Page 1 of 25 pages.
1940 Act Registration
No. 811-3888
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
File No. 811-3888
Amendment No. 16
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COMBINED PENNY STOCK FUND, INC.
(exact name of registrant)
6180 Lehman Drive, Suite 103, Colorado Springs, CO 80918
(Address of Principal Executive Offices) (Zip Code)
719-593-2111
(Registrant's Telephone Number)
John R. Overturf, Jr.
6180 Lehman Drive, Suite 103
Colorado Springs, CO 80918
(Name and address of Agent for Service)
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Copies of all communication to:
Brenman, Key & Bromberg, P.C.
Mellon Financial Center
1775 Sherman Street, Suite 1001
Denver, CO 80203
303-894-0234
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PART A
THE PROSPECTUS
Item 2. INSIDE FRONT AND OUTSIDE BACK COVER PAGE
Not applicable.
Item 3. FEE TABLE AND SYNOPSIS
Not applicable.
Item 4. FINANCIAL HIGHLIGHTS
Not applicable.
Item 5. PLAN OF DISTRIBUTION
Not applicable.
Item 6. SELLING SHAREHOLDERS
Not applicable.
Item 7. USE OF PROCEEDS
Not applicable.
Item 8. GENERAL DESCRIPTION OF THE REGISTRANT
(1) General: Combined Penny Stock Fund, Inc. (the Fund) was incorporated in
the State of Colorado on September 7, 1983 and is registered under the
Investment Company Act of 1940, as amended, as a closed-end investment company.
(2) Investment Objective and Policies: Investment Objectives and Policies
of the Fund are incorporated, except for the changes below, by reference to the
same sections of Amendment #3 of the Fund's Registration Statement filed on Form
N-2 with the Securities and Exchange Commission on January 28, 1987. The new
investment objectives and policies approved by a majority vote of Shareholders
on July 2, 1990 are as follows:
(a) The Fund will invest primarily in common stocks of small, speculative
companies. Typically, these companies are not listed on a national securities
exchange, but trade on the over-the-counter market. There are market risks
inherent in investing in small, speculative companies. The Funds investment
policy also allows for investments in slightly larger, more stable, and somewhat
less speculative companies.
(b) The Investment Policy of the Fund is to invest at least 80% of the
value of its assets in common stocks of companies whose total market
capitalization is $50 million or less. This policy is a fundamental policy of
the Fund, which may not be changed without approval of the holders of a majority
of the Fund's outstanding voting securities. The Fund will not be precluded from
holding stocks if the market capitalization has grown to greater than $50
million subsequent to acquisition. Current income will not be a factor in
selecting investments. When the Investment Advisor believes there will be a
market decline, it
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may sell the Fund's securities and temporarily invest all or part of the
proceeds in investment grade corporate bonds, debentures or preferred stocks,
United States Government securities, state or municipal securities, or funds may
be retained in cash. The Fund may continue to invest all of its assets in penny
stocks.
(c) Consistent with its investment objective of capital appreciation, the
Fund may invest a substantial portion of its total assets in penny stocks of new
companies that have a greater than normal investment risk, including without
limitation, (i) dependence on the sale of high technology products or concepts
that may be subject to rapid technological change or obsolescence; (ii) limited
financial resources; (iii) thin capitalization or high leverage; (iv) limited or
no public trading market for the securities; (v) limited operating history; or
(vi) competition with larger companies.
Other types of securities in which the Fund will invest and other industries on
which the Fund will concentrate are as follows:
Investment in Other Investment Companies: The Fund may not invest in other
investment companies except as permitted under the Investment Company Act of
1940. The Fund may purchase in the open market up to 3% of the voting securities
of other investment companies including money market funds; provided however,
that such purchase of a single investment company security may not exceed 5% of
the value of the total assets of the Fund and all investments in investment
company securities may not exceed 10% of the value of the total assets of the
Fund.
Diversification: The Fund will keep investments in individual issuers
within the limits permitted diversified companies under the Investment Company
Act of 1940. The Fund will not invest more than 5% of its total assets in any
one issuer, or hold more than 10% of the voting securities of any issuer.
Concentration of Investments in a Particular Industry or Group of
Industries: The Fund may not invest 25% or more of the value of its assets in
any one industry.
Issuance of Senior Debt Securities: The Fund may not issue senior debt
securities, such as bonds, notes or other evidences of indebtedness.
Issuance of Senior Equity Securities: The Fund may not issue equity
securities the holders of which will have preferential rights over the holders
of the Common Stock as to payment of dividends or the distribution of assets
upon the liquidation of the Fund.
Borrowing Money: The Fund may borrow money from a bank for temporary
purposes in an amount not to exceed 5% of the value of the Fund's assets for the
payment of expenses of the Fund incurred in the ordinary course of its
operations.
Purchase and Sale of Real Estate and Real Estate Mortgage Loans: The Fund
may not purchase and sell real estate or real estate mortgage loans.
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Purchase and Sale of Commodities or Commodity Contracts: The Fund may not
purchase or sell commodities or commodity contracts.
Making Loans and Lending Portfolio Securities: The Fund may invest in
"restricted securities," which generally may not be sold without registration
under the Securities Act of 1933, as amended. In addition, the Fund may make
short-term "bridge" loans to companies preparing to sell registered securities
to the public for the first time. A "bridge" loan is a loan made to an issuer
preparing to register and market an issue of securities, generally for the first
time. Such bridge loans may be made only to issuers, and may not be made to
officers, directors, shareholders or affiliates of issuers. Bridge loans must be
considered extremely risky because there can be no assurance that the borrower
will successfully register or market its securities, and consequently the
borrower may not be able to repay the bridge loan. On the other hand, such
bridge loans may often be made at an attractive rate of interest to the Fund,
and may enable the Fund to negotiate for the purchase of securities of the
borrower at favorable prices. Any such securities purchased by the Fund will
probably be "restricted securities." No more than 10% of the value of the Fund's
total assets may be invested in bridge loans and/or restricted securities. If
through the appreciation of restricted securities or other illiquid assets, or
the depreciation of unrestricted securities or other liquid assets, the Fund
should be in a position where more than 10% of its net assets are invested in
illiquid assets including restricted securities, then the Board of Directors
will consider appropriate steps to protect maximum liquidity. Except as provided
in this section, the Fund may not make loans to other persons, may not lend its
portfolio securities and may not enter into repurchase agreements.
Underwriting of Securities of Other Issuers: The Fund will not underwrite
securities of other issuers, except that the Fund may acquire portfolio
securities under circumstances where, if the securities are later publicly
offered or sold by the Fund, it might be deemed to be an underwriter for
purposes of the Securities Act of 1933.
Options: The Fund may not purchase call options.
(3) Risk Factors:
Stock Not Subject To Redemption
The Fund is registered under the Investment Company Act of 1940 as a closed-end
diversified management investment company and is subject to applicable
regulatory and other provisions of that Act. However, such registration and
regulation does not involve government supervision of the management or of the
investment objectives and policies of the Fund. Because the Fund is a closed-end
investment company, the Common Stock is not subject to redemption on the demand
of shareholders.
No Dividends
The Fund does not anticipate that it will pay any dividends on the Common Stock
offered hereby in the foreseeable future. The Fund intends to reinvest in
securities such funds as might otherwise be available for the payment of
dividends. The payment of dividends out of legally available funds, if such
funds are available, will rest in the discretion of the Board of Directors.
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Because the Fund intends to reinvest all or a substantial portion of any
realized capital gains and dividend income, the Fund is not a suitable
investment for those who seek dividend income. An investor should not consider
investing in the Fund to be equivalent to a complete investment program. See
"Dividends and Tax Status".
The Fund does not intend to file an election under Section 851(b) of the
Internal Revenue Code so as to be treated for federal tax purposes as a
"regulated investment company" under subchapter M of the Internal Revenue Code.
Subchapter M allows investment companies to be relieved of federal income tax so
long as they distribute all taxable income to their shareholders. Consequently,
investment income and realized capital gains will be taxed to the Fund at the
rates applicable to corporations. Also, dividends if any, distributed to the
shareholders will be taxed to the shareholders at their individual rates. The
Board of Directors' decision not to make an election under subchapter M will
result in "double taxation" on dividends, if any, distributed to the Fund's
shareholders.
Investment Advisor
The fund does not utilize the services of an investment advisor. The investment
portfolio is managed by the Board of Directors and President.
Speculative Investment Portfolio
The Fund intends to invest at least 80% of its assets in common stocks of
companies whose total market capitalization is $50 million or less. Many of the
companies in which the Fund will invest will be new and emerging companies in
high technology fields. Because most of the Fund's investment portfolio will be
comprised of highly speculative securities, there can be no assurance that the
Fund will realize its objective of capital appreciation of its investment
portfolio. The Fund may invest up to 10% of its capital in "restricted
securities" and/or "bridge loans". If through the appreciation of restricted
securities or other illiquid assets, or the depreciation of unrestricted
securities or other liquid assets, the fund should be in a position where more
than 10% of its net assets are invested in illiquid assets including restricted
securities, then the Board of Directors will consider appropriate steps to
protect maximum liquidity.
(4) Other Policies: See Item 8.2 For detail summary of investment policies.
(5) Share Price Data: History of Public Trading - As of September 30, 1999,
51,921,000 shares of the Fund's common stock were issued. The high and low net
asset value per share, the high and low bid price per share and the trading
volume of the Fund's common stock during each quarter for the past three years
is summarized in the following table (see page 6).
The net asset value of the Fund at September 30, 1999 was $.026 per share.
Market makers quoted the stock on September 30, 1999 at $.015 bid and $.016
asked.
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Quarter Net Asset Value Bid Price Approximate
Ended High Low High Low Volume Traded
09/30/99 .0261 .0256 .019 .015 3,501,600
06/30/99 .0263 .0241 .022 .020 9,039,600
03/31/99 .0236 .0232 .018 .014 12,313,600
12/31/98 .0218 .0179 .018 .013 2,405,400
09/30/98 .0245 .0205 .020 .0175 2,775,900
06/30/98 .0279 .0259 .020 .0175 477,300
03/31/98 .0282 .0272 .025 .020 1,705,300
12/31/97 .0320 .0275 .0275 .025 1,582,880
09/30/97 .0341 .0276 .030 .027 5,128,293
06/30/97 .0289 .0282 .028 .025 23,050
03/31/97 .0315 .0310 .030 .027 610,500
12/31/96 .0313 .0307 .0260 .0260 90,300
09/30/96 .0319 .0312 .0275 .020 4,050,000
06/30/96 .0320 .0304 .0275 .02375 3,625,000
03/31/96 .0319 .0311 .0275 .025 6,525,000
12/31/95 .0308 .0285 .025 .020 2,070,000
09/30/95 .0291 .0267 .022 .018 331,000
06/30/95 .0226 .0237 .020 .016 1,320,000
03/31/95 .0231 .0223 .016 .015 286,720
The registrant neither redeems its shares nor continuously offers its shares to
the public. The Fund's securities are not listed on any stock exchange, but are
traded in the over-the-counter market. The bid and asked prices for the Fund's
securities are reported by the National Quotation Bureau. The Fund's securities
began trading February of 1984. Generally the Fund's securities have traded at a
price below net asset value.
(6) Business Development Companies: The Registrant is not a Business
Development Company, nor does registrant invest in Business Development
Companies.
Item 9. MANAGEMENT
(1) General: Citadel Asset Management, Ltd. ("the Advisor" or "CAM") acted as
the investment advisor to the Fund until July 2, 1992, pursuant to an agreement
between CAM and the Fund (the "Advisory Agreement"). By agreement between CAM
and the Fund, the Advisory Agreement was terminated on July 2, 1992. Since the
termination of the Advisory Agreement, the Fund has operated on a self-directed
basis, without the counsel and advice of an investment advisor. Operating on a
self-directed basis, the Fund no longer utilizes the services of an investment
advisor. Instead, the Board of Directors of the Fund, through the Fund's
Advisory Committee and Investment Committee, currently manages the investment
operations of the Fund, and otherwise provides the services heretofore performed
by the Fund's Investment Advisor.
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On March 27, 1996 Philip J. Halseide resigned as President and Board member of
the Fund. On July 1, 1997 Allan W. Williams resigned as a board member of the
Fund.
(a) Board of Directors: The directors and officers of the Fund, and their
principal occupations during the last five years, are listed in the following
table. The Fund does not have an advisory board.
On August 28, 1996 the Board of Directors hired John R. Overturf, Jr. as
President of the Fund effective September 1, 1996.
On February 2, 1996 the Board of Directors amended the By-Laws to increase the
size of the Board of Directors from four persons to five persons.
John R. Overturf, Jr.
6180 Lehman Drive
Suite #103
Colorado Springs, CO 80918
Position:
President since August 1996
Director since July 1997
Principal Occupation During Past
Five (5) Years and Current Affiliation
Mr. Overturf serves as President of the Combined Penny Stock Fund, Inc., a
closed-end stock fund, a position he has held since September 1996. From
September 1993 until September 1996, Mr. Overturf served as Vice-President of
the Rockies Fund, Inc. a closed-end stock market fund. Mr. Overturf serves as
the President of R.O.I., Inc. a private investment company, a position he has
held since July 1993. From June 1984 until February 1992, Mr. Overturf served as
Vice President of Colorado National Bank. Mr. Overturf holds a Bachelor of
Science degree in Finance from the University of Northern Colorado.
A. Leonard Nacht
P.O. Box 1679
Edwards, CO 81632
Position:
Secretary since April 1990,
Director since February 1990.
Principal Occupation During Past
Five (5) Years and Current Affiliation
Secretary, Redwood MicroCap Fund, Inc., ("RMCF") from April 1990 to October
1991; private practice of dentistry from 1957 to 1994.
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Jeffrey J. Kormos
8751 North 51st Ave #115
Glendale, AZ 85302
Position:
Director since July 1997.
Principal Occupation During Past
Five (5) Years and Current Affiliation
From August, 1994 until present, Mr. Kormos has been employed as an account
executive with Yee, Desmond, Schroeder & Allen, Inc., a stockbrokerage firm.
From December, 1992 to August, 1994, Mr. Kormos was an account executive with
G.R. Stuart & Company's, Inc.; from April, 1987 to December, 1992 an account
executive with First Affiliated Securities, Inc.; from December, 1985 until
April, 1987 an account executive with Quinn & Co.; from December, 1982 until
December, 1985 an account executive with First Affiliated Securities, Inc. From
1977 until December, 1982, Mr. Kormos served as President and owner of Metro
Exterior Decorators, Inc., a licensed contractor.
Brian E. Power
P.O. Box 7134
Nut Tree, Ca 75696
Position:
Director since October 1996.
Principal Occupation During Past
Five (5) Years and Current Affiliation
Mr. Power is self-employed and is the founder and general partner of several
private companies. In January 1997, Mr. Power founded Lone Oak Vineyards, Inc.,
a vineyard acquisition and development company. Mr. Power is a founder and
general partner in Silver Creek Associates, a partnership which was established
in March 1996 to develop small luxury resort properties in California's Napa
Valley. From January 1992 until its sale in June 1996, Mr. Power was a principal
founder and officer of Signature Wines, Inc. a private label winery. In
addition, Mr. Power has been a director of two public companies. From July, 1991
to August 1993, Mr. Power served as a director of the Rockies Fund and from its
inception in July 1993 until August 1996, Mr. Power served as a director of
Redwood Broadcasting. Mr. Power attended the University of California at Davis.
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A description of the responsibilities of the board of directors with respect to
the management of the Fund is as follows:
Chairman of the Board. The Chairman of the board (if the board of directors
determines to elect one) shall preside at all meetings of the board of directors
and shall have such further and other authority, responsibility and duties as
may be granted to, or imposed upon him by the board of directors.
President. The president shall be the chief executive officer of the corporation
and, subject to the control of the board of directors, shall in general
supervise and control all of the business and affairs of the corporation. The
president shall, when present, preside at all meetings of the shareholders and
shall preside at all meetings of the board of directors unless the board shall
have elected a chairman of the board of directors. The president shall have
authority, subject to rules as may be prescribed by the board of directors, to
appoint such agents and employees of the corporation as the president shall deem
necessary, to prescribe their powers, duties and compensation, and to delegate
authority to them. Such agents and employees shall hold office at the discretion
of the president. The president shall have authority to sign, execute and
acknowledge, on behalf of the corporation, all deeds, mortgages, bonds, stock
certificates, contracts, leases, reports and all other documents or instruments
necessary or proper to be executed in the course of the corporation's regular
business , or which shall be authorized by resolution of the board of directors:
and except as otherwise provided by law or the board of directors; the president
may authorize any vice-president or other officer or agent of the corporation to
sign, execute and acknowledge such documents or instruments in the president's
place and stead. In general the president shall perform all duties incident to
the office of the chief executive officer and such other duties as may be
prescribed by the board of directors determines not to elect a chairman of the
board or in the event of such person's absence or disability, the president
shall perform the duties of the chairman of the board and when so acting shall
have all the powers of and be subject to all of the duties and restrictions
imposed upon the chairman of the board.
The Vice-Presidents. At the time of election, one or more of the vice-presidents
may be designated executive vice-president. In the absence of the president or
in the event of his death, inability or refusal to act, or in the event for any
reason it shall be impracticable for the president to act personally, the
vice-president, or if more than one, the vice-presidents in the order designated
at the time of their election, shall perform the duties of the president and
when so acting shall have all the powers and be subject to all the restrictions
upon the president.
The Secretary. The secretary shall: (a) keep the minutes of the meetings of the
shareholders and of the board of directors in one or more books provided for
that purpose; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (c) be custodian of the
corporate records and of the seal of the corporation and see that the seal of
the corporation is affixed to all documents the execution of which on behalf of
the corporation under its seal is duly authorized; (d) keep or arrange for the
keeping of a register of the post office address of each shareholder which shall
be furnished to the secretary by such shareholder; (e) sign with the president,
or a vice-president, certificates for shares of the corporation, the issuance of
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which shall have been authorized by resolution to the board of directors; (f)
have general charge of the stocktransfer books of the corporation; and (g) in
general perform all duties incident to the office of secretary and have such
other duties and exercise such authority as from time to time may be delegated
or assigned to him by the president or by the board of directors.
The Treasurer. The treasurer shall: (a) have charge and custody and be
responsible for all funds and securities of the corporation; (b) receive and
give receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such money in the name of the corporation in such
banks, trust companies or other depositories as shall be selected; and (c) in
general perform all of the duties incident to the office of treasurer and have
such other duties and exercise such other authority as from time to time may be
delegated or assigned to him by the president or by the board of directors. If
required by the board of directors, the treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties as
the board of directors shall determine.
Assistant Secretaries and Assistant Treasurers. There shall be such number of
assistant secretaries and assistant treasurers as the board of directors may
from time to time authorize. The assistant secretaries may sign with the
president or vice-president, certificates for shares of the corporation, the
issuance of which shall have been authorized by a resolution of the board of
directors. The assistant treasurers shall respectively, if required by the board
of directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the board of directors shall determine. The assistant
secretaries and assistant treasurers, in general, shall perform such duties and
have such authority as shall from time to time be delegated or assigned to them
by the secretary or the treasurer, respectively, or by the president or the
board of directors.
Other Assistants and Acting Officers. The board of directors shall have the
power to appoint any person to act as assistant to any officer, or as agent for
the corporation in his stead, or to perform the duties of such officer to act
personally, and such assistant or acting officer or other agent so appointed by
the duties of the office to which he is appointed to be assistant, or as to
which he is so appointed to act, except as such power may be otherwise defined
or restricted by the board of directors.
The Board has established an Appraisal Committee which reviews all transactions
with respect to execution price and brokerage commissions to determine if the
Fund is receiving "best execution." The Appraisal Committee also proposes to the
Board appropriate methods of valuation for securities that are not publicly
traded or are otherwise subject to restrictions upon transfer. Valuation for
such securities are determined in good faith by the Fund's Board of Directors.
From March 27, 1996 until June 30,1997, the Appraisal Committee consisted of
John R. Overturf, Jr., Allan Williams and A. Leonard Nacht. Allan Williams
resigned from the Board of Director's on June 30, 1997. From July 1, 1997 the
Appraisal Committee has consisted of John R. Overturf, Jr., A. Leonard Nacht,
Brian Power and Jeffery Kormas. Mr. Overturf is an interested person of the
Fund. The Appraisal Committee meets immediately following the close of each
month. During the fiscal year ending September 30, 1999, each member of the
Appraisal Committee attended every meeting either in person or via the mail, or
telephone
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conference. There are no standing audit, compensation or nominating committees
of the Board.
(b) Investment Advisors: The Board of Directors of Combined Penny Stock
Fund, Inc. acts as the investment advisors. See Item 9.1 for description of
Directors. Compensation is paid on a monthly basis as a monthly salary to the
President of the Company - See Item 18.
(c) Portfolio Management: John R. Overturf, Jr., President/Combined Penny
Stock Fund, Inc.
(d) Administrators: None.
(e) Custodian, Transfer Agent and Dividend Paying Agent: American
Securities Transfer, Inc. ("AST") 938 Quail Street, Suite 101, Lakewood, CO
80215-5513, is the registrar and transfer and dividend disbursement agent for
the Fund. The Fund's Transfer Agent Agreement will continue in force until
terminated by the Board of Directors or the Transfer Agent upon sixty days
written notice. It is the policy of the Board to review annually the Transfer
Agent Agreement.
(f) Expenses: The Fund is responsible for the general administrative and
operating expenses of the Fund. All expenses are paid from the Net Assets of the
Fund on a monthly basis. (g) Affiliated Brokerage: None
Item 10. CAPITAL STOCK, LONG-TERM DEBT, AND OTHER SECURITIES
The following statements are subject to the provisions of the Fund's Articles of
Incorporation and By-laws, copies of which are filed as exhibits to the Fund's
Registration Statement and are incorporated herein by reference.
The Fund's authorized capital stock consists of 100,000,000 shares of the common
stock, par value $.001 per share. The outstanding shares of the common stock are
fully paid and nonassessable. Holders of record of the common stock are entitled
to such dividends as may be declared by the Board of Directors out of legally
available funds and are entitled to receive a pro rata share of all assets of
the Fund remaining after payment of all debts and satisfaction of all
liabilities upon liquidation. Holders of the common stock do not have preemptive
rights to subscribe for or purchase any stock, warrants or other securities of
the Fund, and are not subject to redemption provisions associated with the
common stock. No restrictions exist on the repurchase or the redemption of the
common stock except as may be imposed by Colorado law.
The holders of the common stock are entitled to one vote for each share held,
either in person or by proxy, on all matters submitted to a vote of shareholders
of the Fund. The affirmative vote of the holders of the majority of the common
stock present and entitled to vote at any properly called meeting of the Fund's
shareholders at which a quorum is present may approve any resolution or other
action submitted for shareholder vote, with the exception of mergers,
consolidations, liquidations or amendments to the Articles of Incorporation,
which requires the affirmative vote of the holders of 66 2/3 of the common stock
present. A quorum consists of a majority of the outstanding shares of the common
stock entitled to vote.
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When electing directors, the voting rights of the holders of the common stock
are non-cumulative. As a result, the holders of more than 50% of the shares of
the common stock outstanding are able to elect all of the directors if they so
choose.
The following table summarizes certain information concerning the Fund's common
stock as of September 30, 1999:
Amount Held Amount Outstanding
Amount By Registrant or Exclusive of Amount
Title of Class Authorized for its Account Shown Under Col. 3
- ----- -- ----- ---------- --- --- ------- ------------------
Common Stock 100,000,000 -0- 51,921,000
Item 11. DEFAULTS AND ARREARS ON SENIOR SECURITIES
Not applicable.
Item 12. LEGAL PROCEEDINGS
None.
Item 13. TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL
INFORMATION
Item No. Page No.
14. Cover Page 13
15. Table of Contents 13
16. General Information and History 13
17. Investment Objective and Policies (See Item #8.2) 14
18. Management (Also See Item #9) 14
19. Control Persons and Principal Holders of Securities 16
20. Investment Advising and Other Securities 17
21. Brokerage Allocation and Other Practices 18
22. Tax Status 19
23. Financial Statements 19
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PART B
STATEMENT OF ADDITIONAL INFORMATION
Item 14. COVER PAGE
COMBINED PENNY STOCK FUND, INC.
(exact name of registrant)
The Statement of Additional Information is not to be interpretated as a
prospectus and should be read in conjunction with the prospectus dated July
2, 1984. A copy of the prospectus can be obtained at the Fund's Corporate
address. The date of the Statement of Additional Information is September
30, 1999. The Date of the signed prospectus is July 2, 1984.
Item 15. TABLE OF CONTENTS
Statement of Additional Information
Item No. Page No.
16. General Information and History 13
17. Investment Objective and Policies (See Item #8.2) 14
18. Management (Also See Item #9) 14
19. Control Persons and Principal Holders of Securities 16
20. Investment Advising and Other Securities 17
21. Brokerage Allocation and Other Practices 18
22. Tax Status 19
23. Financial Statements 19
Item 16. GENERAL INFORMATION AND HISTORY
The Registrant has not engaged in a business other than that of an investment
company during the past five (5) years, and has not changed its name in the same
time period.
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Item 17. INVESTMENT OBJECTIVE AND POLICIES (See Item #8.2)
(a) Investment Objectives and Policies of the Fund are incorporated,
except for the changes below, by reference to the same sections of Amendment #3
of the Fund's Registration Statement filed on Form N-2 with the Securities and
Exchange Commission on January 28, 1987. The new investment policies approved by
a majority vote of Shareholders on July 2, 1990 are as follows:
(1) Investment Policy: The fund will invest primarily in common
stocks of small, speculative companies. Typically, these companies are not
listed on a national securities exchange, but trade on the over-the-counter
market. There are market risks inherent in investing in small, speculative
companies. The Funds investment policy also allows for investments in slightly
larger, more stable, and somewhat less speculative companies.
The Investment Policy of the Fund is to invest at least 80% of the value of its
assets in common stocks of companies whose total market capitalization is $50
million or less. This policy is a fundamental policy of the Fund, which may not
be changed without approval of the holders of a majority of the Fund's
outstanding voting securities. The Fund will not be precluded from holding
stocks if the market capitalization has grown to greater than $50 million
subsequent to acquisition. Current income will not be a factor in selecting
investments. When the Investment Advisor believes there will be a market
decline, it may sell the Fund's securities and temporarily invest all or part of
the proceeds in investment grade corporate bonds, debentures or preferred
stocks, United States Government securities, state or municipal securities, or
funds may be retained in cash. The Fund may continue to invest all of its assets
in penny stocks.
(b) Fundamental Policies: Fundamental policies of the Fund are
incorporated by reference to the same sections of Amendment #3 of the
Registrant's Registration Statement filed on Form N-2 with the Securities and
Exchange Commission on January 28, 1987, with the exceptions noted in 7 (a)
above.
(c) Other Investment Policies: None.
(d) Portfolio Turnover Rate: The portfolio turnover rate refers to the
percentage of the Fund's portfolio which is replaced in a period of one year and
is determined by dividing the lesser of purchases or sales of portfolio
securities owned by the monthly average value of the portfolio securities owned
by the Fund during the year. The Fund anticipated an annual portfolio turnover
rate of 75-100% in its prospectus dated February 7, 1984. The portfolio turnover
rates for the fiscal year ended September 30, 1998 and 1999 were 67% and 33%,
respectively. The portfolio turnover rate has increased in recent years due to
active participation in the new issue market and the low net asset value of the
Fund.
Item 18. MANAGEMENT (Also See Item 9.)
a) Employment History of Officers and Directors: The directors and officers
of the Fund, and their principal occupations during the last five years, are
listed in the following table. The Fund does not have an advisory board.
14
<PAGE>
On February 2, 1996, the Board of Directors amended the By-Laws to increase the
size of the Board of Directors from four persons to five persons.
Name, Address and
Position with Fund
John R. Overturf, Jr.
6180 Lehman Drive, Suite #103
Colo Springs, CO 80918
Position: President since August 1996
Director from March 1996
Principal Occupation During Past
Five (5) Years and Current Affiliation
Mr. Overturf serves as President of the Combined Penny Stock Fund, Inc., a
closed-end stock fund, a position he has held since August 1996. From
September 1993 until September 1996, Mr. Overturf served as Vice-President of
the Rockies Fund, Inc. a closed-end stock market fund. Mr. Overturf serves as
the President of R.O.I., Inc. a private investment company, a position he has
held since July 1993. From June 1984 until February 1992, Mr. Overturf served as
Vice President of Colorado National Bank. Mr. Overturf holds a Bachelor of
Science degree in Finance from the University of Northern Colorado.
A. Leonard Nacht
P.O. Box 1679
Edwards, CO 81632
Position:
Secretary since April 1990,
Director since February 1990.
Principal Occupation During Past
Five (5) Years and Current Affiliation
Secretary, Redwood MicroCap Fund, Inc., ("RMCF") from April 1990 to October
1991; private practice of dentistry from 1957 to 1994.
Jeffery J. Kormos
8751 North 51st Ave #115
Glendale, AZ 85302
Position:
Director since July 1997.
Principal Occupation During Past
Five (5) Years and Current Affiliation
From August, 1994 until present, Mr. Kormos has been employed as an account
executive with Yee, Desmond, Schroeder & Allen, Inc., a stockbrokerage firm.
From December, 1992 to August, 1994, Mr. Kormos was an account executive with
G.R. Stuart & Company's, Inc.; from April, 1987 to December, 1992 an account
executive with First Affiliated Securities, Inc.; from December, 1985 until
April, 1987 an account executive with Quinn & Co.; from December, 1982 until
December, 1985 an account executive with First Affiliated Securities, Inc. From
1977 until December, 1982, Mr. Kormos served as President and owner of Metro
Exterior Decorators, Inc., a licensed contractor.
15
<PAGE>
Brian E. Power
P.O. Box 7134
Nut Tree, Ca 75696
Position:
Director since October 1996.
Principal Occupation During Past
Five (5) Years and Current Affiliation
Mr. Power is self-employed and is the founder and general partner of several
private companies. In January 1997, Mr. Power founded Lone Oak Vineyards, Inc.,
a vineyard acquisition and development company. Mr. Power is a founder and
general partner in Silver Creek Associates, a partnership which was established
in March 1996 to develop small luxury resort properties in California's Napa
Valley. From January 1992 until its sale in June 1996, Mr. Power was a principal
founder and officer of Signature Wines, Inc. a private label winery. In
addition, Mr. Power has been a director of two public companies. From July,
1991 until August, 1993 to Mr. Power served as a director of the Rockies Fund
and from its inception in July 1993 until August 1996 Mr. Power served as a
director of Redwood Broadcasting. Mr. Power attended the University of
California at Davis.
Mr. Overturf serves as President of the Combined Penny Stock Fund, Inc. Philip
J. Halseide resigned as President of the Fund in March 1996. Mr. Halseide
received $7,500 in accrued vacation pay and $13,167 in severance pay upon
resignation as President of the Fund. John R. Overturf, Jr. received a salary of
$48,000 as President from October 1, 1998 until September 30, 1999. Dr. A.
Leonard Nacht serves as the Secretary of the Fund without compensation. During
the fiscal year ended September 30, 1999, no other officer was paid more than
$30,000 by the Fund. The foregoing amount excludes benefits payable under the
Fund's group insurance plans, which are generally available to all employees on
a non-discriminatory basis.
The Board had one in person meeting during the fiscal year ending September 30,
1999. Each Director who was not also an officer of the Fund is entitled to
receive a fee of $50 for each telephone meeting attended, $1,000 for each formal
meeting attended and $1,000 for attendance at the Annual Meeting of
Shareholders. Two thousand($2,000) were expended on Director's fees during the
year ended September 30, 1999. Mr. Overturf and A. Leonard Nacht who are
officers of the Fund each received $1,000 in Director fees.
COMPENSATION TABLE
(2) (3) (4) (5)
Name of Person, Aggregate Pension or Estimated Total .Compensation
Position Compensa- Retirement Benefits Upon From Fund and
tion From Benefits Accrued Retirement Fund Complex
Fund As Part of Paid to
Expenses Directors
John R. Overturf, Jr $49,000 -0- -0- $49,000
President 9/96
A. Leonard Nacht $ 1,000 -0- -0- $ 1,000
Secretary
Item 19. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth, as of September 30, 1999 certain information
with respect to beneficial ownership: (i) by all officers and directors of the
Fund
16
<PAGE>
as a group and (ii) by any person who owns of record or beneficially 5% or more
of the Fund's stock. The Fund is not aware of any person who controls it as that
term is defined in the Investment Company Act of 1940 (the "Act").
# of Shares # of Outstanding
Name of Owner Owned Shares Owned
Officers and Directors
as a group (4 persons) 1,300,000 2.50%
Cede & Company
P.O. Box 20
Bowling Green Station
New York, NY 10004 15,391,284 29.64%
(1) Includes shares owned by spouses, partnerships of which the officers and
directors are general partners, and retirement plans of the officers and
directors.
(2) Cede & Company is a clearing house which is listed as record owner of the
Fund's shares but is not a beneficial owner and does not exercise the power
to vote the shares indicated. It is a nominee, holding the shares in
"street name" for the actual beneficial owners, the identity of whom are
unknown to the Fund.
Item 20. INVESTMENT ADVISORY AND OTHER SERVICES Citadel Asset Management, Ltd.
("the Advisor" or "CAM") acted as the investment advisor to the Fund until July
2, 1992, pursuant to an agreement between CAM and the Fund (the "Advisory
Agreement"). By agreement between CAM and the Fund, the Advisory Agreement was
terminated on July 2, 1992. Since the termination of the Advisory Agreement, the
Fund has operated on a self-directed basis, without the counsel and advice of an
investment advisor. Operating on a self-directed basis, the Fund no longer
utilizes the services of an investment advisor. Instead, the Board of Directors
of the Fund, through the Fund's Advisory Committee and Investment Committee,
currently manages the investment operations of the Fund, and otherwise provides
the services heretofore performed by the Fund's Investment Advisor.
During the fiscal year ended September 30, 1999, the Fund paid no advisory fees.
The Fund's total net assets at September 30, 1999, were $1,326,888.
17
<PAGE>
Item 21. BROKERAGE ALLOCATION AND OTHER PRACTICES
(1) The change in agency commissions during the most recent fiscal year, as
compared to the two prior fiscal years, is due to the decrease of buying and
selling of portfolio securities by the Registrant. The change in principle
commission during the fiscal year ended 1999, as compared to the 1998 and 1997
fiscal year end, is due to a decrease in trading activity of the Fund.
(2) Broker Commissions:
(a) The brokerage commissions paid by the Fund during the three most
recent fiscal years ended September 30 are as follows:
1999 1998 1997
---- ---- ----
Principal Commissions** $ 6,090 $ 15,421 $ 33,010
Agency Commissions $ 2,314 $ 2,236 $ 2,784
Aggregate Commissions** $ 8,404 $ 17,657 $ 35,794
**Principal commissions are not disclosed on trade confirmations and are
therefore estimated.
(b) No brokerage commissions were paid by the Registrant during the
three years ended September 30, 1999 to any affiliated broker.
(3) Selection of Brokers: Not applicable.
(c) Use of research Services Performed by Brokers: None.
(4) Transactions Directed Through a Broker Because of Research Services:
None.
(5) Acquisition of Securities of Regular Brokers or Dealers: During the
last fiscal year the Registrant did not acquire any securities of its regular
broker or dealers or their parents.
18
<PAGE>
Item 22. TAX STATUS
The Fund has not elected to be treated for Federal tax purposes as a "regulated
investment company" under Subchapter M of the Internal Revenue Code.
Consequently, investment income and realized capital gains are taxed to the Fund
at the tax rates applicable to corporations.
Item 23. FINANCIAL STATEMENTS
The following financial statements were filed on November 29, 1999 with the
Securities and Exchange Commission as part of the Fund's 1999 Annual Report to
Shareholders pursuant to Section 30 (b) (2) of the Act and are incorporated by
reference:
(1) Statement of Investments in Unaffiliated Issuers as of September 30,
1999
(2) Statement of Investments in Affiliated Issuers as September 30, 1999
(3) Assets and Liabilities as of September 30, 1999
(4) Capital Stock and Accumulated Loss as of September 30, 1999
(5) Statement of Operations for the year ended September 30, 1999
(6) Statement of Changes in Net Assets for the years ended September 30,
1999 and 1998
(7) Notes to Financial Statements
(8) Financial Highlights
(9) Report of Independent Auditors
19
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
See Part B, Item 23.
(b) Exhibits:
(1) Articles of Incorporation of the Fund are incorporated by
reference to the Form N-2 filed on September 24, 1983.
(2) Bylaws of the Fund, as amended, are incorporated by reference to
Amendment No. 2 of the Form N-2 filed on January 24, 1987.
(3) Voting Trust Agreement - None
(4) Specimen Stock Certificate is incorporated by reference to the Form N-2
filed on September 24, 1983.
(5) Instruments relating to long term debt - None
(6) Investment Advisor Agreement with Citadel Asset Management, Ltd. dated
July 2, 1990
(7) Underwriting or Distribution Contracts - None
(8) Bonus, Profit Sharing, Pension or Similar Plans - None
(9) Custodian Agreement is incorporated by reference to the Form N-2 filed
on September 24, 1983
(10) Independent Auditors consent
20
<PAGE>
(b) Exhibits (continued)
(10a) Transfer Agent Agreement is incorporated by reference to Amendment
No. 5 to the Form N-2 filed on January 28, 1989
(10b) Fidelity Bond, as endorsed is incorporated by reference to Amendment
No. 4 to the Form N-2 filed on January 21, 1989
(10c) Employment Agreement of Philip J. Halseide is incorporated by
reference to amendment No. 2 to the Form N-2 filed on January 28, 1986
(10d) Employment Agreement of Jack P. Phelan is incorporated by reference
to Amendment No. 2 to the Form N-2 filed on July 28, 1986
(10e) Office Space Lease Agreement with Wells Mortgage is incorporated by
reference to Amendment No. 5 to the Form N-2 filed on January 28, 1989
(14) Agreement Relating to Initial Capital of Fund - None
(15) Model Plans - None
Item 25. MARKETING ARRANGEMENTS
Not applicable.
Item 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not applicable.
Item 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Not applicable
Item 28. NUMBER OF HOLDERS OF SECURITIES
The following table sets forth the number of record holders by class of stock as
of September 30, 1999:
Title of Class Number of Record Holders
Common Stock 7862
21
<PAGE>
Item 29. INDEMNIFICATION
Section 7.01 of the By-laws of the Fund (filed as an exhibit to Amendment No. 4
to the Fund's Form N-2) is incorporated by reference.
Item 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
Not applicable.
Item 31. LOCATION OF ACCOUNTS AND RECORDS
Except as set forth below, the Fund maintains physical possession of its books,
records and accounts that are required to be maintained by Section 31(a) of the
Act at its offices at 6180 Lehman Drive, Suite 103, Colorado Springs, CO 80918.
Also pursuant to Section 31(a) of the Act and Rule 31(a)-3 of the Securities and
Exchange Commission, US Bank, N.A., St. Paul, MN, maintains the physical
possession of certain accounts, books and other documents of the Fund in
connection with its services to the Fund as custodian.
Item 32. MANAGEMENT SERVICES
None.
Item 33. UNDERTAKINGS
Not applicable
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, the Registrant has duly caused this amended
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Colorado Springs, and State of Colorado, on the
30th day of November, 1999.
COMBINED PENNY STOCK FUND, INC. BY: /s/John R. Overturf, Jr.
Registrant John R. Overturf, Jr.
President
Pursuant to the requirement of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Stan Pittman Date: 11/30/99
Stan Pittman
Chief Accounting Officer
23
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
EXHIBITS
to
Amendment No. 16
on Form N-2
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940
File No. 811-3888
COMBINED PENNY STOCK FUND, INC.
(exact name of registrant)
6180 Lehman Drive, Suite 103
Colorado Springs, CO 80918
(Address of Principal Executive Offices)
24
<PAGE>
EXHIBIT INDEX
Exhibit # Description
1.) Articles of Incorporation of the Fund are incorporated by reference to
the Form N-2 filed on September 24, 1983.
2.) Bylaws of the Fund, as amended, are incorporated by reference to
Amendment No. 2 of the Form N-2 filed on January 14, 1987.
3.) Voting Trust Agreement - None.
4.) Specimen Stock Certificate is incorporated by reference to the Form N-2
filed on September 24, 1983.
5.) Instruments relating to long term debt - None.
6.) Investment Advisor Agreement with Citadel Asset Management, Ltd., dated
September 30, 1989.
8.) Bonus, Profit Sharing, Pension or Similar Plans - None.
9.) Custodian Agreement is incorporated by reference to the Form N-2 filed
on September 24, 1983.
10a.) Transfer Agent Agreement is incorporated by reference to Amendment
No. 5 to the Form N-2 filed on January 28, 1989.
10b.) Fidelity Bond, as endorsed is incorporated by reference to Amendment
No. 4 to the Form N-2 filed on January 21, 1988.
10c.) Employment Agreement of Philip J. Halseide is incorporated by
reference to Amendment No. 2 to the Form N-2 filed on January 28, 1986.
10d.) Employment Agreement of Jack P. Phelan is incorporated by reference
to Amendment No. 2 to the Form N-2 filed on January 28, 1986.
10e.) Office Space Lease Agreement with Wells Mortgage is incorporated by
reference to Amendment No. 5 to the Form N-2 filed on January 28, 1989.
11.) Consent of Independent Auditors
14.) Agreement Relating to Initial Capital of Fund - None
15.) Model Plans - None
27.) Financial Data Schedule
25
<PAGE>
EXHIBIT NO. 11
Consent of Independent Auditors
Combined Penny Stock Fund, Inc.:
We hereby consent to the incorporation by reference in this Amendment No. 16 to
Registration Statement No. 811-3888 of our report dated October 19, 1999
appearing in your 1998 Annual Report to Shareholders.
/s/ STOCKMAN KAST RYAN & COMPANY, LLP
STOCKMAN KAST RYAN & COMPANY, LLP
Colorado Springs, Colorado
November 15, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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