisor, from
liability in violation of Sections 17(h) and (i) of the Investment Company Act.
12. Non-Exclusivity; Trading for Advisor's Own Account. The
Corporation's employment of the Advisor is not an exclusive arrangement. The
Corporation may from time to time employ other individuals or entities to
furnish it with the services provided for herein. Likewise, the Advisor may act
as investment adviser for any other person, and shall not in any way be limited
or restricted from having, selling or trading any securities for its or their
own accounts or the accounts of others for whom it or they may be acting,
provided, however, that the Advisor expressly represents that it will undertake
no activities which will adversely affect the performance of its obligations to
the Fund under this Agreement; and provided further that the Advisor will adhere
to a code of ethics governing employee trading and trading for proprietary
accounts that conforms to the requirements of the Investment Company Act and the
Investment Advisers Act of 1940 and has been approved by the Corporation's Board
of Directors.
13. Term. This Agreement shall become effective at the time the Fund
commences operations pursuant to an effective amendment to the Corporation's
Registration Statement under the Securities Act of 1933 and shall remain in
effect for a period of two (2) years, unless sooner terminated as hereinafter
provided. This Agreement shall continue in effect thereafter for additional
periods not exceeding one (1) year so long as such continuation is approved for
the Fund at least annually by (i) the Board of Directors of the Corporation or
by the vote of a majority of the outstanding voting securities of the Fund and
(ii) the vote of a majority of the Directors of the Corporation who are not
parties to this Agreement nor interested persons thereof, cast in person at a
meeting called for the purpose of voting on such approval. The terms "majority
of the outstanding voting securities" and "interested persons" shall have the
meanings as set forth in the Investment Company Act.
14. Termination; No Assignment.
(a) This Agreement may be terminated by the Corporation on behalf
of the Fund at any time without payment of any penalty, by the Board of
Directors or by vote of a majority of the outstanding voting securities of a
Fund, upon sixty (60) days' written notice to the Advisor, and by the Advisor
upon sixty (60) days' written notice to a Fund. In the event of a termination,
the Advisor shall cooperate in the orderly transfer of the Fund's affairs and,
at the request of the Board of Directors, transfer any and all books and records
of the Fund maintained by the Advisor on behalf of the Fund.
(b) This Agreement shall terminate automatically in the event of
any transfer or assignment thereof, as defined in the Investment Company Act.
699752.2
-8-
<PAGE>
15. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute or rule, or shall be otherwise
rendered invalid, the remainder of this Agreement shall not be affected thereby.
16. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect.
17. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California without giving effect to
the conflict of laws principles thereof; provided that nothing herein shall be
construed to preempt, or to be inconsistent with, any federal law, regulation or
rule, including the Investment Company Act and the Investment Advisers Act of
1940 and any rules and regulations promulgated thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their duly authorized officers, all on the day and year
first above written.
THE MILLENNIUM RHIM FUNDS, INC. RIDGEWAY HELMS INVESTMENT
on behalf of the MANAGEMENT, INC.
Millennium Growth Fund
By:
------------------------------
Name: By:
Title: -----------------------------
Name:
Title:
699752.2
-9-
<PAGE>
Schedule A
<TABLE>
<S> <C>
Series or Fund of The Millennium RHIM Fund, Inc. Annual Fee rate
Millennium Growth Fund 0.95% of average net assets
</TABLE>
699752.2
-10-
<PAGE>
FORM OF
THE MILLENNIUM RHIM FUNDS, INC.
INVESTMENT ADVISORY AGREEMENT
-----------------------------
Ridgeway Helms Investment Management, Inc.
THIS INVESTMENT ADVISORY AGREEMENT is made as of the _____ day
of _________, 1998, by and between THE MILLENNIUM RHIM FUNDS, INC., a Maryland
corporation (hereinafter called the "Corporation"), on behalf of the following
series of the Corporation, Millennium Growth & Income Fund (the "Fund") and
RIDGEWAY HELMS INVESTMENT MANAGEMENT, INC., a California corporation
(hereinafter called the "Advisor").
WITNESSETH:
WHEREAS, the Corporation is an open-end management investment
company, registered as such under the Investment Company Act of 1940 (the
"Investment Company Act"); and
WHEREAS, the Fund is a series of the Corporation having
separate assets and liabilities; and
WHEREAS, the Advisor is registered as an investment adviser
under the Investment Advisers Act of 1940 and is engaged in the business of
providing investment advice to individual clients and investment companies; and
WHEREAS, the Corporation desires to retain the Advisor to
render advice and services to the Fund pursuant to the terms and provisions of
this Agreement, and the Advisor desires to furnish said advice and services;
NOW, THEREFORE, in consideration of the covenants and the
mutual promises hereinafter set forth, the parties to this Agreement, intending
to be legally bound hereby, mutually agree as follows:
1. Appointment of Advisor. The Corporation hereby employs the
Advisor and the Advisor hereby accepts such employment, to render investment
advice and related services with respect to the assets of the Fund for the
period and on the terms set forth in this Agreement, subject to the supervision
and direction of the Board of Directors.
700926.1
-1-
<PAGE>
2. Duties of Advisor.
(a) General Duties. The Advisor shall act as
investment adviser to the Fund and shall supervise investments of the Fund on
behalf of the Fund in accordance with the investment objective, policies and
restrictions of the Fund as set forth in the Fund's and Corporation's governing
documents, including, without limitation, the Corporation's Articles of
Incorporation and By-Laws; the Fund's prospectus, statement of additional
information and undertakings; and such other limitations, policies and
procedures as the Directors may impose from time to time in writing to the
Advisor. In providing such services, the Advisor shall at all times adhere to
the provisions and restrictions contained in the federal securities laws,
applicable state securities laws, the Internal Revenue Code, the Uniform
Commercial Code and other applicable law.
Without limiting the generality of the foregoing, the Advisor shall:
(i) furnish the Fund with advice and recommendations with respect to the
investment of the Fund's assets and the purchase and sale of portfolio
securities for the Fund, including the taking of such steps as may be necessary
to implement such advice and recommendations (i.e., placing the orders); (ii)
manage and oversee the investments of the Fund, subject to the ultimate
supervision and direction of the Board of Directors; (iii) vote proxies for the
Fund, file ownership reports under Section 13 of the Securities Exchange Act of
1934 for the Fund, and take other actions on behalf of the Fund; (iv) maintain
the books and records required to be maintained by the Fund except to the extent
arrangements have been made for such books and records to be maintained by the
administrator or another agent of the Fund; (v) furnish reports, statements and
other data on securities, economic conditions and other matters related to the
investment of the Fund's assets which the Fund's administrator or distributor or
the officers of the Corporation may reasonably request; and (vi) render to the
Board of Directors such periodic and special reports with respect to the Fund's
investment activities as the Board may reasonably request, including at least
one in-person appearance annually before the Board of Directors.
(b) Brokerage. The Advisor shall be responsible for
decisions to buy and sell securities for the Fund, for broker-dealer selection,
and for negotiation of brokerage commission rates, provided that the Advisor
shall not direct order to an affiliated person of the Advisor without general
prior authorization to use such affiliated broker or dealer for the Board of
Directors. The Advisor's primary consideration in effecting a securities
transaction will be execution at the most favorable price. In selecting a
broker-dealer to execute each particular transaction, the Advisor may take the
following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Fund on a continuing
basis. The price to the Fund in any transaction may be less favorable than that
available from another broker-dealer if the difference is reasonably justified
by other aspects of the portfolio execution services offered.
700926.1
-2-
<PAGE>
Subject to such policies as the Board of Directors may determine, the
Advisor shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Fund to pay a broker or dealer that provides (directly or indirectly)
brokerage or research services to the Advisor an amount of commission for
effecting a portfolio transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction, if the
Advisor determines in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Advisor's overall responsibilities with respect to the Corporation. The Advisor
is further authorized to allocate the orders placed by it on behalf of the Fund
to such brokers or dealers who also provide research or statistical material, or
other services, to the Corporation, the Advisor, or any affiliate of either.
Such allocation shall be in such amounts and proportions as the Advisor shall
determine, and the Advisor shall report on such allocations regularly to the
Corporation, indicating the broker-dealers to whom such allocations have been
made and the basis therefor. The Advisor is also authorized to consider sales of
shares as a factor in the selection of brokers or dealers to execute portfolio
transactions, subject to the requirements of best execution, i.e., that such
brokers or dealers are able to execute the order promptly and at the best
obtainable securities price.
On occasions when the Advisor deems the purchase or sale of a security
to be in the best interest of one or more of the Fund as well as of other
clients, the Advisor, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be so purchased or sold in order to
obtain the most favorable price or lower brokerage commissions and the most
efficient execution. In such event, allocation of the securities so purchased or
sold, as well as the expenses incurred in the transaction, will be made by the
Advisor in the manner it considers to be the most equitable and consistent with
its fiduciary obligations to the Fund and to such other clients.
3. Representations of the Advisor.
(a) The Advisor shall use its best judgment and efforts
in rendering the advice and services to the Fund as contemplated by this
Agreement.
(b) The Advisor shall maintain all licenses and
registrations necessary to perform its duties hereunder in good order.
(c) The Advisor shall conduct its operations at all
times in conformance with the Investment Advisers Act of 1940, the Investment
Company Act of 1940, and any other applicable state and/or self-regulatory
organization regulations.
(d) The Advisor shall maintain errors and omissions
insurance in an amount at least equal to that disclosed to the Board of
Directors in connection with their approval of this Agreement.
700926.1
-3-
<PAGE>
4. Independent Contractor. The Advisor shall, for all purposes
herein, be deemed to be an independent contractor, and shall, unless otherwise
expressly provided and authorized to do so, have no authority to act for or
represent the Corporation or the Fund in any way, or in any way be deemed an
agent for the Corporation or for the Fund. It is expressly understood and agreed
that the services to be rendered by the Advisor to the Fund under the provisions
of this Agreement are not to be deemed exclusive, and the Advisor shall be free
to render similar or different services to others so long as its ability to
render the services provided for in this Agreement shall not be impaired
thereby.
5. Advisor's Personnel. The Advisor shall, at its own expense,
maintain such staff and employ or retain such personnel and consult with such
other persons as it shall from time to time determine to be necessary to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Advisor shall be
deemed to include persons employed or retained by the Advisor to furnish
statistical information, research, and other factual information, advice
regarding economic factors and trends, information with respect to technical and
scientific developments, and such other information, advice and assistance as
the Advisor or the Board of Directors may desire and reasonably request.
6. Expenses.
(a) With respect to the operation of the Fund, the
Advisor shall be responsible for (i) providing the personnel, office space and
equipment reasonably necessary for the operation of the Fund, (ii) the expenses
of printing and distributing extra copies of the Fund's prospectus, statement of
additional information, and sales and advertising materials (but not the legal,
auditing or accounting fees attendant thereto) to prospective investors (but not
to existing shareholders), and (iii) the costs of any special Board of Directors
meetings or shareholder meetings convened for the primary benefit of the
Advisor. If the Advisor has agreed to limit the operating expenses of the Fund,
the Advisor shall also be responsible on a monthly basis for any operating
expenses that exceed the agreed upon expense limit.
(b) The Fund is responsible for and has assumed
the obligation for payment of all of its expenses, other than as stated in
Subparagraph 6(a) above, including but not limited to: fees and expenses
incurred in connection with the issuance, registration and transfer of its
shares; brokerage and commission expenses; all expenses of transfer, receipt,
safekeeping, servicing and accounting for the cash, securities and other
property of the Corporation for the benefit of the Fund including all fees and
expenses of its custodian, shareholder services agent and accounting services
agent; interest charges on any borrowings; costs and expenses of pricing and
calculating its daily net asset value and of maintaining its books of account
required under the Investment Company Act; taxes, if any; a pro rata portion of
expenditures in connection with meetings of the Fund's shareholders and the
Corporation's Board of Directors that are properly payable by the Fund; salaries
and expenses of officers and
700926.1
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<PAGE>
fees and expenses of members of the Board of Directors or members of any
advisory board or committee who are not members of, affiliated with or
interested persons of the Advisor; insurance premiums on property or personnel
of the Fund which inure to its benefit, including liability and fidelity bond
insurance; the cost of preparing and printing reports, proxy statements,
prospectuses and statements of additional information of the Fund or other
communications for distribution to existing shareholders; legal, auditing and
accounting fees; trade association dues; fees and expenses (including legal
fees) of registering and maintaining registration of its shares for sale under
federal and applicable state and foreign securities laws; all expenses of
maintaining and servicing shareholder accounts, including all charges for
transfer, shareholder recordkeeping, dividend disbursing, redemption, and other
agents for the benefit of the Fund, if any; and all other charges and costs of
its operation plus any extraordinary and non-recurring expenses, except as
herein otherwise prescribed.
(c) The Advisor may voluntarily absorb certain
Fund expenses or waive the Advisor's own advisory fee.
(d) To the extent the Advisor incurs any costs by
assuming expenses which are an obligation of the Fund as set forth herein, the
Fund shall promptly reimburse the Advisor for such costs and expenses, except to
the extent the Advisor has otherwise agreed to bear such expenses. To the extent
the services for which the Fund is obligated to pay are performed by the
Advisor, the Advisor shall be entitled to recover from the Fund to the extent of
the Advisor's actual costs for providing such services. In determining the
Advisor's actual costs, the Advisor may take into account an allocated portion
of the salaries and overhead of personnel performing such services.
7. Investment Advisory and Management Fee.
(a) The Fund shall pay to the Advisor, and the
Advisor agrees to accept, as full compensation for all investment management and
advisory services furnished or provided to the Fund pursuant to this Agreement,
an annual investment advisory fee at the rate set forth in Schedule A to this
Agreement.
(b) The investment advisory fee shall be accrued
daily by the Fund and paid to the Advisor on the first business day of the
succeeding month.
(c) The initial fee under this Agreement shall be
payable on the first business day of the first month following the effective
date of this Agreement and shall be prorated as set forth below. If this
Agreement is terminated prior to the end of any month, the fee to the Advisor
shall be prorated for the portion of any month in which this Agreement is in
effect which is not a complete month according to the proportion which the
number of calendar days in the month during which the Agreement is in effect
bears to the number of calendar days in the month, and shall be payable within
ten (10) days after the date of termination.
700926.1
-5-
<PAGE>
(d) The fee payable to the Advisor under this
Agreement will be reduced to the extent of any receivable owed by the Advisor to
the Fund and as required under any expense limitation applicable to the Fund.
(e) The Advisor voluntarily may reduce any portion
of the compensation or reimbursement of expenses due to it pursuant to this
Agreement and may agree to make payments to limit the expenses which are the
responsibility of the Fund under this Agreement. Any such reduction or payment
shall be applicable only to such specific reduction or payment and shall not
constitute an agreement to reduce any future compensation or reimbursement due
to the Advisor hereunder or to continue future payments. Any such reduction will
be agreed to prior to accrual of the related expense or fee and will be
estimated daily and reconciled and paid on a monthly basis.
(f) Any fee withheld or voluntarily reduced and
any Fund expense absorbed by the Advisor voluntarily or pursuant to an agreed
upon expense cap shall be reimbursed by the Fund to the Advisor, if so requested
by the Advisor, in the first, second or third (or any combination thereof)
fiscal year next succeeding the fiscal year of the withholding, reduction or
absorption if the aggregate amount actually paid by the Fund toward the
operating expenses for such fiscal year (taking into account the reimbursement)
do not exceed the applicable limitation on Fund expenses. Such reimbursement may
be paid prior to the Fund's payment of current expenses if so requested by the
Advisor even if such practice may require the Advisor to waive, reduce or absorb
current Fund expenses.
(g) The Advisor may agree not to require payment
of any portion of the compensation or reimbursement of expenses otherwise due to
it pursuant to this Agreement. Any such agreement shall be applicable only with
respect to the specific items covered thereby and shall not constitute an
agreement not to require payment of any future compensation or reimbursement due
to the Advisor hereunder.
8. No Shorting; No Borrowing. The Advisor agrees that neither
it nor any of its officers or employees shall take any short position in the
shares of the Fund. This prohibition shall not prevent the purchase of such
shares by any of the officers or employees of the Advisor or any trust, pension,
profit-sharing or other benefit plan for such persons or affiliates thereof, at
a price not less than the net asset value thereof at the time of purchase, as
allowed pursuant to rules promulgated under the Investment Company Act. The
Advisor agrees that neither it nor any of its officers or employees shall borrow
from the Fund or pledge or use the Fund's assets in connection with any
borrowing not directly for the Fund's benefit. For this purpose, failure to pay
any amount due and payable to the Fund for a period of more than thirty (30)
days shall constitute a borrowing.
9. Conflicts with Corporation's Governing Documents and
Applicable Laws. Nothing herein contained shall be deemed to require the
Corporation or the Fund to take any action contrary to the Corporation's
Articles of Incorporation, By-Laws, or any
700926.1
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<PAGE>
applicable statute or regulation, or to relieve or deprive the Board of
Directors of the Corporation of its responsibility for and control of the
conduct of the affairs of the Corporation and the Fund. In this connection, the
Advisor acknowledges that the Directors retain ultimate plenary authority over
the Fund and may take any and all actions necessary and reasonable to protect
the interests of shareholders.
10. Reports and Access. The Advisor agrees to supply such
information to the Fund's administrator and to permit such compliance
inspections by the Fund's administrator as shall be reasonably necessary to
permit the administrator to satisfy its obligations and respond to the
reasonable requests of the Directors.
11. Advisor's Liabilities and Indemnification.
(a) The Advisor shall have responsibility for
the accuracy and completeness (and liability for the lack thereof) of the
statements in the Fund's offering materials (including the prospectus, the
statement of additional information, advertising and sales materials), except
for information supplied by the administrator or the Corporation or another
third party for inclusion therein.
(b) The Advisor shall be liable to the Fund for
any loss (including brokerage charges) incurred by the Fund as a result of any
improper investment made by the Advisor.
(c) In the absence of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the obligations or duties
hereunder on the part of the Advisor, the Advisor shall not be subject to
liability to the Corporation or 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 by the Fund.
(d) Each party to this Agreement shall indemnify
and hold harmless the other party and the shareholders, directors, officers and
employees of the other party (any such person, an "Indemnified Party") against
any loss, liability, claim, damage or expense (including the reasonable cost of
investigating and defending any alleged loss, liability, claim, damage or
expenses and reasonable counsel fees incurred in connection therewith) arising
out of the Indemnified Party's performance or nonperformance of any duties under
this Agreement provided, however, that nothing herein shall be deemed to protect
any Indemnified Party against any liability to which such Indemnified Party
would otherwise be subject by reason of willful misfeasance, bad faith or
negligence in the performance of duties hereunder or by reason of reckless
disregard of obligations and duties under this Agreement.
700926.1
-7-
<PAGE>
(e) No provision of this Agreement shall be
construed to protect any Director or officer of the Corporation, or officer of
the Advisor, from liability in violation of Sections 17(h) and (i) of the
Investment Company Act.
12. Non-Exclusivity; Trading for Advisor's Own Account. The
Corporation's employment of the Advisor is not an exclusive arrangement. The
Corporation may from time to time employ other individuals or entities to
furnish it with the services provided for herein. Likewise, the Advisor may act
as investment adviser for any other person, and shall not in any way be limited
or restricted from having, selling or trading any securities for its or their
own accounts or the accounts of others for whom it or they may be acting,
provided, however, that the Advisor expressly represents that it will undertake
no activities which will adversely affect the performance of its obligations to
the Fund under this Agreement; and provided further that the Advisor will adhere
to a code of ethics governing employee trading and trading for proprietary
accounts that conforms to the requirements of the Investment Company Act and the
Investment Advisers Act of 1940 and has been approved by the Corporation's Board
of Directors.
13. Term. This Agreement shall become effective at the time
the Fund commences operations pursuant to an effective amendment to the
Corporation's Registration Statement under the Securities Act of 1933 and shall
remain in effect for a period of two (2) years, unless sooner terminated as
hereinafter provided. This Agreement shall continue in effect thereafter for
additional periods not exceeding one (1) year so long as such continuation is
approved for the Fund at least annually by (i) the Board of Directors of the
Corporation or by the vote of a majority of the outstanding voting securities of
the Fund and (ii) the vote of a majority of the Directors of the Corporation who
are not parties to this Agreement nor interested persons thereof, cast in person
at a meeting called for the purpose of voting on such approval. The terms
"majority of the outstanding voting securities" and "interested persons" shall
have the meanings as set forth in the Investment Company Act.
14. Termination; No Assignment.
(a) This Agreement may be terminated by the
Corporation on behalf of the Fund at any time without payment of any penalty, by
the Board of Directors or by vote of a majority of the outstanding voting
securities of a Fund, upon sixty (60) days' written notice to the Advisor, and
by the Advisor upon sixty (60) days' written notice to a Fund. In the event of a
termination, the Advisor shall cooperate in the orderly transfer of the Fund's
affairs and, at the request of the Board of Directors, transfer any and all
books and records of the Fund maintained by the Advisor on behalf of the Fund.
(b) This Agreement shall terminate automatically
in the event of any transfer or assignment thereof, as defined in the Investment
Company Act.
700926.1
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<PAGE>
15. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute or rule, or shall be otherwise
rendered invalid, the remainder of this Agreement shall not be affected thereby.
16. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect.
17. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without giving
effect to the conflict of laws principles thereof; provided that nothing herein
shall be construed to preempt, or to be inconsistent with, any federal law,
regulation or rule, including the Investment Company Act and the Investment
Advisers Act of 1940 and any rules and regulations promulgated thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers, all on the day and year first
above written.
THE MILLENNIUM RHIM FUNDS, INC. RIDGEWAY HELMS INVESTMENT
on behalf of the MANAGEMENT, INC.
Millennium Growth & Income Fund
By:
--------------------------------
Name: By:
Title: -------------------------
Name:
Title:
700926.1
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<PAGE>
Schedule A
Series or Fund of The Millennium RHIM Fund, Inc. Annual Fee rate
- ----------------------------------------------- ---------------
Millennium Growth & Income Fund 0.95% of
average net assets
700926.1
-10-
<PAGE>
FORM OF
DISTRIBUTION AGREEMENT
This Agreement made this ____ day of _____________,1998 by and
between THE MILLENNIUM RHIM FUNDS, INC., a Maryland corporation (the
"Corporation") and RIDGEWAY HELMS SECURITIES CORPORATION, a California
corporation (the "Distributor").
W I T N E S S E T H:
-------------------
WHEREAS, the Corporation is registered as an open-end
management investment company under the Investment Company Act of 1940 (the
"1940 Act"); and
WHEREAS, the Corporation's Articles of Incorporation permit
the Board of Directors to divide the Corporation's shares of common stock
("Shares") into separate series ("series") and it is in the interest of the
Corporation to offer the Shares of each series for sale continuously; and
WHEREAS, the Distributor is registered as a broker-dealer
under the Securities Exchange Act of 1934 (the "1934 Act") and is a member in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD"); and
WHEREAS, the Corporation and the Distributor wish to enter
into an agreement with each other with respect to the continuous offering of the
Shares of each existing and future series of the Corporation;
NOW, THEREFORE, the parties agree as follows:
1. Appointment of Distributor. The Corporation hereby appoints
the Distributor as exclusive agent to sell and to arrange for the sale of the
Shares, on the terms and for the period set forth in this Agreement, and the
Distributor hereby accepts such appointment and agrees to act hereunder directly
and/or through the Corporation's transfer agent in the manner set forth in the
Prospectus (as defined below). It is understood and agreed that the services of
the Distributor hereunder are not exclusive, and the Distributor may act as
principal underwriter for the shares of any other registered investment company.
2. Services and Duties of the Distributor.
(a) The Distributor agrees to sell the Shares, as
agent for the Corporation, from time to time during the term of this Agreement
upon the terms described in a Prospectus. As used in this Agreement, the term
"Prospectus" shall mean a prospectus and statement of additional information
included as part of the Corporation's Registration Statement, as such
699732.2
1
<PAGE>
prospectus and statement of additional information may be amended or
supplemented from time to time, and the term "Registration Statement" shall mean
the Registration Statement most recently filed from time to time by the
Corporation with the Securities and Exchange Commission ("SEC") and effective
under the Securities Act of 1933 (the "1933 Act") and the 1940 Act, as such
Registration Statement is amended by any amendments thereto at the time in
effect. The Distributor shall not be obligated to sell any certain number of
Shares.
(b) Upon commencement of operations of any of the
series, the Distributor will hold itself available to receive orders,
satisfactory to the Distributor, for the purchase of the Shares and will accept
such orders and will transmit such orders and funds received by it in payment
for such Shares as are so accepted to the Corporation's transfer agent or
custodian, as appropriate, as promptly as practicable. Purchase orders shall be
deemed accepted and shall be effective at the time and in the manner set forth
in a series' Prospectus. The Distributor shall not make any short sales of
Shares.
(c) The offering price of the Shares shall be the
net asset value per share of the Shares, plus the sales charge, if any
(determined as set forth in the Prospectus). The Corporation shall furnish the
Distributor, with all possible promptness, an advice of each computation of net
asset value and offering price.
(d) The Distributor shall have the right to enter
into selected dealer agreements with securities dealers of its choice ("selected
dealers") for the sale of Shares. Shares sold to selected dealers shall be for
resale by such dealers only at the offering price of the Shares as set forth in
the Prospectus. The Distributor shall offer and sell Shares only to such
selected dealers as are members in good standing of the NASD.
3. Duties of the Corporation.
(a) Maintenance of Federal Registration. The
Corporation shall, at its expense, take, from time to time, all necessary action
and such steps, including payment of the related filing fees, as may be
necessary to register and maintain registration of a sufficient number of Shares
under the 1933 Act. The Corporation agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
may be no untrue statement of a material fact in a Registration Statement or
Prospectus, or necessary in order that there may be no omission to state a
material fact in the Registration Statement or Prospectus which omission would
make the statements therein misleading.
(b) Maintenance of "Blue Sky" Qualifications. The
Corporation shall, at its expense, use its best efforts to qualify and maintain
the qualification of an appropriate number of Shares for sale under the
securities laws of such states as the Distributor and the Corporation may
approve, and, if necessary or appropriate in connection therewith, to qualify
and maintain the qualification of the Corporation or the series as a broker or
dealer in such states; provided that the Corporation shall not be required to
amend its Articles of Incorporation or By-Laws to comply
699732.2
2
<PAGE>
with the laws of any state, to maintain an office in any state, to change the
terms of the offering of the Shares in any state, to change the terms of the
offering of the Shares in any state from the terms set forth in the Prospectus,
to qualify as a foreign corporation in any state or to consent to service of
process in any state other than with respect to claims arising out of the
offering and sale of the Shares. The Distributor shall furnish such information
and other material relating to its affairs and activities as may be required by
the Corporation or its series in connection with such qualifications.
(c) Copies of Reports and Prospectuses. The
Corporation shall, at its expense, keep the Distributor fully informed with
regard to its affairs and in connection therewith shall furnish to the
Distributor copies of all information, financial statements and other papers
which the Distributor may reasonably request for use in connection with the
distribution of Shares, including such reasonable number of copies of
Prospectuses and annual and interim reports as the Distributor may request and
shall cooperate fully in the efforts of the Distributor to sell and arrange for
the sale of the Shares and in the performance of the Distributor under this
Agreement.
4. Conformity with Applicable Law and Rules. The Distributor
agrees that in selling Shares hereunder it shall conform in all respects with
the laws of the United States and of any state in which Shares may be offered,
and with applicable rules and regulations of the NASD.
5. Independent Contractor. In performing its duties hereunder,
the Distributor shall be an independent contractor and neither the Distributor,
nor any of its officers, directors, employees, or representatives is or shall be
an employee of the Corporation in the performance of the Distributor's duties
hereunder. The Distributor shall be responsible for its own conduct and the
employment, control, and conduct of its agents and employees and for injury to
such agents or employees or to others through its agents or employees. The
Distributor assumes full responsibility for its agents and employees under
applicable statutes and agrees to pay all employee taxes thereunder.
6. Indemnification.
(a) Indemnification of Corporation. The Distributor
agrees to indemnify and hold harmless the Corporation and each of its present or
former Directors, officers, employees, representatives and each person, if any,
who controls or previously controlled the Corporation within the meaning of
Section 15 of the 1933 Act against any and all losses, liabilities, damages,
claims or expenses (including the reasonable costs of investigating or defending
any alleged loss, liability, damage, claims or expense and reasonable legal
counsel fees incurred in connection therewith) to which the Corporation or any
such person may become subject under the 1933 Act, under any other statute, at
common law, or otherwise, arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by the Distributor or any of
the Distributor's directors, officers, employees or representatives, or (ii) may
be based upon any untrue statement or alleged untrue statement of a material
fact contained in a Registration Statement, Prospectus, shareholder report or
other information covering Shares filed
699732.2
3
<PAGE>
or made public by the Corporation or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon and in
conformity with information furnished to the Corporation by the Distributor. In
no case (i) is the Distributor's indemnity in favor of the Corporation, or any
person indemnified, to be deemed to protect the Corporation or such indemnified
person against any liability to which the Corporation or such person would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of the Corporation's or such person's duties or by
reason of reckless disregard of the Corporation's or such person's obligations
and duties under this Agreement or (ii) is the Distributor to be liable under
its indemnity agreement contained in this Paragraph with respect to any claim
made against the Corporation or any person indemnified unless the Corporation or
such person, as the case may be, shall have notified the Distributor in writing
of the claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon the Corporation or upon such person (or after the Corporation or
such person shall have received notice of such service on any designated agent).
However, failure to notify the Distributor of any such claim shall not relieve
the Distributor from any liability which the Distributor may have to the
Corporation or any person against whom such action is brought otherwise than on
account of the Distributor's indemnity agreement contained in this Paragraph.
The Distributor shall be entitled to participate, at its own
expense, in the defense, or, if the Distributor so elects, to assume the defense
of any suit brought to enforce any such claim, but, if the Distributor elects to
assume the defense, such defense shall be conducted by legal counsel chosen by
the Distributor and satisfactory to the Corporation, and to the persons
indemnified as defendant or defendants, in the suit. In the event that the
Distributor elects to assume the defense of any such suit and retain such legal
counsel, the Corporation, and the persons indemnified as defendant or defendants
in the suit, shall bear the fees and expenses of any additional legal counsel
retained by them. If the Distributor does not elect to assume the defense of any
such suit, the Distributor will reimburse the Corporation and the persons
indemnified defendant or defendants in such suit for the reasonable fees and
expenses of any legal counsel retained by them. The Distributor agrees to
promptly notify the Corporation of the commencement of any litigation of
proceedings against it or any of its officers, employees or representatives in
connection with the issue or sale of any Shares.
(b) Indemnification of the Distributor. The
Corporation agrees to indemnify and hold harmless the Distributor and each of
its present or former directors, officers, employees, representatives and each
person, if any, who controls or previously controlled the Distributor within the
meaning of Section 15 of the 1933 Act against any and all losses, liabilities,
damages, claims or expenses (including the reasonable costs of investigating or
defending any alleged loss, liability, damage, claim or expense and reasonable
legal counsel fees incurred in connection therewith) to which the Distributor or
any such person may become subject under the 1933 Act, under any other statute,
at common law, or otherwise, arising out of the acquisition of any Shares by any
person which (i) may be based upon any wrongful act by the Corporation or any of
the
699732.2
4
<PAGE>
Corporation's Directors, officers, employees or representatives, or (ii) may be
based upon any untrue statement or alleged untrue statement of a material fact
contained in a Registration Statement, Prospectus, shareholder report or other
information covering Shares filed or made public by the Corporation or any
amendment thereof or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading unless such statement or omission was made
in reliance upon and in conformity with information furnished to the Corporation
by the Distributor. In no case (i) is the Corporation's indemnity in favor of
the Distributor, or any person indemnified to be deemed to protect the
Distributor or such indemnified person against any liability to which the
Distributor or such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of such person's
duties or by reason of reckless disregard of such person's obligations and
duties under this Agreement or (ii) is the Corporation to be liable under their
indemnity agreement contained in this Paragraph with respect to any claim made
against Distributor, or person indemnified unless the Distributor, or such
person, as the case may be, shall have notified the Corporation in writing of
the claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon the Distributor or upon such person (or after the Distributor or
such person shall have received notice of such service on any designated agent).
However, failure to notify the Corporation of any such claim shall not relieve
the Corporation from any liability which the Corporation may have to the
Distributor or any person against whom such action is brought otherwise than on
account of the Corporation's indemnity agreement contained in this Paragraph.
The Corporation shall be entitled to participate, at its own
expense, in the defense, or, if the Corporation so elects, to assume the defense
of any suit brought to enforce any such claim, but if the Corporation elects to
assume the defense, such defense shall be conducted by legal counsel chosen by
the Corporation and satisfactory to the Distributor and to the persons
indemnified as defendant or defendants, in the suit. In the event that the
Corporation elects to assume the defense of any such suit and retain such legal
counsel, the Distributor, the persons indemnified as defendant or defendants in
the suit, shall bear the fees and expenses of any additional legal counsel
retained by them. If the Corporation does not elect to assume the defense of any
such suit, the Corporation will reimburse the Distributor and the persons
indemnified as defendant or defendants in such suit for the reasonable fees and
expenses of any legal counsel retained by them. The Corporation agrees to
promptly notify the Distributor of the commencement of any litigation or
proceedings against it or any of its Directors, officers, employees or
representatives in connection with the issue or sale of any Shares.
7. Authorized Representations. The Distributor is not
authorized by the Corporation to give on behalf of the Corporation any
information or to make any representations in connection with the sale of Shares
other than the information and representations contained in a Registration
Statement or Prospectus filed with the SEC under the 1933 Act and/or the 1940
Act, covering Shares, as such Registration Statement and Prospectus may be
amended or supplemented from time to time, or contained in shareholder reports
or other material that may be prepared by or on behalf of the Corporation for
the Distributor's use. This shall not be construed to prevent
699732.2
5
<PAGE>
the Distributor from preparing and distributing tombstone ads and sales
literature or other material as it may deem appropriate. No person other than
the Distributor is authorized to act as principal underwriter (as such term is
defined in the 1940 Act) for the Corporation.
8. Term of Agreement. The term of this Agreement shall begin
on the date first above written, and unless sooner terminated as hereinafter
provided, this Agreement shall remain in effect for a period of one year from
the date first above written. Thereafter, this Agreement shall continue in
effect from year to year, subject to the termination provisions and all other
terms and conditions thereof, so long as such continuation shall be specifically
approved at least annually by (i) the Board of Directors or by vote of a
majority of the outstanding voting securities of each series of the Corporation
and (ii) by the vote, cast in person at a meeting called for the purpose of
voting on such approval, of a majority of the Directors of the Corporation who
are not parties to this Agreement or interested persons of any such party. The
Distributor shall furnish to the Corporation, promptly upon its request, such
information as may reasonably be necessary to evaluate the terms of this
Agreement or any extension, renewal or amendment hereof.
9. Amendment or Assignment of Agreement. This Agreement may
not be amended or assigned except as permitted by the 1940 Act, and this
Agreement shall automatically and immediately terminate in the event of its
assignment.
10. Termination of Agreement. This Agreement may be terminated
by either party hereto, without the payment of any penalty, on not more than
upon 60 days' nor less than 30 days' prior notice in writing to the other party;
provided, that in the case of termination by the Corporation such action shall
have been authorized by resolution of a majority of the Directors of the
Corporation who are not parties to this Agreement or interested persons of any
such party, or by vote of a majority of the outstanding voting securities of
each series of the Corporation.
11. Miscellaneous. The captions in this Agreement are included
for convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Nothing herein contained shall be deemed to require the
Corporation to take any action contrary to its Articles of Incorporation or
By-Laws, or any applicable statutory or regulatory requirement to which it is
subject or by which it is bound, or to relieve or deprive the Board of Directors
of the Corporation of responsibility for and control of the conduct of the
affairs of the Corporation.
12. Definition of Terms. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the
699732.2
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<PAGE>
1940 Act shall be resolved by reference to such term or provision of the 1940
Act and to interpretation thereof, if any, by the United States courts or, in
the absence of any controlling decision of any such court, by rules, regulations
or orders of the SEC validly issued pursuant to the 1940 Act. Specifically, the
terms "vote of a majority of the outstanding voting securities," "interested
persons," "assignment," and "affiliated person," as used in Paragraphs 8, 9 and
10 hereof, shall have the meanings assigned to them by Section 2(a) of the 1940
Act. In addition, where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is relaxed by a rule, regulation or order of the
SEC, whether of special or of general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
13. Compliance with Securities Laws. The Corporation
represents that it is registered as an open-end management investment company
under the 1940 Act, and agrees that it will comply with all the provisions of
the 1940 Act and of the rules and regulations thereunder. The Corporation and
the Distributor each agree to comply with all of the applicable terms and
provisions of the 1940 Act, the 1933 Act and, subject to the provisions of
Section 4(d), all applicable "Blue Sky" laws. The Distributor agrees to comply
with all of the applicable terms and provisions of the 1934 Act.
14. Notices. Any notice required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid, to the Distributor at Ridgeway Helms Securities Corp., 303 Twin
Dolphin Drive, Suite 530, Redwood Shores, CA 94065 or to the Corporation at 303
Twin Dolphin Drive, Suite 530, Redwood Shores, CA 94065.
15. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below on the date first
written above.
THE MILLENNIUM RHIM FUNDS, INC.
By:
--------------------------------
Name:
Title:
RIDGEWAY HELMS SECURITIES CORPORATION
By:
--------------------------------
Name:
Title:
699732.2
7
<PAGE>
FORM OF CUSTODY AGREEMENT
This agreement (the "Agreement") is entered into as of the 10th day of
March, 1998, by and between The Millennium RHIM Funds, Inc. (the "Corporation")
and Star Bank, National Association (the "Custodian"), a national banking
association having its principal office at 425 Walnut Street, Cincinnati, Ohio,
45202.
WHEREAS, the Corporation and the Custodian desire to enter into this
Agreement to provide for the custody and safekeeping of the assets of the
Corporation as required by the Act (as hereafter defined).
THEREFORE, in consideration of the mutual promises hereinafter set
forth, the Corporation and the Custodian agree as follows:
ARTICLE I
Definitions
-----------
The following words and phrases, when used in this Agreement, unless
the context otherwise requires, shall have the following meanings:
Act - the Investment Company Act of 1940, as amended.
1934 Act - the Securities and Exchange Act of 1934, as amended.
Authorized Person - any (i) Officer of the Corporation or (ii) any
other person, whether or not any such person is an officer or employee of the
Corporation, who is duly authorized by the Board of Directors of the Corporation
to give Oral Instructions and Written Instructions on behalf of the Corporation
or any Fund, and named in Appendix A attached hereto and as amended from time to
time by resolution of the Board of Directors, certified by an Officer, and
received by the Custodian.
701153.1
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Board of Directors - the Directors from time to time serving under the
Corporation's Articles of Incorporation, as from time to time amended.
Book-Entry System - a federal book-entry system as provided in Subpart
O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of 31 CFT Part 350, or
in such book-entry regulations of federal agencies as are substantially in the
form of Subpart O.
Business Day - any day recognized as a settlement day by The New York
Stock Exchange, Inc. and any other day for which the Corporation computes the
net asset value of Shares of any fund.
Depository - The Depository Trust Company ("DTC"), a limited purpose
trust company, its successor(s) and its nominee(s). Depository shall include any
other clearing agency registered with the SEC under Section 17A of the 1934 Act
which acts as a system for the central handling of Securities where all
Securities of any particular class or series of an issuer deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of the Securities provided that the Custodian
shall have received a copy of a resolution of the Board Of Directors, certified
by an Officer, specifically approving the use of such clearing agency as a
depository for the Funds.
Dividend and Transfer Agent - the dividend and transfer agent
appointed, from time to time, pursuant to a written agreement between the
dividend and transfer agent and the Corporation.
Foreign Securities - a) securities issued and sold primarily outside
of the United States by a foreign government, a national of any foreign country,
or a trust or other organization incorporated or organized under the laws of any
foreign country or b) securities issued or guaranteed by the government of the
United States, by any state, by any political subdivision or agency thereof, or
by
701153.1
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<PAGE>
any entity organized under the laws of the United States or of any state
thereof, which have been issued and sold primarily outside of the United States.
Fund - each series of the Corporation listed in Appendix B and any
additional series added pursuant to Proper Industries. A series is individually
referred to as a "Fund" and collectively referred to as the "Funds."
Money Market Security - debt obligations issued or guaranteed as to
principal and/or interest by the government of the United States or agencies or
instrumentalities thereof, commercial paper, obligations (including certificates
of deposit, bankers' acceptances, repurchase agreements and reverse repurchase
agreements with respect to the same), and time deposits of domestic banks and
thrift institutions whose deposits are insured by the Federal Deposit Insurance
Corporation, and short-term corporate obligations where the purchase and sale of
such securities normally require settlement in federal funds or their equivalent
on the same day as such purchase and sale, all of which mature in not more than
thirteen (13) months.
NASD - the National Association of Securities Dealers, Inc.
Officer - the Chairman, President, Secretary, Treasurer, any Vice
President, Assistant Secretary or Assistant Treasurer of the Corporation.
Oral Instructions - instructions orally transmitted to and received by
the Custodian from an Authorized Person (or from a person that the Custodian
reasonably believes in good faith to be an Authorized Person) and confirmed by
Written Instructions in such a manner that such Written Instructions are
received by the Custodian on the Business Day immediately following receipt of
such Oral Instructions.
701153.1
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<PAGE>
Proper Instructions - Oral Instructions or Written Instructions.
Proper Instructions may be continuing Written Instructions when deemed
appropriate by both parties.
Prospectus - the Corporation's then currently effective prospectus and
Statement of Additional Information, as filed with and declared effective from
time to time by the Securities and Exchange Commission.
Security or Securities - Money Market Securities, common stock,
preferred stock, options, financial futures, bonds, notes, debentures, corporate
debt securities, mortgages, bank certificates of deposit, bankers' acceptances,
mortgage-backed securities or other obligations and any certificates, receipts,
warrants, or other instruments or documents representing rights to receive,
purchase, or subscribe for the same or evidencing or representing any other
rights or interest therein, or any similar property or assets that the Custodian
has the facilities to clear and to service.
SEC - the Securities and Exchange Commission of the United States of
America.
Shares - with respect to a Fund, the shares of common stock
issued by the Corporation on account of such Fund.
Written Instructions - communications in writing actually received by
the Custodian from an Authorized Person. A communication in writing includes a
communication by facsimile, telex or between electro-mechanical or electronic
devices (where the use of such devices have been approved by resolution of the
Board of Directors and the resolution is certified by an Officer and delivered
to the Custodian). All written communications shall be directed to the
Custodian, attention: Mutual Fund Custody Department.
701153.1
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<PAGE>
ARTICLE II
Appointment; Acceptance; and Furnishing of Documents
----------------------------------------------------
A. Appointment of Custodian. The Corporation hereby constitutes and
appoints the Custodian as custodian of all Securities and cash owned by the
Corporation at any time during the term of this Agreement.
B. Acceptance of Custodian. The Custodian hereby accepts appointment
as such custodian and agrees to perform the duties thereof as hereinafter set
forth.
C. Documents to be Furnished. The following documents, including any
amendments thereto, will be provided contemporaneously with the execution of the
Agreement, to the Custodian by the Corporation:
1. A copy of the Articles of Incorporation of the Corporation
certified by the Secretary.
2. A copy of the By-Laws of the Corporation certified by the
Secretary.
3. A copy of the resolution of the Board Of Directors of the
Corporation appointing the Custodian, certified by the
Secretary.
4. A copy of the then current Prospectus.
5. A Certificate of the President and Secretary of the
Corporation setting forth the names and signatures of the
current Officers of the Corporation and other Authorized
Persons.
D. Notice of Appointment of Dividend and Transfer Agent. The
Corporation agrees to notify the Custodian in writing of the appointment,
termination or change in appointment of any Dividend and Transfer Agent.
701153.1
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<PAGE>
ARTICLE III
Receipt of Corporation Assets
-----------------------------
A. Delivery of Moneys. During the term of this Agreement, the
Corporation will deliver or cause to be delivered to the Custodian all moneys to
be held by the Custodian for the account of any Fund. Subject to Article V,
Section A, the Custodian shall be entitled to reverse any deposits made on any
Fund's behalf where such deposits have been entered and moneys are not finally
collected within 30 days of the making of such entry.
B. Delivery of Securities. During the term of this Agreement, the
Corporation will deliver or cause to be delivered to the Custodian all
Securities to be held by the Custodian for the account of any Fund. The
Custodian will not have any duties or responsibilities with respect to such
Securities until actually received by the Custodian.
C. Payments for Shares. As and when received, the Custodian shall
deposit to the account(s) of a Fund any and all payments for Shares of that Fund
issued or sold from time to time as they are received from the Corporation's
distributor or Dividend and Transfer Agent or from the Corporation itself.
D. Duties Upon Receipt. The Custodian shall, acting on behalf of each
Fund, deposit any Fund assets in the Book-Entry System or a Depository. The
Custodian shall not be responsible for any Securities, moneys or other assets of
any Fund until actually received by it. The Custodian shall always be
accountable to the Corporation for Fund assets deposited by the Custodian.
E. Validity of Title. The Custodian shall not be responsible for the
title, validity or genuineness of any property or evidence of title thereto
received or delivered by it pursuant to this Agreement.
701153.1
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<PAGE>
ARTICLE IV
Disbursement of Corporation Assets
----------------------------------
A. Declaration of Dividends by Corporation. The Corporation shall
furnish to the Custodian a copy of the resolution of the Board of Directors of
the Corporation, certified by the Corporation's Secretary, either (i) setting
forth the date of the declaration of any dividend or distribution in respect of
Shares of any Fund of the Corporation, the date of payment thereof, the record
date as of which the Fund shareholders entitled to payment shall be determined,
the amount payable per share to Fund shareholders of record as of that date, and
the total amount to be paid by the Dividend and Transfer Agent on the payment
date, or (ii) authorizing the declaration of dividends and distributions in
respect of Shares of a Fund on a daily basis and authorizing the Custodian to
rely on Written Instructions setting forth the date of the declaration of any
such dividend or distribution, the date of payment thereof, the record date as
of which the Fund shareholders entitled to payment shall be determined, the
amount payable per share to Fund shareholders of record as of that date, and the
total amount to be paid by the Dividend and Transfer Agent on the payment date.
On the payment date specified in the resolution or Written
Instructions described above, the Custodian shall segregate such amounts from
moneys held for the account of the Fund so that they are available for such
payment.
B. Segregation of Redemption Proceeds. Upon receipt of Proper
Instructions so directing it, the Custodian shall segregate amounts necessary
for the payment of redemption proceeds to be made by the Dividend and Transfer
Agent from moneys held for the account of the Fund so that they are available
for such payment.
701153.1
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<PAGE>
C. Disbursements of Custodian. Upon receipt of a Certificate directing
payment and setting forth the name and address of the person to whom such
payment is to be made, the amount of such payment, the name of the Fund from
which payment is to be made, and the purpose for which payment is to be made,
the Custodian shall disburse amounts as and when directed from the assets of
that Fund. The Custodian is authorized to rely on any Written Instructions that
it reasonably believes to have been issued by an Authorized Person.
D. Payment of Custodian Fees. Upon receipt of Written Instructions
directing payment, the Custodian shall disburse moneys from the assets of the
Corporation in payment of the Custodian's fees and expenses as provided in
Article VIII hereof.
ARTICLE V
Custody of Corporation Assets
-----------------------------
A. Separate Accounts for Each Fund. As to each Fund, the Custodian
shall open and maintain a separate bank account or accounts in the United States
in the name of the Corporation coupled with the name of such Fund, subject only
to draft or order by the Custodian acting pursuant to the terms of this
Agreement, and shall hold all cash received by it from or for the account of the
Fund, other than cash maintained by the Fund in a bank account established and
used by the Fund in accordance with Rule 17f-3 under the Act. Moneys held by the
Custodian on behalf of a Fund may be deposited by the Custodian to its credit as
Custodian in the banking department of the Custodian. Such moneys shall be
deposited by the Custodian in its capacity as such, and shall be withdrawable by
the Custodian only in such capacity.
B. Segregation of Non-Cash Assets. All Securities and non-cash
property held by the Custodian for the account of a Fund (other than Securities
maintained in a Depository or Book-entry
701153.1
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<PAGE>
System) shall be physically segregated from other Securities and non-cash
property in the possession of the Custodian (including the Securities and
non-cash property of the other Funds) and shall be identified as subject to this
Agreement.
C. Securities in Bearer and Registered Form. All Securities held which
are issued or issuable only in bearer form shall be held by the Custodian in
that form; all other Securities held for the Fund may be registered in the name
of the Custodian, any sub-custodian appointed in accordance with this Agreement,
or the nominee of any of them. The Corporation agrees to furnish to the
Custodian appropriate instruments to enable the Custodian to hold, or deliver in
proper form for transfer, any Securities that it may hold for the account of any
Fund and which may, from time to time, be registered in the name of a Fund.
D. Duties of Custodian As to Securities. Unless otherwise instructed
by the Corporation, with respect to all Securities held for the Corporation, the
Custodian shall on a timely basis (concerning items 1 and 2 below, as defined in
the Custodian's Standards of Service Guide, as amended from time to time,
annexed hereto as Appendix D):
1. Collect all income due and payable with respect to such
Securities;
2. Present for payment and collect amounts payable upon all
Securities which may mature or be called, redeemed, or
retired, or otherwise become payable;
3. Surrender interim receipts or Securities in temporary form
for Securities in definitive form; and
4. Execute, as Custodian, any necessary declarations or
certificates of ownership under the Federal income tax laws
or the laws or regulations of any other
701153.1
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<PAGE>
taxing authority, including any foreign taxing authority,
now or hereafter in effect.
E. Certain Actions Upon Written Instructions. Upon receipt of a
Written Instructions and not otherwise, the Custodian shall:
1. Execute and deliver to such persons as may be designated in
such Written Instructions proxies, consents, authorizations,
and any other instruments whereby the authority of the
Corporation as beneficial owner of any Securities may be
exercised;
2. Deliver any Securities in exchange for other Securities or
cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation, or
recapitalization of any corporation, or the exercise of any
conversion privilege;
3. Deliver any Securities to any protective committee,
reorganization committee, or other person in connection with
the reorganization, refinancing, merger, consolidation,
recapitalization, or sale of assets of any corporation, and
receive and hold under the terms of this Agreement such
certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to evidence
such delivery;
4. Make such transfers or exchanges of the assets of any Fund
and take such other steps as shall be stated in the Written
Instructions to be for the purpose of effectuating any duly
authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Corporation; and
701153.1
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<PAGE>
5. Deliver any Securities held for any Fund to the depository
agent for tender or other similar offers.
F. Custodian to Deliver Proxy Materials. The Custodian shall promptly
deliver to the Corporation all notices, proxy material and executed but unvoted
proxies pertaining to shareholder meetings of Securities held by any Fund. The
Custodian shall not vote or authorize the voting of any Securities or give any
consent, waiver or approval with respect thereto unless so directed by Written
Instructions.
G. Custodian to Deliver Tender Offer Information. The Custodian shall
promptly deliver to the Corporation all information received by the Custodian
and pertaining to Securities held by any Fund with respect to tender or exchange
offers, calls for redemption or purchase, or expiration of rights. If the
Corporation desires to take action with respect to any tender offer, exchange
offer or other similar transaction, the Corporation shall notify the Custodian
at least five Business Days prior to the date on which the Custodian is to take
such action. The Corporation will provide or cause to be provided to the
Custodian all relevant information for any Security which has unique put/option
provisions at least five Business Days prior to the beginning date of the tender
period.
ARTICLE VI
Purchase and Sale of Securities
-------------------------------
A. Purchase of Securities. Promptly after each purchase of Securities
by the Corporation, the Corporation shall deliver to the Custodian (i) with
respect to each purchase of Securities which are not Money Market Securities,
Written Instructions, and (ii) with respect to each purchase of Money Market
Securities, Proper Instructions, specifying with respect to each such purchase
the:
701153.1
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<PAGE>
1. name of the issuer and the title of the Securities,
2. the number of shares, principal amount purchased (and
accrued interest, if any) or other units purchased,
3. date of purchase and settlement,
4. purchase price per unit,
5. total amount payable,
6. name of the person from whom, or the broker through which,
the purchase was made,
7. the name of the person to whom such amount is payable, and
8. the Fund for which the purchase was made.
The Custodian shall, against receipt of Securities purchased by or for the
Corporation, pay out of the moneys held for the account of such Fund the total
amount specified in the Written Instructions, or Oral Instructions, if
applicable, to the person named therein. The Custodian shall not be under any
obligation to pay out moneys to cover the cost of a purchase of Securities for a
Fund, if in the relevant Fund custody account there is insufficient cash
available to the Fund for which such purchase was made.
B. Sale of Securities. Promptly after each sale of Securities by a
Fund, the Corporation shall deliver to the Custodian (i) with respect to each
sale of Securities which are not Money Market Securities, Written Instructions,
and (ii) with respect to each sale of Money Market Securities, Proper
Instructions, specifying with respect to each such sale the:
1. name of the issuer and the title of the Securities,
701153.1
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<PAGE>
2. number of shares, principal amount sold (and accrued
interest, if any) or other units sold,
3. date of sale and settlement,
4. sale price per unit,
5. total amount receivable,
6. name of the person to whom, or the broker through which, the
sale was made,
7. name of the person to whom such Securities are to be
delivered, and
8. Fund for which the sale was made.
The Custodian shall deliver the Securities against receipt of the total amount
specified in the Written Instructions, or Oral Instructions, if applicable.
Notwithstanding any other provision of this Agreement, the Custodian, when
properly instructed as provided herein to deliver Securities against payment,
shall be entitled, if in accordance with generally accepted market practice, to
deliver such Securities prior to actual receipt of final payment therefor. In
any such case, the Fund for which the Securities were delivered shall bear the
risk that final payment for the Securities may not be made or that the
Securities may be returned or otherwise held or disposed of by or through the
person to whom they were delivered, and the Custodian shall have no liability
for any of the foregoing.
C. Options. Promptly after the time as of which the Corporation, on
behalf of a Fund, either:
1. writes an option on securities,
2. notifies the Custodian that its obligations in respect of
any put or call option, as described in the Corporation's
Prospectus, require that the Fund deposit
701153.1
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<PAGE>
Securities or additional Securities with the Custodian,
specifying the type and value of Securities required to be
so deposited,
the Custodian will cause to be segregated or identified as deposited, pursuant
to the Fund's obligations as set forth in the Prospectus, Securities of such
kinds and having such aggregate values as are required to meet the Fund's
obligations in respect thereof. The Corporation will provide to the Custodian,
as of the end of each trading day, the market value of the Fund's option
liability and the market value of its portfolio of common stocks.
D. Payment on Settlement Date. On contractual settlement date, the
account of the Fund will be charged for all purchased Securities settling on
that day, regardless of whether or not delivery is made. Likewise, on
contractual settlement date, proceeds from the sale of Securities settling that
day will be credited to the account of the Fund, irrespective of delivery. Any
such credit shall be conditioned upon actual receipt by Custodian of final
payment and may be reversed if final payment is not actually received in full.
E. Credit of Moneys Prior to Receipt. With respect to any credit given
prior to actual receipt of final payment, the Custodian may, in its sole
discretion and from time to time, permit a Fund to use funds so credited to its
Fund custody account in anticipation of actual receipt of final payment. Any
such funds shall be deemed a loan from the Custodian to the Corporation payable
on demand and bearing interest accruing from the date such loan is made up to
but not including the date on which such loan is repaid at the rate per annum
customarily charged by the Custodian on similar loans.
701153.1
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<PAGE>
F. Segregated Accounts. The Custodian shall, upon receipt of Proper
Instructions so directing it, establish and maintain a segregated account or
accounts for and on behalf of a Fund. Cash and/or Securities may be transferred
into such account or accounts for specific purposes, to-wit:
1. in accordance with the provision of any agreement among the
Corporation, the Custodian, and a broker-dealer registered
under the 1934 Act, and also a member of the NASD (or any
futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of the
Options Clearing Corporation and of any registered national
securities exchange, the Commodity Futures Trading
Commission, any registered contract market, or any similar
organization or organizations requiring escrow or other
similar arrangements in connection with transactions by the
Fund;
2. for purposes of segregating cash or Securities in connection
with options purchased, sold, or written by the Fund or
commodity futures contracts or options thereon purchased or
sold by the Fund;
3. for the purpose of compliance by the Fund with the
procedures required for reverse repurchase agreements, firm
commitment agreements, standby commitment agreements, and
short sales by Act Release No. 10666, or any subsequent
release or releases or rule of the SEC relating to the
maintenance of segregated accounts by registered investment
companies;
4. for the purpose of segregating collateral for loans of
Securities made by the Fund; and
701153.1
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<PAGE>
5. for other proper corporate purposes, but only upon receipt
of, in addition to Proper Instructions, a copy of a
resolution of the Board Of Directors, certified by an
Officer, setting forth the purposes of such segregated
account.
Each segregated account established hereunder shall be established and
maintained for a single Fund only. All Proper Instructions relating to a
segregated account shall specify the Fund involved.
G. Advances for Settlement. Except as otherwise may be agreed upon by
the parties hereto, the Custodian shall not be required to comply with any
Written Instructions to settle the purchase of any Securities on behalf of a
Fund unless there is sufficient cash in the account(s) pertaining to such Fund
at the time or to settle the sale of any Securities from such an account(s)
unless such Securities are in deliverable form. Notwithstanding the foregoing,
if the purchase price of such Securities exceeds the amount of cash in the
account(s) at the time of such purchase, the Custodian may, in its sole
discretion, advance the amount of the difference in order to settle the purchase
of such Securities. The amount of any such advance shall be deemed a loan from
the Custodian to the Corporation payable on demand and bearing interest accruing
from the date such loan is made up to but not including the date such loan is
repaid at the rate per annum customarily charged by the Custodian on similar
loans.
ARTICLE VII
Corporation Indebtedness
------------------------
In connection with any borrowings by the Corporation, the Corporation
will cause to be delivered to the Custodian by a bank or broker requiring
Securities as collateral for such borrowings (including the Custodian if the
borrowing is from the Custodian), a notice or undertaking in the form
701153.1
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<PAGE>
currently employed by such bank or broker setting forth the amount of
collateral. The Corporation shall promptly deliver to the Custodian Written
Instructions specifying with respect to each such borrowing: (a) the name of the
bank or broker, (b) the amount and terms of the borrowing, which may be set
forth by incorporating by reference an attached promissory note duly endorsed by
the Corporation, or a loan agreement, (c) the date, and time if known, on which
the loan is to be entered into, (d) the date on which the loan becomes due and
payable, (e) the total amount payable to the Corporation on the borrowing date,
and (f) the description of the Securities securing the loan, including the name
of the issuer, the title and the number of shares or other units or the
principal amount. The Custodian shall deliver on the borrowing date specified in
the Written Instructions the required collateral against the lender's delivery
of the total loan amount then payable, provided that the same conforms to that
which is described in the Written Instructions. The Custodian shall deliver, in
the manner directed by the Corporation, such Securities as additional
collateral, as may be specified in Written Instructions, to secure further any
transaction described in this Article VII. The Corporation shall cause all
Securities released from collateral status to be returned directly to the
Custodian and the Custodian shall receive from time to time such return of
collateral as may be tendered to it.
The Custodian may, at the option of the lender, keep such collateral
in its possession, subject to all rights therein given to the lender because of
the loan. The Custodian may require such reasonable conditions regarding such
collateral and its dealings with third-party lenders as it may deem appropriate.
701153.1
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ARTICLE VIII
Concerning the Custodian
------------------------
A. Limitations on Liability of Custodian. Except as otherwise provided
herein, the Custodian shall not be liable for any loss or damage resulting from
its action or omission to act or otherwise, except for any such loss or damage
arising out of its own gross negligence or willful misconduct, or reckless
disregard of its duties under this Agreement. The Corporation shall defend,
indemnify and hold harmless the Custodian and its directors, officers, employees
and agents with respect to any loss, claim, liability or cost (including
reasonable attorneys' fees) arising or alleged to arise from or relating to the
Corporation's duties hereunder or any other action or inaction of the
Corporation or its Directors, officers, employees or agents, except such as may
arise from the grossly negligent action or omission, willful misconduct,
reckless disregard, or breach of this Agreement by the Custodian. The Custodian
shall indemnify, defend and hold harmless the Corporation and its Directors,
officers, employees or agents with respect to any loss, claim, liability or cost
(including reasonable attorneys' fees) arising or alleged to arise from or
relating to the Custodian's duties with respect to the Corporation hereunder or
any other action or inaction of the Custodian or its directors, officers,
employees, agents, nominees or Sub-Custodians as to a Fund, except such as may
arise from the grossly negligent action or omission, willful misconduct,
reckless disregard of breach of this Agreement by the Corporation, its
directors, officers, employees or agents. The Custodian shall be entitled to
rely on and may act upon the advice and opinion of counsel on all matters, at
the expense of the Corporation, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice or opinion of counsel. The
provisions under this paragraph shall survive the termination of this Agreement.
701153.1
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<PAGE>
B. Actions Not Required By Custodian. Without limiting the generality
of the foregoing, the Custodian, acting in the capacity of Custodian hereunder,
shall be under no obligation to inquire into, and shall not be liable for:
1. The validity of the issue of any Securities purchased by or
for the account of any Fund, the legality of the purchase
thereof, or the propriety of the amount paid therefor;
2. The legality of the sale of any Securities by or for the
account of any Fund, or the propriety of the amount for
which the same are sold;
3. The legality of the issue or sale of any Shares of any Fund,
or the sufficiency of the amount to be received therefor;
4. The legality of the redemption of any Shares of any Fund, or
the propriety of the amount to be paid therefor;
5. The legality of the declaration or payment of any dividend
by the Corporation in respect of Shares of any Fund;
6. The legality of any borrowing by the Corporation on behalf
of the Corporation or any Fund, using Securities as
collateral;
7. Whether the Corporation or a Fund is in compliance with the
1940 Act, the regulations thereunder, the provisions of the
Corporation's charter documents or by-laws, or its
investment objectives and policies as then in effect.
C. No Duty to Collect Amounts Due From Dividend and Transfer Agent.
The Custodian shall not be under any duty or obligation to take action to effect
collection of any amount due to the Corporation from any Dividend and Transfer
Agent of the Corporation nor to take any action to
701153.1
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effect payment or distribution by any Dividend and Transfer Agent of the
Corporation of any amount paid by the Custodian to any Dividend and Transfer
Agent of the Corporation in accordance with this Agreement.
D. No Enforcement Actions. Notwithstanding Section D of Article V, the
Custodian shall not be under any duty or obligation to take action, by legal
means or otherwise, to effect collection of any amount, if the Securities upon
which such amount is payable are in default, or if payment is refused after due
demand or presentation, unless and until (i) it shall be directed to take such
action by Written Instructions and (ii) it shall be assured to its satisfaction
(including prepayment thereof) of reimbursement of its costs and expenses in
connection with any such action.
E. Authority to Use Agents and Sub-Custodians. The Corporation
acknowledges and hereby authorizes the Custodian to hold Securities through its
various agents described in Appendix C annexed hereto. The Fund hereby
represents that such authorization has been duly approved by the Board Of
Directors of the Corporation as required by the Act.
In addition, the Corporation acknowledges that the Custodian may
appoint one or more financial institutions, as agent or agents or as
sub-custodian or sub-custodians, including, but not limited to, banking
institutions located in foreign countries, for the purpose of holding Securities
and moneys at any time owned by the Fund. The Custodian shall not be relieved of
any obligation or liability under this Agreement in connection with the
appointment or activities of such agents or sub-custodians. Any such agent or
sub-custodian shall be qualified to serve as such for assets of investment
companies registered under the Act. The Funds shall reimburse the Custodian for
all costs incurred by the Custodian in connection with opening accounts with any
such agents or sub-custodians. Upon request, the Custodian shall promptly
forward to the Corporation any documents
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it receives from any agent or sub-custodian appointed hereunder which may assist
trustees of registered investment companies to fulfill their responsibilities
under Rule 17f-5 of the Act.
F. No Duty to Supervise Investments. The Custodian shall not be under
any duty or obligation to ascertain whether any Securities at any time delivered
to or held by it for the account of the Corporation are such as properly may be
held by the Corporation under the provisions of the Articles of Incorporation
and the Corporation's By-Laws.
G. All Records Confidential. The Custodian shall treat all records and
other information relating to the Corporation and the assets of all Funds as
confidential and shall not disclose any such records or information to any other
person unless (i) the Corporation shall have consented thereto in writing or
(ii) such disclosure is required by law.
H. Compensation of Custodian. The Custodian shall be entitled to
receive and the Corporation agrees to pay to the Custodian such compensation as
shall be determined pursuant to Appendix E attached hereto, or as shall be
determined pursuant to amendments to Appendix E. The Custodian shall be entitled
to charge against any money held by it for the account of any Fund, the amount
of any of its fees, any loss, damage, liability or expense, including counsel
fees. The expenses which the Custodian may charge against the account of a Fund
include, but are not limited to, the expenses of agents or sub-custodians
incurred in settling transactions involving the purchase and sale of Securities
of the Fund.
I. Reliance Upon Instructions. The Custodian shall be entitled to rely
upon any Proper Instructions. The Corporation agrees to forward to the Custodian
Written Instructions confirming Oral Instructions in such a manner so that such
Written Instructions are received by the Custodian, whether by hand delivery,
telex, facsimile or otherwise, on the same Business Day on which such
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<PAGE>
Oral Instructions were given. The Corporation agrees that the failure of the
Custodian to receive such confirming instructions shall in no way affect the
validity of the transactions or enforceability of the transactions hereby
authorized by the Corporation. The Corporation agrees that the Custodian shall
incur no liability to the Corporation for acting upon Oral Instructions given to
the Custodian hereunder concerning such transactions.
J. Books and Records. The Custodian will (i) set up and maintain
proper books of account and complete records of all transactions in the accounts
maintained by the Custodian hereunder in such manner as will meet the
obligations of the Fund under the Act, with particular attention to Section 31
thereof and Rules 3la-1 and 3la-2 thereunder and those records are the property
of the Corporation, and (ii) preserve for the periods prescribed by applicable
Federal statute or regulation all records required to be so preserved. All such
books and records shall be the property of the Corporation, and shall be
available, upon request, for inspection by duly authorized officers, employees
or agents of the Corporation and employees of the SEC.
K. Internal Accounting Control Systems. The Custodian shall send to
the Corporation any report received on the systems of internal accounting
control of the Custodian, or its agents or sub-custodians, as the Corporation
may reasonably request from time to time.
L. No Management of Assets By Custodian. The Custodian performs only
the services of a custodian and shall have no responsibility for the management,
investment or reinvestment of the Securities or other assets from time to time
owned by any Fund. The Custodian is not a selling agent for Shares of any Fund
and performance of its duties as custodian shall not be deemed to be a
recommendation to any Fund's depositors or others of Shares of the Fund as an
investment. The Custodian shall have no duties or obligations whatsoever except
such duties and obligations as are
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<PAGE>
specifically set forth in this Agreement, and no covenant or obligation shall be
implied in this Agreement against the Custodian.
M. Assistance to Corporation. The Custodian shall take all reasonable
action, that the Corporation may from time to time request, to assist the
Corporation in obtaining favorable opinions from the Corporation's independent
accountants, with respect to the Custodian's activities hereunder, in connection
with the preparation of the Fund's Form N- IA, Form N-SAR, or other annual
reports to the SEC.
N. Grant of Security Interest. The Corporation hereby pledges to and
grants the Custodian a security interest in the assets of any Fund to secure the
payment of any liabilities of the Corporation to the Custodian, whether acting
in its capacity as Custodian or otherwise, or on account of money borrowed from
the Custodian. This pledge is in addition to any other pledge of collateral by
the Corporation to the Custodian.
ARTICLE IX
Initial Term; Termination
-------------------------
A. Initial Term. This Agreement shall become effective as of its
execution and shall continue in full force and effect for a period of two years
(the "Initial Term") and thereafter until terminated as hereinafter provided.
B. Termination. Either party hereto may terminate this Agreement after
the Initial Term for any reason by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less than ninety
(90) days after the date of giving of such notice. If such notice is given by
the Corporation, it shall be accompanied by a copy of a resolution of the Board
of Directors of the Corporation, certified by the Secretary of the Corporation,
electing to terminate this
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<PAGE>
Agreement and designating a successor custodian or custodians. In the event such
notice is given by the Custodian, the Corporation shall, on or before the
termination date, deliver to the Custodian a copy of a resolution of the Board
of Directors of the Corporation, certified by the Secretary, designating a
successor custodian or custodians to act on behalf of the Corporation. In the
absence of such designation by the Corporation, the Custodian may designate a
successor custodian which shall be a bank or corporation company having not less
than $100,000,000 aggregate capital, surplus, and undivided profits. Upon the
date set forth in such notice this Agreement shall terminate, and the Custodian,
provided that it has received a notice of acceptance by the successor custodian,
shall deliver, on that date, directly to the successor custodian all Securities
and moneys then owned by the Fund and held by it as Custodian. Upon termination
of this Agreement, the Corporation shall pay to the Custodian on behalf of the
Corporation such compensation as may be due as of the date of such termination.
The Corporation agrees on behalf of the Corporation that the Custodian shall be
reimbursed for its reasonable costs in connection with the termination of this
Agreement.
C. Failure to Designate Successor Trustee. If a successor custodian is
not designated by the Corporation, or by the Custodian in accordance with the
preceding paragraph, or the designated successor cannot or will not serve, the
Corporation shall, upon the delivery by the Custodian to the Corporation of all
Securities (other than Securities held in the Book-Entry System which cannot be
delivered to the Corporation) and moneys then owned by the Corporation, be
deemed to be the custodian for the Corporation, and the Custodian shall thereby
be relieved of all duties and responsibilities pursuant to this Agreement, other
than the duty with respect to Securities held in the Book-Entry System, which
cannot be delivered to the Corporation, which shall be held by the Custodian in
accordance with this Agreement.
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<PAGE>
ARTICLE X
Force Majeure
-------------
Neither the Custodian nor the Corporation shall be liable for any
failure or delay in performance of its obligations under this Agreement arising
out of or caused, directly or indirectly, by circumstances beyond its reasonable
control, including, without limitation, acts of God; earthquakes; fires; floods;
wars; civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes; acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation; provided, however, that the Custodian, in the event of a failure
or delay, shall use its best efforts to ameliorate the effects of any such
failure or delay.
ARTICLE XI
Miscellaneous
-------------
A. Designation of Authorized Persons. Appendix A sets forth the names
and the signatures of all Authorized Persons as of this date, as certified by
the Secretary of the Corporation. The Corporation agrees to furnish to the
Custodian a new Appendix A in form similar to the attached Appendix A, if any
present Authorized Person ceases to be an Authorized Person or if any other or
additional Authorized Persons are elected or appointed. Until such new Appendix
A shall be received, the Custodian shall be fully protected in acting under the
provisions of this Agreement upon Oral Instructions or signatures of the then
current Authorized Persons as set forth in the last delivered Appendix A.
701153.1
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<PAGE>
B. Limitation of Personal Liability. No recourse under any obligation
of this Agreement or for any claim based thereon shall be had against any
organizer, shareholder, officer, trustee, past, present or future as such, of
the Corporation or of any predecessor or successor, either directly or through
the Corporation or any such predecessor or successor, whether by virtue of any
constitution, statute or rule of law or equity, or by the enforcement of any
assessment or penalty or otherwise; it being expressly agreed and understood
that this Agreement and the obligations thereunder are enforceable solely
against the Corporation, and that no such personal liability whatever shall
attach to, or is or shall be incurred by, the organizers, shareholders,
officers, or directors of the Corporation or of any predecessor or successor, or
any of them as such. To the extent that any such liability exists, it is hereby
expressly waived and released by the Custodian as a condition of, and as a
consideration for, the execution of this Agreement.
C. Authorization By Board. The obligations set forth in this Agreement
as having been made by the Corporation have been made by the Board of Directors,
acting as such Directors for and on behalf of the Corporation, pursuant to the
authority vested in them under the laws of the State of Maryland, the Articles
of Incorporation and the By-Laws of the Corporation. This Agreement has been
executed by Officers of the Corporation as officers, and not individually, and
the obligations contained herein are not binding upon any of the Directors,
Officers, agents or holders of shares, personally, but bind only the
Corporation.
D. Custodian's Consent to Use of Its Name. The Corporation shall
review with the Custodian all provisions of the Prospectus and any other
documents (including advertising material) specifically mentioning the Custodian
(other than merely by name and address) and shall obtain the Custodian's consent
prior to the publication and/or dissemination or distribution thereof.
701153.1
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<PAGE>
E. Notices to Custodian. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the Custodian, shall be
sufficiently given if addressed to the Custodian and mailed or delivered to it
at its offices at Star Bank Center, 425 Walnut Street, M. L. 6118, Cincinnati,
Ohio 45202, attention Mutual Fund Custody Department, or at such other place as
the Custodian may from time to time designate in writing.
F. Notices to Corporation. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the Corporation shall be
sufficiently given when delivered to the Corporation or on the second Business
Day following the time such notice is deposited in the U.S. mail postage prepaid
and addressed to the Corporation at its office at 303 Twin Dolphin Drive,
Redwood Shores, California 94065 or at such other place as the Corporation may
from time to time designate in writing.
G. Amendments In Writing. This Agreement, with the exception of the
Appendices, may not be amended or modified in any manner except by a written
agreement executed by both parties with the same formality as this Agreement,
and authorized and approved by a resolution of the Board of Directors of the
Corporation.
H. Successors and Assigns. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by the
Corporation or by the Custodian, and no attempted assignment by the Corporation
or the Custodian shall be effective without the written consent of the other
party hereto.
I. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Ohio.
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<PAGE>
J. Jurisdiction. Any legal action, suit or proceeding to be instituted
by either party with respect to this Agreement shall be brought by such party
exclusively in the courts of the State of Ohio or in the courts of the United
States for the Southern District of Ohio, and each party, by its execution of
this Agreement, irrevocably (i) submits to such jurisdiction and (ii) consents
to the service of any process or pleadings by first class U.S. mail, postage
prepaid and return receipt requested, or by any other means from time to time
authorized by the laws of such jurisdiction.
K. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
L. Headings. The headings of paragraphs in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective Officers, thereunto duly authorized as of the
day and year first above written.
ATTEST: THE MILLENNIUM RHIM FUNDS, INC.
By:
- ------------------------- --------------------------------
Title:
-----------------------------
ATTEST: STAR BANK, N.A.
By:
- ------------------------- --------------------------------
Marsha A. Croxton
Title: Senior Vice President
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<TABLE>
<CAPTION>
APPENDIX A
Authorized Persons Specimen Signatures
------------------ -------------------
<S> <C> <C>
Chairman:
------------------ ------------------
President:
------------------ ------------------
Secretary:
------------------ ------------------
Treasurer:
------------------ ------------------
Senior Vice
President:
------------------ ------------------
Assistant
Secretary:
------------------ ------------------
Assistant
Treasurer:
------------------ ------------------
Adviser Employees:
------------------ ------------------
------------------ -------------------
Transfer Agent/Fund Accountant
Employees:
------------------ ------------------
------------------ -------------------
------------------ -------------------
------------------ -------------------
</TABLE>
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<PAGE>
APPENDIX B
Series of the Corporation
The Millennium Growth Fund
The Millennium Growth & Income Fund
701153.1
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APPENDIX C
Agents of the Custodian
The following agents are employed currently by Star Bank, N.A. for
securities processing and control ...
The Depository Trust Company (New York)
7 Hanover Square
New York, NY 10004
The Federal Reserve Bank
Cincinnati and Cleveland Branches
Bankers Trust Company
16 Wall Street
New York, NY 10005
(For Foreign Securities and certain non-DTC eligible Securities)
701153.1
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