As Filed With The Securities And Exchange Commission on December 27, 1996.
File Nos. 2-99388 and 811-4369
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 20 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 22 (X)
THE RUSHMORE FUND, INC.
(Exact Name of Registrant as Specified in Charter)
4922 Fairmont Avenue, Bethesda, Maryland 20814
(Address of Principal Executive Offices) (Zip Code)
(301) 657-1500
(Registrant's Telephone Number, Including Area Code)
Richard J. Garvey
4922 Fairmont Avenue
Bethesda, Maryland 20814
(Name and Address of Agent for Service of Process)
Approximate Date of Commencement of the Proposed Public Offering
of the Securities:
It is proposed that this filing will become effective (check
appropriate box):
____ immediately upon filing pursuant to paragraph (b) of rule 485.
X on January 1, 1997 pursuant to paragraph (b) (1) (v) of rule 485.
____ 60 days after filing pursuant to paragraph (a) (1) of rule 485.
____ on (date) pursuant to paragraph (a) (1) of rule 485.
____ 75 days after filing pursuant to paragraph (a) (2) of rule 485.
____ on (date) pursuant to paragraph (a) (2) of rule 485.
If appropriate, check the following box:
____ This post-effective amendment designates a new effective date
for a previously-filed post-effective amendment.
The Registrant has previously filed a declaration of indefinite registration
of its shares pursuant to Rule 24f-2 under the Investment Company Act of
1940. The Rule 24f-2 Notice for the Registrant's fiscal year ended
August 31, 1996 was filed on October 29, 1996.
TOTAL NUMBER OF PAGES____
<PAGE>
THE RUSHMORE FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
Form N-1A Location in
Item No. Registration Statement
Part A. Information Required in Prospectus
1. Cover Page Outside Front Cover Page
of Prospectus
2. Synopsis Fee Table
3. Condensed Financial Financial Highlights
Information
4. General Description of Organization and
Registrant Description of Common
Stock; Investment
Objective and Policies;
Management of the Fund
5. Management of the Fund Management of the Fund
5A. Management's Discussion Management's Discussion
of Fund Performance of Fund Performance
6. Capital Stock and Other Organization and
Securities Description Common
Stock; Dividends and
Distribution; Taxes
7. Purchase of Securities How to Invest in the
Being Offered Portfolio; Exchanges;
Net Asset Value
8. Redemption or Repurchase How to Redeem an
Investment (Withdrawals)
9. Legal Proceedings Not Applicable
Part B: Information Required In
Statement of Additional Information
10. Cover Page Outside Front Cover Page
of Statement of
Additional Information
11. Table of Contents Table of Contents
<PAGE>
Form N-1A Location in
Item No. Registration Statement
12. General Information and Not Applicable
History
13. Investment Objectives and Investment Policies;
Policies Investment Restrictions
14. Management of the Management of the Fund
Registrant
15. Control Persons and Principal Holders of
Principal Holders of Securities
Securities
16. Investment Advisory and Management of the Fund
Other Services
17. Brokerage Allocation Investment Policies
18. Capital Stock and Other Not Applicable
Securities
19. Purchase, Redemption and Not Applicable
Pricing of Securities
Being Offered
20. Tax Status Dividends,
Distributions, and Taxes
21. Underwriters Management of the Fund
22. Calculations of Performance Information;
Performance Data Calculation of Return
Quotations
23. Financial Statements Financial Statements
Part C: Other Information
24. Financial Statements and Financial Statements and
Exhibits Exhibits
25. Persons Controlled by or Persons Controlled by or
Under Common Control Under Common Control
26. Number of Holders of Numbers of Holders of
Securities Securities
27. Indemnification Indemnification
28. Business and Other Business and Other
Connections of Investment Connections of
Adviser Investment Adviser
<PAGE>
Form N-1A Location in
Item No. Registration Statement
29. Principal Underwriters Principal Underwriters
30. Location of Accounts and Location of Accounts and
Records Records
31. Management Services Management Services
32. Undertakings Undertakings
33. Signatures Signatures
<PAGE>
PART A
<PAGE>
RUSHMORE NOVA PORTFOLIO
<PAGE>
THE RUSHMORE FUND, INC.
4922 Fairmont Avenue
Bethesda, Maryland 20814
(800) 343-3355
(301) 657-1500
RUSHMORE NOVA PORTFOLIO
INVESTMENT OBJECTIVE AND POLICIES
The Rushmore Nova Portfolio (the "Portfolio") is one of a series
of portfolios in The Rushmore Fund, Inc. (the "Fund"), an open-
end management investment company. The objective of the
Portfolio is to provide total returns over time that are superior
to the market average as measured by the Standard & Poor's 500
Composite Stock Price Index. The Portfolio is designed for
investors seeking growth of capital rather than current income.
In attempting to achieve its objective, the Portfolio will employ
aggressive investment techniques, which include engaging in short
sales and transactions in options and futures contracts, as well
as the use of leverage. Because of the inherent risks in any
investment, there can be no assurance that the Portfolio's
investment objective will be met. The Portfolio is not intended
for investors whose principal objective is assured income or
preservation of capital.
The shares offered by this Prospectus are not deposits or
obligations of any bank, are not endorsed or guaranteed by any
bank, and are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other governmental
agency.
ADDITIONAL INFORMATION
Investors should read this Prospectus and retain it for future
reference. It is designed to set forth concisely the information
an investor should know before investing in the Portfolio. A
Statement of Additional Information, dated January 1, 1997,
containing additional information about the Portfolio has been
filed with the Securities and Exchange Commission and is
incorporated herein by reference. A copy of the Statement of
Additional Information may be obtained, without charge, by
writing or telephoning the Fund.
The date of this Prospectus is January 1, 1997.
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.
<PAGE>
FEE TABLE
The following table illustrates all expenses and fees that a shareholder of
the Portfolio will incur:
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees Redemption Fees None
Monthly Account Fee (for accounts under $500)* $5.00
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees** 0.75%
12b-1 Fees None
Other Expenses*** 0.50%
Total Fund Operating Expenses 1.25%
* A charge of $5 per month may be imposed on any account
whose average daily balance for the month falls below
$500 due to redemptions. See "Transaction Charges."
** The management fee is higher than the management fee
paid by most other investment companies. See
"Management of the Fund."
***Estimated.
EXAMPLE
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
$13 $41 $71 $155
The same level of expenses would be incurred if the investment
were held throughout the period indicated.
The purpose of this table is to assist the investor in
understanding the various expenses that an investor in the
Portfolio will bear directly or indirectly. The five percent
assumed annual return is for comparison purposes only. As noted
above, the Portfolio charges no redemption fees. The actual
annual return may be more or less depending on market conditions.
The actual expenses an investor incurs will depend on the amount
invested and actual expenses may be greater or less than those
shown. For more complete information about the various costs and
expenses, see "Management of the Fund" in this Prospectus and
"Investment Advisory and Other Services" in the Statement of
Additional Information.
<PAGE>
<TABLE>
The Rushmore Fund, Inc.
Financial Highlights
Rushmore Nova Portfolio
Audited
<CAPTION>
For the Year Ended August 31,
1996 1995 1994** 1993 1992 1991 1990*
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value - Beginning of Year $ 10.88 $ 0.00 $10.01 $9.46 $10.73 $9.61 $10.00
Income from Investment Operations:
Net Investment Income 0.435 0.310 0.060 0.157 0.186 0.263 0.202
Net Realized and Unrealized Gains (Losses)
on Securities 3.529 0.570 --- 0.711 (1.170) 1.007 (0.589)
Total from Investment Operations 3.964 0.880 0.060 0.868 (0.984) 1.270 (0.387)
Distributions to Shareholders:
From Net Investment Income (0.590) --- --- (0.318) (0.286) (0.150) (0.003)
From Net Realized Capital Gains (3.114) --- --- --- --- --- ---
Total Distributions to Shareholders (3.704) --- --- (0.318) (0.286) (0.150) (0.003)
Liquidation of Assets and Redemption of
all Outstanding Shares (11.090) --- (10.070) --- --- --- ---
From Share Transactions*** 10.000 1 10.000 2 --- --- --- --- ---
Net Increase (Decrease) in Net Asset Value (0.83) 10.88 (10.01) 0.55 (1.27) 1.12 (0.39)
Net Asset Value - End of Year $ 10.05 $ 10.88 $ 0.00 $ 10.01 $ 9.46 $ 10.73 $ 9.61
Total Investment Return 7.58% 8.80% b 0.90% 9.36% (7.79)% 13.31% (3.79)%
Ratios to Average Net Assets:
Expenses 1.19% a 1.25% c 0.90% a 1.36% 1.12% 1.13% 1.25%
Net Investment Income 3.32% 2.97% c 2.41% 1.56% 1.88% 2.59% 2.71%
Supplementary Data:
Portfolio Turnover Rate*** 71.2% 224.4% 0.0% 1,288.9% 2,100.8% 1,088.4% 1,271.8%
Net Assets at End of Year (000s omitted) 100 680 0 468 13,918 82,724 29,170
Number of Shares Outstanding at End of Year
(000s omitted) 10 63 0 47 1,471 7,707 3,034
* Commencement of Operations December 7, 1989.
** The Rushmore Nova Portfolio was initially intended for money managers
attempting to time short-term swings in the stock market and such money
managers did utilize the Portfolio for these purposes. These strategies of
short-term timing, however, led to exceptionally high portfolio turnover rates
(the rates for fiscal 1993, 1992 & 1991 were 1,288.9%, 2,100.8% and 1,088.4%,
respectively). Such high turnover rates led to excessively high shareholder
servicing costs and made operation of the Portfolio uneconomical. Because the
excess costs were borne by the Adviser and not the shareholders of the
Portfolio, continued operation of the Portfolio became unfeasible. In July
1993, the majority of the money manager users of the Portfolio withdrew their
shares. In the first quarter of fiscal year 1994, the Board of Directors
elected to close the Rushmore Nova Portfolio to new investors and encourage
those few remaining investors to move their investments to other alternatives
which they did.
***Portfolio turnover rate is calculated without regard to short-term
securities having a maturity of less than one year. The Portfolio may hold
investments in options and future contracts which are deemed short-term
securities.
1 During the year ended August 31, 1996, all outstanding shares were redeemed
at a net asset value of $11.09 per share, thereby resulting in the liquidation
of all net assets of the Portfolio. Subsequently, 10,000 shares were sold at
$10.00 per share when net asset value of the Portfolio was $0.00 thereby
resulting in Money Management Associates, the Portfolio's adviser, and another
affiliated person of the Portfolio, owning 100% of the Portfolio's shares.
2 During the year ended August 31, 1995, 62,500 shares were sold at
$10.00 per share when the net asset value of the Portfolio was $0.00 thereby
resulting in Money Management Associates, the Portfolio's advisor, and other
affiliated persons of the Portfolio owning 80% of the Portfolio's shares.
a Reflects all fees paid for services provided during the period. Investment
advisory services were not provided for part of the period due to investment
activity having ceased.
b Reflects the total return for the period January 3, 1995 through August 31,
1995. January 3, 1995 represents the first date during fiscal year 1995 that
the Portfolio had net assets and shareholders.
c Annualized.
The above financial highlights have been audited by Deloitte & Touche LLP,
independent certified public accountants, whose report thereon appears in the
Fund's 1996 Annual Report to Shareholders for the Nova Portfolio and is
incorporated by reference in the Statement of Additional Information. This
information should be read in conjunction with the financial statements and
related notes thereto included in the Statement of Additional Information. A
copy of the Fund's 1996 Annual Report to Shareholders for the Rushmore Nova
Portfolio, and further information about the performance of the Portfolio, may
be obtained, without charge, by contacting the Fund at 4922 Fairmont Avenue,
Bethesda, Maryland 20814, or by telephoning the Fund at (800) 343-3355 or
(301) 657-1500.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION OF PORTFOLIO PERFORMANCE
The Portfolio is structured as a growth fund. The Portfolio, for the past
year, has been invested primarily in cash, and, therefore, under-performed
the market averages significantly.
Shares of the Portfolio currently are not available to the public.
PERFORMANCE DATA
The Portfolio may from time to time include its total return in advertisements
or reports to shareholders or prospective shareholders. Quotations of average
annual total return for the portfolio will be expressed in terms of the average
annual compounded rate of return on a hypothetical investment in the Portfolio
over a period of at least one, five and ten years (up to the life of the
Portfolio). Total return is calculated from two factors: the amount of
dividends earned by each Portfolio share and by the increase or decrease in
value of the Portfolio's share price.
Performance information for the Portfolio contained in reports and promotional
literature may be compared to various unmanaged indexes, including but not
limited to the S&P 500 or the Dow Jones Industrial Average ("DJIA"). Such
unmanaged indexes may assume the reinvestment of dividends but generally do
not reflect deductions for operating costs and expenses. In addition, the
Portfolio's total return may be compared to other mutual funds'performances
as published by such organizations as Lipper Analytical Services, Inc., and
CDA Investment Technologies, Inc., among others. Performance figures are
based on historical results and are not intended to indicate future
performance.
<PAGE>
THE RUSHMORE FUND, INC.
Nova Portfolio
Total Return Comparison
S&P 500 Nova
Portfolio
12/7/89 $10,000 $10,000
8/31/90 $ 9,495 $ 9,621
8/31/91 $12,049 $10,902
8/31/92 $13,004 $10,052
8/31/93 $14,982 $10,993
8/31/94 $15,802 $11,092
8/31/95 $19,191 $12,068
8/31/96 $22,785 $12,983
Past performance is not predictive of future performance. The
Standard & Poor's 500 Composite Stock Price Index is an unmanaged
stock index and, unlike the Portfolio, has no management fee or
other operating expenses to reduce its reported return. Returns
are historical and include changes in principal and reinvested
dividends and capital gains. In September 1993, the Portfolio
distributed all remaining assets to the Portfolio shareholders
and ceased operations; during the six months ended February 28,
1995, 62,500 shares were sold at $10.00 per share when the net
asset value of the Portfolio was $0.00. See "Financial
Highlights."
Average Annual Total Return
Period Ending August 31, 1996
One Five Since
Year* Year Inception
Rushmore Nova Portfolio 7.58% 3.55% 3.95%
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
General
The objective of the Rushmore Nova Portfolio is to provide total
returns over time that are superior to the market average as
measured by the S&P 500. Total return is the realized or
unrealized appreciation or depreciation in net asset value plus
income or capital gain distribution received. Current income is
not an objective of the Portfolio. There can be no assurance the
Portfolio will achieve its objective. In its attempt to achieve
its objective, the Portfolio may invest in shares of individual
stock, in futures contracts on stock indexes and options
thereupon, and in options on stock indexes. At any time, the
Portfolio may invest any portion of its assets in any one of
these types of investments (subject to the limitations described
below). The Portfolio also may borrow funds for the purchase of
securities, invest in repurchase agreements secured by securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and engage in short sales if, at the time of
the short sale, the Portfolio owns or has the right to acquire an
equal amount of the security being sold at no additional cost
("selling against the box").
Stocks
The Portfolio may invest in individual stocks among the one
hundred stocks listed on the NYSE with the greatest market value.
In addition, the Portfolio may invest part or all of its assets
in stocks listed on the NASDAQ-100. The NASDAQ-100 is composed
of one hundred of the largest non-financial stocks in terms of
market value traded on the NASDAQTM national over-the-counter-
market. The terms "NASDAQ-100" and "NASDAQ" are trademarks and
service marks of the National Association of Securities Dealers,
Inc. (the "NASD"). The Portfolio is neither sponsored by nor
affiliated with NASDAQ's sponsor, NASDAQ, Inc., a subsidiary of
the NASD.
In selecting individual securities for investment by the
Portfolio, the Portfolio's investment advisor, Money Management
Associates (the "Adviser"), will rely primarily on technical
market factors rather than fundamental analysis. Technical
selection techniques rely on the analysis of such factors as
historical price trends, trading volume, short interest, over-
bought/over-sold indicators, and other quantifiable factors.
Technical selection techniques are essentially short-term trading
strategies and may generate significant portfolio turnover (see
"Portfolio Turnover"). By utilizing such strategies, the Adviser
attempts to outperform the broader market averages, although
there can be no assurance that this strategy will be successful.
Futures Contracts on Stock Indexes and Options Thereupon
The Portfolio may purchase and write (sell) stock index futures
contracts. The Portfolio may enter into such futures contracts
provided that not more than 5% of its assets are required as a
futures contract deposit.
The Portfolio may use index futures as a substitute for a
comparable market position in the underlying securities or for
hedging purposes. A stock index futures contract obligates the
seller to deliver (and the purchaser to take delivery of) an
amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at
which the agreement is made. No physical delivery of the
underlying stocks in the index is made. With respect to stock
indexes that are permitted investments, the Portfolio intends to
purchase and sell futures contracts on the stock index for which
the Portfolio can obtain the best price with consideration also
given to liquidity. The Portfolio may trade such interests in
stock index futures contracts and options thereupon in a manner
solely incidental to its securities trading activities.
The Portfolio also may purchase put and call options on stock
index futures contracts, which options give the Portfolio the
right to sell or purchase the underlying futures contract for a
specified price upon exercise at any time during the option
period. The Portfolio also may write (sell) put and call options
on stock index futures contracts. The Portfolio receives a
premium in return for granting to the purchaser of the option the
right to sell to or buy from the Portfolio the underlying futures
contract for a specified price upon exercise at any time during
the option period. The Portfolio also may engage in related
closing transactions with respect to options on stock index
futures. The Portfolio will purchase or write options only on
futures contracts that are traded on a United States exchange or
board of trade. Whether the Portfolio realizes a gain or loss
from futures activities depends generally upon movements in the
level of stock prices in the stock market and the Adviser's
ability to predict correctly the direction of stock prices,
interest rates, and other economic factors. In contrast to a
long position, where the Portfolio's loss from the position
cannot exceed the cost of that position, the extent of the
Portfolio's loss from investing in futures transactions is
potentially unlimited.
The Portfolio may purchase and sell stock index futures contracts
and options on stock index futures contracts to the extent that
such activities would be consistent with the requirements of
Section 4.5 of the regulations under the Commodity Exchange Act
promulgated by the Commodity Futures Trading Commission (the
"CFTC Regulations"), under which the Portfolio would be excluded
from the definition of a "commodity pool operator." Under
Section 4.5 of the CFTC Regulations, the Portfolio may engage in
futures transactions, either for "bona fide hedging" purposes, as
this term is defined in the CFTC Regulations, or for non-hedging
purposes to the extent that the aggregate initial margins and
premiums required to establish such non-hedging positions do not
exceed 5% of the liquidation value of the Portfolio's portfolio.
In the case of an option on futures contracts that is "in-the-
money" at the time of purchase (i.e., the amount by which the
exercise price of the put option exceeds the current market value
of the underlying security or the amount by which the current
market value of the underlying security exceeds the exercise
price of the call option), the in-the-money amount may be
excluded in calculating this 5% limitation.
When purchasing or selling a stock index futures contract, or
selling an option on a stock index futures contract, the
Portfolio covers its position. To cover its position, the
Portfolio may maintain with its custodian bank (and mark-to-
market on a daily basis) a segregated account consisting of cash
or U.S. Government securities or repurchase agreements secured by
U.S. Government securities that, when added to any amounts
deposited with a futures commission merchant as margin, are equal
to the market value of the futures contract or otherwise "cover"
its position. The Portfolio may cover its long position in a
futures contract by purchasing a put option on the same futures
contract with a strike price (i.e., an exercise price) as high or
higher than the price of the futures contract held by the
Portfolio. The Portfolio may cover its short position in a
futures contract by owning the instruments underlying the futures
contract (or instruments the prices of which are expected to move
relatively consistently with the instruments underlying the
futures contract). The Portfolio may cover its sale of a call
option on a futures contract by taking a long position on the
underlying futures contract at a price no higher than the strike
price of the call option or, if lower, the Portfolio maintains in
a segregated account cash or liquid high-grade debt securities
equal in value to the difference between the two strike prices.
The Portfolio may also cover its sale of a put option on a
futures contract by taking a short position on the underlying
instruments at the same or higher price than the strike price of
the put option, or by purchasing a put option, if the strike
price of the purchased put option is the same as or higher than
the strike price of the put option sold by the Portfolio.
There are certain risks associated with the use of futures
contracts and options. Although the Portfolio intends to sell
futures contracts only if there is an active market for such
contracts, no assurance can be given that a liquid market will
exist for any particular contract at any particular time. Many
futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single
trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price
beyond that limit or trading may be suspended for specified
periods during the day. Futures contract prices could move to the
limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting the Portfolio to substantial
losses. If trading is not possible, or the Portfolio determines
not to close a futures position in anticipation of adverse price
movements, the Portfolio will be required to make daily cash
payments of variation margin. The risk that the Portfolio will
be unable to closeout a futures position will be minimized by
entering into such transactions on a national exchange with an
active and liquid secondary market.
Index Options Transactions
The Portfolio may purchase and write (sell) put and call options
on stock indexes listed on national securities exchanges or
traded in the over-the-counter market as an investment vehicle
for the purpose of realizing the Portfolio's investment objective
or for the purpose of hedging its portfolio. A stock index
fluctuates with changes in the market values of the stocks
included in the index.
Options on stock indexes give the holder the right to receive an
amount of cash upon exercise of the option. Receipt of this cash
amount will depend upon the closing level of the stock index upon
which the option is based being greater than (in the case of a
call) or less than (in the case of a put) the exercise price of
an option. The amount of cash received will be the difference
between the closing price of the index and the exercise price of
the option, multiplied by a specified dollar multiple. The
writer (seller) of the option is obligated, in return for the
premiums received, to make delivery of this amount.
Some stock index options are based on a broad market index such
as the S&P 500, the NYSE Composite Index, the American Stock
Exchange Major Market Index or on a narrower index such as the
Philadelphia Stock Exchange Over-The-Counter Index. A stock
index fluctuates with changes in the market values of the stocks
included in the index. Options are currently traded on the
Chicago Board Options Exchange, the American Stock Exchange, and
other exchanges ("Exchanges"). The underlying value of the
securities comprising the index options purchased or sold will
not exceed 10% of the Portfolio's assets. In addition, over-the-
counter index options, purchased over-the-counter options, and
the cover for written over-the-counter options will be subject to
the Portfolio's 10% limitation on investment in illiquid
securities. See "Illiquid Securities."
Each of the Exchanges has established limitations governing the
maximum number of call or put options on the same index which may
be bought or written (sold) by a single investor, whether acting
alone or in concert with others (regardless of whether such
options are written on the same or different Exchanges or are
held or written on one or more amounts or through one or more
brokers). Option positions of all investment companies advised
by the Adviser are combined for purposes of these limits. An
Exchange may order liquidation of positions and may impose other
sanctions or restrictions. These position limits may restrict
the number of listed options which the Portfolio may buy or sell;
however, the Adviser intends to comply with all limitations.
Index options are subject to risks including the risk of
imperfect correlation between the option price and the value of
the underlying securities comprising the index and the risk that
there might not be a liquid secondary market for the option. The
Portfolio will not enter into an option position (covered call)
that exposes the Portfolio to an obligation to another party,
unless the Portfolio either (i) owns an offsetting position in
securities or other options and/or (ii) maintains with its
custodian bank (and marks-to-market on a daily basis) a
segregated account consisting of cash, U.S. Government
securities, or other liquid high-grade debt securities that, when
added to the premiums deposited with respect to the option, are
equal to the market value of the underlying stock index not
otherwise covered.
The Adviser intends to utilize index options as leverage for the
Portfolio's net asset value. If the Adviser is correct in its
assessment of the future direction of stock prices, the Portfolio
share price will be enhanced. However, if the Adviser has taken
a position in options and stock prices move in a direction
contrary to the Adviser's forecast, the Portfolio would incur
greater loss than the Portfolio would have incurred without the
options position.
Borrowing
The Portfolio may borrow money, including borrowing for
investment purposes. Borrowing for investment, known as
leverage, is a speculative technique which increases investment
risk, but also increases investment opportunity. Since
substantially all of the Portfolio's assets will fluctuate in
value, whereas the interest obligations on borrowings may be
fixed, the net asset value per share of the Portfolio will tend
to increase more when its portfolio assets increase in value and
decrease more when its portfolio assets decrease in value than
would otherwise be the case. Moreover, interest costs on
borrowings may fluctuate with changing market rates of interest
and may partially offset or exceed the returns on the borrowed
funds. Under adverse conditions, the Portfolio might have to
sell portfolio securities to meet interest or principal payments
at a time investment considerations would not favor such sales.
The Portfolio intends to use leverage during periods when the
Adviser believes the opportunities for gains are potentially
greater than the risks of loss.
As a matter of fundamental policy, the Portfolio must maintain
continuous asset coverage (total assets, including assets
acquired with borrowed funds, less liabilities exclusive of
borrowings) of 300% of all amounts borrowed. If, at any time,
the value of the Portfolio's assets should fail to meet this 300%
coverage test, the Portfolio, within three days (not including
Sundays and holidays), will reduce the amount of the Portfolio's
borrowing to the extent necessary to meet this 300% coverage.
Maintenance of this percentage limitation may result in the sale
of the Portfolio's portfolio securities at a time when investment
considerations otherwise indicate that it would be disadvantages
to do so. The Portfolio will borrow only from banks, and only to
the extent that it meets the 300% coverage test described above.
The Portfolio may also borrow up to 5% of its net assets as a
temporary measure for extraordinary or emergency purposes.
Repurchase Agreements
In order to effectively utilize cash reserves kept for liquidity,
the Portfolio may invest in repurchase agreements secured by
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. Under a repurchase agreement, the
Portfolio purchases a security and simultaneously agrees to sell
it back to the seller at an agreed-upon future price and date,
normally one day or a few days later. The resale price is
greater than the purchase price, reflecting an agreed-upon market
interest rate. The Portfolio will enter into repurchase
agreements only with member banks of the Federal Reserve System
or primary dealers of U.S. Government securities. The Adviser
will monitor the creditworthiness of the firms which are parties
to repurchase agreements with the Portfolio. In the event of a
default or bankruptcy by the seller, the Portfolio will liquidate
those securities (whose market value, including accrued interest,
must be at least equal to 100% of the dollar amount invested by
the Portfolio in each repurchase agreement) held under the
applicable repurchase agreement, which securities constitute
collateral for the seller's obligations to pay. However,
liquidation could involve costs or delays and, to the extent
proceeds from the sales of these securities were less than the
agreed-upon repurchase price, the Portfolio would suffer a loss.
The Portfolio also may experience difficulties and incur certain
costs in exercising its rights to the collateral and may lose the
interest the Portfolio expected to receive under the repurchase
agreement. Repurchase agreements usually are for short periods,
such as one week or less, but may be longer. It is the current
policy of the Portfolio to treat repurchase agreements that do
not mature within seven days as illiquid for the purpose of the
Portfolio's investment policies. Up to 10% of the Portfolio's
assets may be maintained in short-term investments such as
repurchase agreements.
Short Sales
The Portfolio may engage in short sales if, at the time of the
short sale, the Portfolio owns or has the right to acquire an
equal amount of the security being sold at no additional cost
("selling against the box"). The Portfolio may sell against the
box when the Portfolio wants to sell the security the Portfolio
owns at a current attractive price, but also wishes to defer
recognition of a gain or loss for Federal income tax purposes and
for purposes of satisfying certain tests applicable to regulated
investment companies under the U.S. Internal Revenue Code of
1986, as amended (the "Code").
Illiquid Securities
While the Portfolio does not anticipate doing so, the Portfolio
may purchase illiquid securities, including securities that are
not readily marketable. The Portfolio will not invest more than
10% of the Portfolio's net assets in illiquid securities. The
Portfolio will adhere to a more restrictive limitation on the
Portfolio's investment in illiquid securities as required by the
securities laws of those jurisdictions where the shares of the
Portfolio are registered for sale.
PORTFOLIO TURNOVER AND EXECUTION
It is the policy of the Fund to permit investors in the Portfolio
to exchange their shares of the Portfolio for shares in other
series of the Fund and for shares in any money market fund in the
Rushmore Group pursuant to the Fund's exchange policy (see
"Exchanges"). This policy offers investors great flexibility to
capitalize on short-term savings in the equity markets, but also
may cause the Portfolio to experience higher portfolio turnover
than would normally occur without such exchanges. In addition,
the use of technical selection techniques for portfolio
investments could result in higher portfolio turnover than would
occur with traditional fundamental selection techniques.
Portfolio turnover rate is defined as the value of the securities
purchased or securities sold, excluding all securities whose
maturities at time of acquisition were one year or less, divided
by the average monthly value of such securities owned during the
year. Pursuant to the formula prescribed by the Securities and
Exchange Commission, the portfolio turnover rate for the
Portfolio is calculated without regard to securities, including
options and futures contracts, having a maturity of less than one
year. The Portfolio typically holds a significant portion of its
investments in short-term options and futures contracts, which,
therefore, are excluded for purposes of computing portfolio
turnover.
Because the Portfolio's portfolio turnover rate to a great extent
will depend on the subscription, redemption, and exchange
activity of the Portfolio's investors, it is very difficult to
estimate what the Portfolio's actual turnover rate generally will
be. The Portfolio estimates, however, that its annual portfolio
turnover rate generally will not exceed 200%. This portfolio
turnover will tend to increase the realization by the Portfolio
of gains (or losses) on securities that have been held by the
Portfolio for less than three months. Any such realized gains on
securities that have been held by the Portfolio for less than
three months, and other factors related to large cash flows into
and out of the Portfolio, will increase the risk that, in any
given year, the Portfolio may fail to qualify as a regulated
investment company under Subchapter M of the U.S. Internal
Revenue Code of 1986, as amended (the "Code") (see "Taxes"). If
the Portfolio should so fail to qualify under the Code, the
Portfolio's net investment income and capital gain net income
would become subject to Federal income tax at corporate rates.
The imposition of such taxes would directly reduce the return to
an investor from an investment in the Portfolio. For the fiscal
years ended August 31, 1996, 1995, and 1994, the portfolio
turnover rates for the Portfolio were 71.2%, 224.4%, and 0.0%,
respectively.
The Adviser determines which securities to purchase and sell for
the Portfolio, selects brokers and dealers to effect the
transactions, and negotiates and pays any and all commissions.
The Adviser expects that securities purchased by the Portfolio
will usually be traded on a "principal" rather than on an
"agency" basis. This means that the broker-dealer (a securities
firm or a bank) is buying and selling securities for its own
account rather than as an agent for another client. The broker-
dealer's profit, if any, is the difference between its purchase
price and the sales price for the securities, known as a
"spread." In placing orders for portfolio transactions, the
Adviser's policy is to obtain the most favorable price and
efficient execution available. Brokerage commissions are
normally paid on exchange-traded securities transactions and on
options and futures transactions. In order to obtain the
brokerage and research services described below, a higher
commission may sometimes be paid. Such higher commissions are
not applicable to principal transactions where the dealers act
without a stated commission. The ability to receive research
services may, however, be a factor in the selection of one dealer
acting as a principal over another.
When selecting broker-dealers to execute portfolio transactions,
the Adviser considers many factors including the rate of
commission or size of the broker-dealer's "spread," the size and
difficulty of the order, the nature of the market for the
security, the willingness of the broker-dealer to position, the
reliability, financial condition, general execution and
operational capabilities of the broker-dealer, and the research,
statistical and economic data furnished by the broker-dealer to
the Adviser. The Adviser uses these services in connection with
all its investment activities, including other investment
accounts it advises. Conversely, brokers or dealers which supply
research may be selected for execution of transactions for such
other accounts, while the data may be used by the Adviser in
providing investment advisory services to the Portfolio. For
additional information concerning the execution of portfolio
transactions, see "Portfolio Transactions and Brokerage" in the
Statement of Additional Information.
HOW TO INVEST IN THE PORTFOLIO
The minimum initial investment in the Portfolio is $2,500.
Retirement accounts may be opened with a $500 minimum investment.
The shares of the Portfolio are offered at the daily public
offering price which is the net asset value per share (See "Net
Asset Value") next computed after receipt of your order. There is
no minimum amount for subsequent investments in the Portfolio.
All accounts will be held in book-entry form. NO CERTIFICATES
FOR SHARES WILL BE ISSUED. The Portfolio reserves the right to
reject any purchase order. Foreign checks will not be accepted.
Investment in the Portfolio can be made directly with the Fund or
through third parties such as broker-dealers, banks or other
financial institutions that purchase securities for their
customers. Such third parties may charge their customers a fee
in connection with services offered to customers. When shares
are purchased through third parties, the third party, rather than
the customer, may be the shareholder of record of the shares.
Investors who do not wish to receive the services of a third
party may invest directly with the Fund without charge by mail or
by bank wire, as described below. Certain third party
organizations may receive compensation from the Fund, the
Portfolio's transfer agent, or Money Management Associates for
the shareholder accounting services these organizations provide.
By Mail: Fill out an application and make your check payable to
"The Rushmore Fund, Inc." Mail the check along with the
application to:
The Rushmore Fund, Inc.
4922 Fairmont Avenue
Bethesda, Maryland 20814
By Bank Wire: Request a wire transfer to:
Rushmore Trust and Savings, FSB
Bethesda, Maryland
Routing Number 0550-71084
For Account of:
The Rushmore Fund, Inc.
Account Number 029-385-770
After instructing your bank to transfer money by wire, you must
call the Fund at (800) 622-1386 or (301) 657-1510 and tell us the
amount you transferred and the name of the bank sending the
transfer. Your bank may charge a fee for such services. It is
important that you telephone one half hour before the close of
the New York Stock Exchange for a purchase order to be effective
in the Portfolio. If the purchase is canceled because your wire
transfer is not received, you may be liable for any loss the
Portfolio may incur.
Shares of the Portfolio are sold at a price based on the net
asset value next calculated after receipt of a purchase order in
good form. If a purchase order is received by the Fund at or
prior to the close of regular trading on the NYSE (normally 4:00
P.M., Eastern time) on any business day, the purchase of
Portfolio shares is executed at the offering price determined as
of the closing time that day. If the purchase order is received
after the close of regular trading on the NYSE, the purchase of
Portfolio shares will be effected on the next business day. When
purchases are made by check, the Portfolio may hold the proceeds
of redemptions until the Portfolio's transfer agent is reasonably
satisfied that the purchase payment in Federal funds has been
collected (which can take up to ten business days or until the
check clears, whichever occurs first). Delays in receiving
redemption proceeds may be avoided by purchasing shares with a
certified check.
HOW TO REDEEM AN INVESTMENT (WITHDRAWALS)
On any day the Portfolio is open for business, an investor may
withdraw all or any portion of his investment by redeeming shares
at the next determined net asset value per share after receipt of
the order by writing the Fund or by telephoning the Fund at (800)
622-1386 or (301) 657-1510 between 8:30 A.M. and 4:00 P.M.,
Eastern time.
Telephone redemptions will only be sent to the address of record
or to bank accounts specified in the account application. When
acting on instructions believed to be genuine, the Fund will not
be liable for any loss resulting from a fraudulent telephone
redemption request and the investor would bear the risk of any
such loss. The Fund will employ reasonable procedures to confirm
that redemption instructions communicated by telephone are
genuine; and if the Fund does not employ such procedures, then
the Fund may be liable for any losses due to unauthorized or
fraudulent instructions. The Fund follows specific procedures
for transactions initiated by telephone, including among others,
requiring some form of personal identification prior to acting on
instruction received by telephone, providing written confirmation
not later than five business days after the transaction, and/or
tape-recording of telephone transactions.
The proceeds of redemptions will be sent directly to the
investor's address of record. If the investor requests payment
of redemptions to a third party or to a location other than his
address of record listed on the account application, the request
must be in writing and the investor's signature must be
guaranteed by an eligible institution. Eligible institutions
generally include banking institutions, securities exchanges,
associations, agencies or broker/dealers, and "STAMP" program
participants. There are no fees charged for redemptions.
The Portfolio will redeem its shares at a redemption price equal
to the net asset value of the shares as next computed following
the receipt of a request for redemption. There is no redemption
charge. Payment for the redemption price will be made within
seven days after the Fund's receipt of the request for
redemption. For investments that have been made by check,
payment on withdrawal requests may be delayed for up to ten
business days or until the check clears, whichever occurs first.
This delay is necessary to assure the Fund that investments made
by checks are good funds. The proceeds of the redemption will be
forwarded promptly upon confirmation of receipt of good funds.
The right of redemption may also be suspended, or the date of
payment postponed, either: (a) for any period during which the
NYSE is closed (other than customary weekend or holiday
closings); or (b) when trading on the NYSE is restricted, or an
emergency exists, as determined by the Securities and Exchange
Commission, so that disposal of the Portfolio's investments for
determination of net asset value is not reasonably practicable;
or (c) for such other periods as the Commission, by order, may
permit for protection of the Portfolio's investors. Investors
should also be aware that telephone redemptions or exchanges may
be difficult to implement in a timely manner during periods of
drastic economic or market changes. If such conditions occur,
redemption or exchange orders can be made by mail. Because of
the administrative expense of handling small accounts, the Fund
reserves the right to involuntarily redeem an investor's account
which falls below $500 in value due to redemptions or exchanges
after providing 60 days written notice.
EXCHANGES
The Portfolio's shares may be exchanged, without cost, for shares
of Fund for Government Investors, Fund for Tax-Free Investors,
Inc., and American Gas Index Fund, Inc., and for shares of any
series of The Rushmore Fund, Inc. and the Cappiello-Rushmore
Trust, upon receipt by the Fund of the order at the respective
net asset values next computed of the shares involved. Exchanges
between the Portfolio and the above funds may be made by
telephone or letter. (See also "How to Invest in the Portfolio"
and "How to Redeem an Investment.") Written requests should be
sent to The Rushmore Fund, Inc. 4922 Fairmont Avenue, Bethesda,
Maryland 20814 and be signed by the record owner or owners.
Telephone exchange requests may be made by calling the Fund at
(800) 622-1386 or (301) 657-1510 between 8:30 A.M. and 4:00 P.M.,
Eastern time. Exchanges will be effected at respective net asset
values of the shares involved as next determined after receipt of
the exchange request. To implement an exchange, shareholders
should provide the following information: account registration
including address and number; taxpayer identification number;
percentage or dollar value of shares to be redeemed; and name and
account number of the fund to which the investment is to be
transferred. Exchanges may be made only if they are between
identically registered accounts. Shareholders contemplating such
an exchange should obtain and review the prospectuses of those
funds. The exchange privilege is available only in states where
the exchange may legally be made. Telephone exchange privileges
may be terminated or modified by the Fund upon 60 days notice to
all shareholders of the Fund.
TRANSACTION CHARGES
In addition to charges described elsewhere in this Prospectus,
the Fund may impose a charge of $5 per month for any account
whose average daily balance is below $500. The fee may continue
to be imposed during months when the account balance remains
below $500. This fee will be paid to Rushmore Trust and Savings,
FSB. The fee will not be imposed on tax-sheltered retirement
plans or accounts established under the Uniform Gifts or
Transfers to Minors Act. The Fund may also assess a charge of
$10 for items returned for insufficient or uncollectible funds.
TAX-SHELTERED RETIREMENT PLANS
Tax-sheltered retirement plans of the following types will be
available to investors:
Individual Retirement Accounts (IRAs)
Defined Contribution Plans
(Profit-Sharing Plans)
Money Purchase Plans (Pension Plans)
Internal Revenue Code
Section 401(k) Plans
Internal Revenue Code
Section 403(b) Plans
Additional information regarding these accounts may be obtained
by contacting the Fund.
DIVIDENDS AND DISTRIBUTIONS
The Portfolio intends to distribute any net investment income and
net realized capital gains to shareholders in December of each
year. Your income dividends and capital gains distributions will
be automatically reinvested in additional shares of the Portfolio
at net asset value calculated on the ex-dividend date unless you
have requested otherwise from the Fund in writing. Dividends and
distributions are taxable to shareholders, as discussed below,
whether they are reinvested in shares of the Portfolio or
received in cash. Statements of account will be sent to
shareholders at least quarterly.
NET ASSET VALUE
The net asset value of the Portfolio's shares will be determined
daily as of 4:00 P.M., Eastern time, except on customary national
business holidays which result in the closing of the NYSE, and
weekends. The net asset value per share is calculated by adding
the total value of all securities held by the Portfolio plus cash
and accrued interest minus liabilities, including accrued
expenses, and then dividing this amount by the total number of
shares outstanding at such time, rounded to the nearest cent.
Listed securities will be valued at the last sales price on the
NYSE and other major exchanges. Options and futures contracts
will be valued 15 minutes after the 4:00 P.M., Eastern time,
close of trading on the NYSE. Options purchased by the Portfolio
generally are valued at their last bid price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the average of the last bid price as
obtained from two or more dealers unless there is only one
dealer, in which case that dealer's price is used. The value of
a futures contract equals the unrealized gain or loss on the
contract that is determined by marking the contract to the
current settlement price for a like contract acquired on the day
on which the futures contract is being valued; a settlement price
may not be used if the market makes a limit move with respect to
a particular commodity. Over-the-counter securities will be
valued at the last sales price. Illiquid securities, securities
for which reliable market quotations or pricing services are not
readily available, and all other assets will be valued at their
respective fair value as determined in good faith by, or under
procedures established by, the Board of Directors, which
procedures may include the delegation of certain responsibilities
regarding valuation to the Adviser or the officers of the Fund.
The officers of the Fund report, as necessary, to the directors
of the Fund regarding portfolio valuation determinations.
The Board of Directors, from time to time, will review these
methods of valuation and will recommend changes which may be
necessary to assure that the Portfolio's investments are valued
at fair value.
TAXES
The Portfolio will seek to qualify for treatment as a regulated
investment company (a "RIC") under Subchapter M of the Internal
Revenue Code. If the Portfolio qualifies as a RIC, the Portfolio
will not be liable for Federal income taxes to the extent its
earnings are distributed within the time periods specified in the
Code. To qualify as a RIC under the Code, the Portfolio must
satisfy certain requirements, including the requirement that the
Portfolio receive at least 90% of its gross income each year from
dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of securities or foreign
currencies, or other income derived with respect to the
Portfolio's investments in stock, securities, and foreign
currencies (the "90% Test"), and that the Portfolio derive less
than 30% of the Portfolio's gross income from the sale or other
disposition of any of the following instruments which was held
less than three months (the "30% Test"): (i) stock or
securities; (ii) options, futures, or forward contracts; or (iii)
foreign currencies (or options, futures, or forward contracts on
such foreign currencies). Provided that the Portfolio (i) is a
RIC and (ii) distributes at least 98% of the Portfolio's net
investment income (including, for this purpose, net realized
short-term capital gains), the Portfolio will not be liable for
Federal income taxes to the extent the Portfolio's net investment
income and the Portfolio's net realized long- and short-term
capital gains, if any, are distributed to the shareholders of the
Portfolio.
The larger the volume of redemptions or exchanges of Portfolio
shares the more difficult it will be for the Portfolio to satisfy
the 30% Test. To minimize the risk of failing the 30% Test, the
Portfolio intends to satisfy obligations in connection with
redemptions and exchanges first by using available cash or
borrowing facilities and by selling securities that have been
held for at least three months or as to which there will be a
loss or the smallest gain. If the Portfolio also must sell
securities that have been held for less than three months, then,
to the extent possible, the Portfolio will seek to conduct such
sales in a manner that will allow such sales to qualify for a
special provision in the Code that excludes from the 30% Test any
gains resulting from sales made as a result of "abnormal
redemptions." Notwithstanding these actions, there can be no
assurance that the Portfolio will be able to satisfy the 30%
Test. For additional information concerning this special Code
provision, see "Dividends, Distributions, and Taxes" in the
Statement of Additional Information. The Portfolio qualified for
the last three years for treatment as a regulated investment
company (a "RIC") under Subchapter M of the Internal Revenue
Code.
Dividends paid by the Portfolio are taxable to shareholders
whether such dividends and distributions are reinvested in shares
of the Portfolio or are received in cash. Under current law,
dividends derived from interest and dividends received by the
Portfolio, together with distributions of any short-term capital
gains, are taxable to the shareholders as ordinary income at
rates of up to 39.6%.
Under current law, distributions of net long-term gains, if any,
realized by the Portfolio and designated as capital gains
distributions will be made annually and will be taxed to
shareholders as long-term capital gains regardless of the length
of time the shares have been held. Currently, long-term capital
gains are taxed at a maximum rate of 28%. Statements as to the
Federal tax status of shareholders' dividends and distributions
will be mailed annually. Shareholders should consult their tax
advisers concerning the tax status of the Portfolio's dividends
in their own states and localities.
Shareholders are required by law to certify that their tax
identification number is correct and that they are not subject to
back-up withholding. In the absence of this certification, the
Fund is required to withhold taxes at the rate of 31% on
dividends, capital gains distributions, and redemptions.
Shareholders who are non-resident aliens may be subject to a
withholding tax on dividends earned.
Ordinary dividends paid to corporate or individual residents of
foreign countries are subject to a 30% withholding tax. The rate
of withholding tax may be reduced if the United States has an
income tax treaty with the foreign country where the recipient
resides. Capital gains distributions received by foreign
investors should, in most cases, be exempt from U.S. tax. A
foreign investor will have to provide the Fund with any required
documentation in order for the Fund to apply a reduced rate or
exemption from U.S. withholding tax.
ORGANIZATION AND DESCRIPTION OF COMMON STOCK
The Portfolio is an open-end, non-diversified series of the Fund,
a registered investment company under the Investment Company Act
of 1940, as amended (the "1940 Act"). The Fund was incorporated
in Maryland on July 24, 1985 and has a present authorized capital
of 1,000,000,000 shares of $.001 par value common stock, which
may be issued in more than one class. Currently, the Fund has
issued shares of two separate classes: the Rushmore Nova
Portfolio and the Rushmore U.S. Government Bond Portfolio. Other
separate classes may be added in the future.
All shares of the Portfolio are freely transferable. The shares
do not have preemptive rights, and none of the shares has any
preference to conversion, exchange, dividends, retirements,
liquidation, redemption or any other feature. Fund shares have
equal voting rights, except that, in a matter affecting a
particular series of the Fund, only shares of that series may be
entitled to vote on that matter. Because the shares have non-
cumulative voting rights, the holders of more than 50% of the
shares voting for the election of directors can elect 100% of the
directors, if they choose to do so. In such event, the holders
of the remaining less than 50% of the shares voting will not be
able to elect any directors. Shareholder inquiries can be made
by telephone ((800) 343-3355) or by mail (4922 Fairmont Avenue,
Bethesda, Maryland 20814).
Under Maryland Corporate law, a registered investment company is
not required to hold an annual shareholders' meeting if the 1940
Act does not require a meeting. The 1940 Act does require a
meeting if the following actions are necessary: ratification of
the selection of independent public accountants, approval of the
investment advisory agreement, election of the board of
directors, or approval of the appointment of directors to board
vacancies when such vacancies cause less than two-thirds of the
board to have been elected. Under the 1940 Act, shareholders
have the right to remove directors and, if holders of 10% of the
outstanding shares request in writing, a shareholders' meeting
must be called. As of the date of this Prospectus, officers and
directors of the Fund beneficially owned 100% of the Portfolio.
The Portfolio's classification as a "non-diversified" investment
company means that the proportion of the Portfolio's assets that
may be invested in the securities of a single issuer is not
limited by the 1940 Act. However, the Portfolio intends to seek
to qualify as a RIC for purposes of the Code, which requires
that, at the end of each quarter of the taxable year, (i) at
least 50% of the market value of the Portfolio's total assets (a
diversified investment company would be so limited with respect
to 75% of such market value) be invested in cash, U.S. Government
securities, the securities of other RICs, and other securities,
with such securities of any one issuer limited for the purposes
of this calculation to an amount not greater than 5% of the value
of the Portfolio's total assets and 10% of the outstanding voting
securities of any one issuer, and (ii) not more than 25% of the
value of the Portfolio's total assets be invested in the
securities of any one issuer (other than U.S. Government
securities or the securities of other RICs).
MANAGEMENT OF THE FUND
Investment Adviser and Administrative Servicing Agent
The investment adviser of the Fund is Money Management
Associates, 1001 Grand Isle Way, Palm Beach Gardens, Florida
33418 (the "Adviser"). Subject to the general supervision of the
Board of Directors of the Fund, the Adviser renders investment
advice and is responsible for the overall management of the
Fund's business affairs. Daniel L. O'Connor, the Chairman of the
Board of Directors and President and Treasurer of the Fund, and
the sole General Partner of the Adviser, is the portfolio manager
of the Portfolio and as such has primary responsibility for
overseeing the Portfolio's investments. Mr. O'Connor has been
involved in the mutual fund business for more than twenty years.
In 1973, Mr. O'Connor formed Money Management Associates, a
Washington, D.C. limited partnership and registered investment
adviser. Mr. O'Connor has served as the General Partner of the
Adviser since the Adviser's founding. Prior to establishing the
Adviser, Mr. O'Connor was an assistant treasurer for the Federal
National Mortgage Association in Washington, D.C. Mr. O'Connor
received his bachelor's degree in accounting from Spring Hill
College in Mobile, Alabama in 1964.
Daniel L. O'Connor and Money Management Associates, the
Portfolio's investment adviser, may be considered to "control"
the Portfolio by virtue of their respective ownership of 50% and
50% of the Portfolio's shares.
The Adviser currently is the investment adviser of four
registered investment companies, including The Rushmore Fund,
Inc., which was established in 1985 and currently is comprised of
one series in addition to the Portfolio, a U.S. Government bond
portfolio. The Adviser also advises: Fund for Government
Investors, a money market fund established in 1975 that invests
only in U.S. Treasury securities; Fund for Tax-Free Investors,
Inc., which was established in 1983 and currently consists of
three series, each of which invests primarily in securities the
interest on which is exempt either from federal income tax or
from state income tax; and American Gas Index Fund, Inc., a
common stock index fund established in 1989 that seeks to provide
investment results that correlate to those of an index comprising
the common stocks of natural gas distribution and transmission
company members of the American Gas Association. As of August
31, 1996, total assets under the Adviser's management were
approximately $900 million.
Under an Investment Advisory Agreement between the Fund and the
Adviser, the Portfolio pays the Adviser a fee at an annual rate
based on 0.75% of the net assets of the Portfolio. The
management fee is higher than that charged for many mutual funds.
The Adviser manages the investment and reinvestment of the assets
of the portfolios of the Fund and administers the affairs of the
Fund, subject to the control of the officers and the Board of
Directors of the Fund. The Adviser bears all costs associated
with providing these services and the fees and expenses of the
directors of the Fund who are affiliated persons of the Adviser.
For additional information concerning the Adviser and the
Investment Advisory Agreement, see "Management of the Fund" in
the Statement of Additional Information.
Under a Service Agreement between the Fund and Rushmore Trust and
Savings, FSB ("RTS"), 4922 Fairmont Avenue, Bethesda, Maryland
20814, a majority-owned subsidiary of the Adviser, RTS provides
transfer agency, dividend-disbursing, and administrative services
to the Fund. Under the Service Agreement with RTS, which has
been approved by the Board of Directors, RTS receives an annual
fee of 0.50% of the average daily net assets of the Portfolio for
these services. RTS pays all fees and expenses that are directly
related to the services provided by RTS to the Fund. For
additional information concerning RTS and the Service Agreement,
see "Management of the Fund" in the Statement of Additional
Information.
Officers and Directors
The Fund has a Board of Directors which is responsible for the
general supervision of the Fund's business. The day-to-day
operations of the Fund are the responsibility of the Fund's
officers.
<PAGE>
THE RUSHMORE FUND, INC.
RUSHMORE NOVA PORTFOLIO
PROSPECTUS
January 1, 1997
Table of Contents
Page
Fee Table
Financial Highlights
Management's Discussion of Portfolio Performance
Performance Data
Investment Objective and Policies
Portfolio Turnover and Execution
How to Invest in the Portfolio
How to Redeem an Investment (Withdrawals)
Exchanges
Transaction Charges
Tax-Sheltered Retirement Plans
Dividends and Distributions
Net Asset Value
Taxes
Organization and Description of Common Stock
Management of the Fund
<PAGE>
RUSHMORE U.S. GOVERNMENT BOND PORTFOLIO
<PAGE>
THE RUSHMORE FUND, INC.
4922 Fairmont Avenue
Bethesda, Maryland 20814
(800) 343-3355
(301) 657-1500
RUSHMORE U.S. GOVERNMENT BOND PORTFOLIO
INVESTMENT OBJECTIVE AND POLICIES
The Rushmore U.S. Government Bond Portfolio (the "Portfolio") is
one of a series of portfolios in The Rushmore Fund, Inc. (the
"Fund"), an open-end management investment company. The
objective of the Portfolio is to provide investors with maximum
current income to the extent that such investment is consistent
with safety of principal. In attempting to achieve its
objective, the Portfolio invests principally in the current
thirty-year U.S. Treasury bond and in other U.S. Government
securities with maturities of ten years or more.
The shares offered by this Prospectus are not deposits or
obligations of any bank, are not endorsed or guaranteed by any
bank, and are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other governmental
agency.
ADDITIONAL INFORMATION
Investors should read this Prospectus and retain it for future
reference. It is designed to set forth concisely the information
an investor should know before investing in the Portfolio. A
Statement of Additional Information, dated January 1, 1997,
containing additional information about the Fund and the
Portfolio has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. A copy of
the Statement of Additional Information may be obtained, without
charge, by writing or telephoning the Fund.
The date of this Prospectus is January 1, 1997.
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.
<PAGE>
FEE TABLE
The following table illustrates all expenses and fees that a shareholder
of the Portfolio will incur:
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees Redemption Fees None
Monthly Account Fee (for accounts under $500)* $5.00
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.50%
12b-1 Fees None
Other Expenses** 0.30%
Total Fund Operating Expenses 0.80%
* A charge of $5 per month may be imposed on any account whose
average daily balance for the month falls below $500 due to
redemptions. See "Transaction Charges."
** Estimated.
EXAMPLE
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
$8 $26 $46 $102
The same level of expenses would be incurred if the investment
were held throughout the period indicated.
The purpose of this table is to assist the investor in
understanding the various expenses that an investor in the
Portfolio will bear directly or indirectly. The five percent
assumed annual return is for comparison purposes only. As noted
above, the Portfolio charges no redemption fees. The actual
annual return may be more or less depending on market conditions.
The actual expenses an investor incurs will depend on the amount
invested and actual expenses may be greater or less than those
shown. For more complete information about the various costs and
expenses, see "Management of the Fund" in this Prospectus and
"Management of the Fund" in the Statement of Additional
Information.
<PAGE>
<TABLE>
The Rushmore Fund, Inc.
Financial Highlights
Rushmore U.S. Government Bond Portfolio
Audited
<CAPTION>
For the Year Ended August 31,
1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value - Beginning of Year $9.89 $9.08 $11.55 $10.62 $ 9.97 $ 9.14
Income from Investment Operations:
Net Investment Income 0.563 0.606 0.599 0.650 0.697 0.718
Net Realized and Unrealized Gains (Losses)
on Securities (0.502) 0.810 (1.880) 1.304 0.649 0.829
Total from Investment Operations 0.061 1.416 (1.281) 1.954 1.346 1.547
Distributions to Shareholders:
From Net Investment Income (0.561) (0.606) (0.602) (0.650) (0.696) (0.717)
From Net Realized Capital Gains -- -- (0.583) (0.374) -- --
Total Distributions to Shareholders (0.561) (0.606) (1.185) (1.024) (0.696) (0.717)
Net Increase (Decrease) in Net Asset Value (0.50) 0.81 (2.47) 0.93 0.65 0.83
Net Asset Value - End of Year $ 9.39 $ 9.89 $ 9.08 $11.55 $10.62 $ 9.97
Total Investment Return 0.41% 16.35% (10.29)% 20.92% 13.97% 17.61%
Ratios to Average Net Assets:
Expenses 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
Net Investment Income 5.59% 6.75% 5.97% 6.08% 6.80% 7.43%
Supplementary Data:
Portfolio Turnover Rate 95.0% 63.3% 188.3% 173.6% 298.0% 235.7%
Net Assets at End of Year (000s omitted) $21,424 $16,391 $29,276 $24,094 $22,803 $14,481
Number of Shares Outstanding at End of Year
(000's omitted) 2,281 1,658 3,225 2,085 2,148 1,452
</TABLE>
<PAGE>
<TABLE>
The Rushmore Fund, Inc.
Financial Highlights
Rushmore U.S. Government Bond Portfolio
Audited (Continued)
<CAPTION>
For the Year Ended August 31,
1990 1989 1988 1987 1986*
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value - Beginning of Year $ 9.96 $ 8.96 $ 9.19 $ 9.97 $10.00
Income from Investment Operations:
Net Investment Income 0.720 0.742 0.747 0.772 0.614
Net Realized and Unrealized Gains (Losses)
on Securities (0.821) 1.000 (0.230) (0.779) (0.031)
Total from Investment Operations (0.101) 1.742 0.517 (0.007) 0.583
Distributions to Shareholders:
From Net Investment Income (0.719) (0.742) (0.747) (0.773) (0.613)
From Net Realized Capital Gains - - - - -
Total Distributions to Shareholders (0.719) (0.742) (0.747) (0.773) (0.613)
Net Increase (Decrease) in Net Asset Value (0.82) 1.00 (0.23) (0.78) (0.03)
Net Asset Value - End of Year $ 9.14 $ 9.96 $ 8.96 $ 9.19 $ 9.97
Total Investment Return (1.24)% 20.17% 5.73% (0.06)% 6.14%
Ratios to Average Net Assets:
Expenses 0.80% 0.80% 0.83% 0.78% 1.00%
Net Investment Income 7.28% 7.73% 8.05% 7.90% 8.83%
Supplementary Data:
Portfolio Turnover Rate 400.8% 411.8% 829.0% 226.0% 43.7%
Net Assets at End of Year (000s omitted) $13,039 $25,934 $7,227 $881 $386
Number of Shares Outstanding at End of Year
(000's omitted) 1,427 2,603 806 1,175 776
* Commencement of Operations December 18, 1985.
The above financial highlights relating to the Portfolio, for the periods
identified, have been audited by Deloitte & Touche LLP, independent certified
public accountants, whose report thereon appears in the Fund's 1996 Annual
Report to Shareholders for the Rushmore U.S. Government Bond Portfolio and is
incorporated by reference in the Statement of Additional Information. This
information should be read in conjunction with the financial statements and
related notes thereto included in the Statement of Additional Information. A
copy of the Fund's 1996 Annual Report to Shareholders for the Rushmore U.S.
Government Bond Portfolio, and further information about the performance of
the Portfolio, may be obtained, without charge, by contacting the Fund at
4922 Fairmont Avenue, Bethesda, Maryland 20814, or by telephoning the Fund at
(800) 343-3355 or (301) 657-1500.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION OF PORTFOLIO PERFORMANCE
On December 22, 1995, the majority of the shareholders of the
Rushmore U.S. Government Intermediate-Term Securities Portfolio
approved the Intermediate-Term Portfolio's merger into the
Rushmore U.S. Government Long-Term Securities Portfolio effective
December 31, 1995. The resulting Portfolio was renamed the
Rushmore U.S. Government Bond Portfolio. The U.S. Government
Bond Portfolio invests in ten-year Treasury notes and thirty-year
Treasury bonds. The objective is to provide high current income
while maintaining safety of principal. For the year ended August
31, 1996, the Portfolio posted a total return of 0.41%. During
the same period, the Lehman Brothers U.S. Government Long-Term
Treasury Bond Index's total return was 1.46%. The average
maturity of the Portfolio as of August 31, 1996 was 26.8 years.
The Federal Reserve has left rates unchanged since January 1996
when it cut Federal Funds by 25 basis points. Since then, the
economy has grown nicely. As we move into the third quarter it
appears the economy has quite a bit of momentum, with consumer
spending up, factory orders strong, and wage pressures building,
consumers are optimistic. Indeed, fresh economic data shows
healthy consumer and factory sectors.
Given the strength in the recent data we believe that it is only
a matter of time before the Federal Reserve raises the Federal
Funds' rate a quarter of a point.
PERFORMANCE DATA
From time to time, quotations of the Portfolio's "total return"
and "yield" may be included in advertisements, sales literature
or shareholder reports. Both "total return" and "yield" figures
are based on historical earnings and show the performance of a
hypothetical investment and are not intended to indicate future
performance. The "total return" of the Portfolio refers to
return assuming an investment has been held in the Portfolio for
one year, five years and for ten years (up to the life of the
Portfolio), the ending date of which will be stated. The "total
return" quotations are expressed in terms of average annual
compounded rates of return for all periods quoted and assume that
all dividends and capital gains distributions were reinvested.
The "yield" of the Portfolio refers to net income generated by an
investment in the Portfolio over a specified thirty-day period.
This income is then "annualized." That is, the amount of income
generated by the investment during the thirty-day period is
assumed to be generated over a 12-month period and is shown as a
percentage of the investment. "Yield" and "total return" for the
Portfolio will vary based on changes in market conditions and the
level of the Portfolio's expenses.
The annualized yield for the Rushmore U.S. Government Bond
Portfolio was 6.47% for the year ended August 31, 1996.
<PAGE>
THE RUSHMORE FUND, INC.
U.S. Government Bond Portfolio
Total Return Comparison
Lehman Lehman
Rushmore Brothers Brothers
U.S. Gov't Intermediate- Long
Bond Gov't Index T-Bond
12/31/85 $10,000 $10,000 $10,000
8/31/86 $10,614 $11,136 $12,440
8/31/87 $10,608 $11,341 $11,529
8/31/88 $11,215 $12,178 $12,458
8/31/89 $13,478 $13,516 $14,942
8/31/90 $13,310 $14,615 $15,169
8/31/91 $15,654 $16,470 $17,981
8/31/92 $17,841 $18,581 $20,865
8/31/93 $21,574 $20,194 $25,455
8/31/94 $19,354 $20,026 $23,829
8/31/95 $22,518 $21,814 $27,868
8/31/96 $22,611 $22,787 $28,275
Past performance is not predictive of future performance. The
Lehman Brothers Intermediate Government Index and the Long T-Bond
Index are unmanaged indices and, unlike the Portfolio, have no
management fee or other operating expenses to reduce their
reported return. Returns are historical and include changes in
principal and reinvested dividends and capital gains.
Average Annual Total Return
Period Ending August 31, 1996
Since
One Year Five Years Inception
0.41% 7.62% 7.89%
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
General
The investment objective of the Rushmore U.S. Government Bond
Portfolio is to provide investors with maximum current income to
the extent that such investment is consistent with safety of
principal. In attempting to achieve its objective, the Portfolio
invests principally in the current thirty-year U.S. Treasury bond
and in other U.S. Government securities with maturities of ten
years or more. The Portfolio will invest only in securities
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities, and in securities and certificates evidencing
ownership of future interest and principal payments on the above
securities (zero coupons). The Portfolio also may purchase U.S.
Government securities under repurchase agreements and may also
lend Portfolio securities.
U.S. Government Securities
U.S. Treasury securities are backed by the full faith and credit
of the U.S. Treasury. U.S. Treasury securities differ only in
their interest rates, maturities, and dates of issuance.
Treasury Bills have maturities of one year or less. Treasury
Notes have maturities of one to ten years, and Treasury Bonds
generally have maturities of greater than ten years at the date
of issuance. Yields on short-, intermediate-, and long-term U.S.
Government securities are dependent on a variety of factors,
including the general conditions of the money and bond markets,
the size of a particular offering, and the maturity of the
obligation. Debt securities with longer maturities tend to
produce higher yields and are generally subject to potentially
greater capital appreciation and depreciation than obligations
with shorter maturities and lower yields. The market value of
U.S. Government securities generally varies inversely with
changes in market interest rates. An increase in interest rates,
therefore, would generally reduce the market value of portfolio
investments of the Portfolio in U.S. Government securities, while
a decline in interest rates would generally increase the market
value of portfolio investments of the Portfolio in these
securities.
Certain U.S. Government securities are issued or guaranteed by
agencies or instrumentalities of the U.S. Government including,
but not limited to, obligations of U.S. Government agencies or
instrumentalities such as the Federal National Mortgage
Association ("FNMA"), the Government National Mortgage
Association ("Ginnie Mae"), the Federal Home Loan Mortgage
Corporation, the Small Business Administration ("SBA"), the
Export-Import Bank, the Federal Farm Credit Administration, the
Federal Home Loan Banks ("FHLBs"), Banks for Cooperatives
(including the Central Bank for Cooperatives), the Federal Land
Banks, the Federal Intermediate Credit Banks, the Tennessee
Valley Authority, the Export-Import Bank of the United States,
the Commodity Credit Corporation, the Federal Financing Bank, the
Student Loan Marketing Association, and the National Credit Union
Administration.
Some obligations issued or guaranteed by agencies or
instrumentalities of the U.S. Government, such as Ginnie Mae and
SBA certificates, are backed by the full faith and credit of the
U.S. Treasury. Such agencies and instrumentalities may borrow
funds from the U.S. Treasury. No assurances can be given,
however, that the U.S. Government will provide such financial
support to the obligations of other U.S. Government agencies or
instrumentalities in which the Portfolio invests, such as the
FHLBs and the FNMA, since the U.S. Government is not obligated to
guarantee these securities. These other agencies and
instrumentalities are supported by either the issuer's right to
borrow, under certain circumstances, an amount limited to a
specific line of credit from the U.S. Treasury, the discretionary
authority of the U.S. Government to purchase certain obligations
of an agency or instrumentality, or the credit of the agency or
instrumentality itself.
Government bonds typically pay coupon interest semi-annually and
repay the principal at maturity. Ginnie Mae certificates differ
from other Government securities in that monthly payments of both
principal and interest are made. Ginnie Mae certificates
represent an ownership in a pool of either Federal Housing
Administration-insured or Veterans Administration-guaranteed
mortgages. These certificates have yield and maturity
characteristics corresponding to the underlying mortgages and a
certificate's term may be shortened by unscheduled or early
payments of principal on the underlying mortgages. The actual
yield of each certificate will be influenced by the prepayment
experience of the mortgage pool.
U.S. Government securities may be purchased at a discount. Such
securities, when held to maturity or retired, may include an
element of capital gain. Capital losses may be realized when
such securities purchased at a premium are held to maturity or
are called or redeemed at a price lower than their purchase
price. Capital gains or losses also may be realized upon the
sale of securities.
Fixed Income Value and Yield Fluctuations
Fluctuation in the market value of the securities of the
Portfolio will occur due to interest rate movements. The market
values of the investment securities of the Portfolio will vary
inversely with interest rate movements and, therefore, the per
share value of the Portfolio will also fluctuate as interest
rates change. Furthermore, debt securities with longer
maturities, such as Ginnie Mae certificates, generally experience
greater price movement compared to shorter term securities as
interest rates fluctuate. Because of the fluctuation of per
share values, investment in the Portfolio may not be suitable for
investors with short-term investment objectives.
Specialized Investment Practices and Risks
Zero Coupon Bonds
The Portfolio also may buy and sell U.S. Treasury zero coupon
securities. Unlike regular U.S. Treasury bonds which pay semi-
annual interest, U.S. Treasury zero coupon bonds do not generate
semi-annual coupon payments so that interest is not paid in cash
during the term of these securities. Instead, zero coupon bonds
are purchased at a substantial discount from the maturity value
of such securities, reflecting the current value of the deferred
interest, and this discount is amortized as interest income over
the life of the security and paid at maturity. The discount is
taxable even though there is no cash return until maturity. Zero
coupon U.S. Treasury issues originally were created by government
bond dealers who bought U.S. Treasury bonds and issued receipts
representing an ownership interest in the interest coupons or in
the principal portion of the bonds. Subsequently, the U.S.
Treasury began directly issuing zero coupon bonds with the
introduction of "Separate Trading of Registered Interest and
Principal of Securities" (or "STRIPS"). While zero coupon bonds
eliminate the reinvestment risk of regular coupon issues, that
is, the risk of subsequently investing the periodic interest
payments at a lower rate than that of the security held, zero
coupon bonds fluctuate much more sharply than regular coupon-
bearing bonds. Thus, when interest rates rise, the value of zero
coupon bonds will decrease to a greater extent than will the
value of regular bonds having the same interest rate. The
Portfolio will not invest more than 10% of its assets in current
value of the zero coupon securities at any time.
Repurchase Agreements
In order to effectively utilize cash reserves kept for liquidity,
the Portfolio may invest in repurchase agreements secured by
securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities, and in securities and
certificates evidencing ownership of future interest and
principal payments on the above securities. A repurchase
agreement arises when a buyer purchases a security and
simultaneously agrees to sell it to the seller at an agreed upon
future date, normally one day or a few days later. The resale
price is greater than the purchase price, reflecting an agreed
upon market rate. The Portfolio may enter into repurchase
agreements only with member banks of the Federal Reserve system
or primary dealers of U.S. Government securities. In the event
of a default or bankruptcy by the seller, the Portfolio will
liquidate those securities held under repurchase agreements.
However, liquidation of the securities could involve costs or
delays and, to the extent proceeds from their sale were less than
the agreed upon repurchase price, the Portfolio could suffer a
loss.
Lending of Securities
The Portfolio may lend its securities to National Association of
Securities Dealers, Inc. (the "NASD")-registered broker-dealers
and Federal Reserve member banks for the purpose of earning
additional income. Such loans will be pursuant to agreements
requiring the broker-dealer or bank to fully and continuously
secure the loan by cash or other securities in which the
Portfolio may invest equal to the market value of the securities
loan. The Portfolio receives compensation for lending its
securities in the form of fees.
The Portfolio will enter into securities lending and repurchase
transactions only with parties who meet credit worthiness
standards approved by the Fund's Board of Directors. In the
event of a default or bankruptcy by a seller or borrower, the
Portfolio will promptly liquidate collateral. However, the
exercise of the Portfolio's right to liquidate such collateral
could involve certain costs or delays and, to the extent that
proceeds from any sale of collateral on a default of the seller
or borrower were less than the seller's or borrower's obligation,
the Portfolio could suffer a loss.
Borrowings
The Portfolio may borrow money to facilitate management of the
portfolio instruments by enabling the Portfolio to meet
redemption requests when the liquidation of portfolio instruments
would be inconvenient or disadvantageous. Such borrowing is not
for investment purposes and will be repaid by the Portfolio
promptly. Such a borrowing may not exceed 30% of the Portfolio's
total assets, taken at current net asset value before any
borrowing. The Portfolio may not purchase securities if a
borrowing is outstanding.
In addition to the foregoing, the Portfolio is authorized to
borrow money from a bank as a temporary measure for extraordinary
or emergency purposes in amounts not in excess of 5% of the value
of the Portfolio's total assets. The Portfolio is authorized to
pledge portfolio securities as the Adviser deems appropriate in
connection with any borrowings.
PORTFOLIO TURNOVER
The portfolio turnover for the Portfolio was 95.0%, 63.3%, and
188.3% for the years ended August 31, 1996, 1995, and 1994,
respectively.
HOW TO INVEST IN THE PORTFOLIO
The minimum initial investment in the Portfolio is $2,500.
Retirement accounts may be opened with a $500 minimum investment.
The shares of the Portfolio are offered at the daily public
offering price which is the net asset value per share (See "Net
Asset Value") next computed after receipt of your order. There is
no minimum amount for subsequent investments in the Portfolio.
All accounts will be held in book-entry form. NO CERTIFICATES
FOR SHARES WILL BE ISSUED. The Portfolio reserves the right to
reject any purchase order. Foreign checks will not be accepted.
Investment in the Portfolio can be made directly with the Fund or
through third parties such as broker-dealers, banks, or other
financial institutions that purchase securities for their
customers. Such third parties may charge their customers a fee
in connection with services offered to customers. When shares
are purchased through third parties, the third party, rather than
the customer, may be the shareholder of record of the shares.
Investors who do not wish to receive the services of a third
party may invest directly with the Fund without charge by mail or
by bank wire, as described below. Certain third party
organizations may receive compensation from the Fund, the
Portfolio's transfer agent, or Money Management Associates for
the shareholder accounting services these organizations provide.
By Mail: Complete an application and make a check payable to
"The Rushmore Fund, Inc." Mail the check along with the
application, to:
The Rushmore Fund, Inc.
4922 Fairmont Avenue
Bethesda, Maryland 20814
Purchases by check will normally be credited to an account within
one business day after receipt of payment. Foreign checks will
not be accepted.
By Bank Wire: Request a wire transfer to:
Rushmore Trust and Savings, FSB
Bethesda, Maryland
Routing Number 0550-71084
For Account of The Rushmore Fund, Inc.
Account Number 029385-770
AFTER INSTRUCTING YOUR BANK TO TRANSFER MONEY BY WIRE, YOU MUST
TELEPHONE THE FUND AT (800) 622-1386 OR (301) 657-1510 BETWEEN
8:30 A.M. AND 4:00 P.M., EASTERN TIME, AND TELL US THE AMOUNT YOU
TRANSFERRED AND THE NAME OF THE BANK SENDING THE TRANSFER. YOUR
BANK MAY CHARGE A FEE FOR SUCH SERVICES. IF THE PURCHASE IS
CANCELED BECAUSE YOUR WIRE TRANSFER IS NOT RECEIVED, YOU MAY BE
LIABLE FOR ANY LOSS THE FUND MAY INCUR.
HOW TO REDEEM AN INVESTMENT (WITHDRAWALS)
On any day the Fund is open for business, an investor may
withdraw all or any portion of his investment by redeeming shares
at the next determined net asset value per share after receipt of
the order by writing the Fund or by telephoning (800) 822-1386 or
(301) 657-1510 between 8:30 A.M. and 4:00 P.M., Eastern time.
Telephone redemption privileges may be terminated or modified by
the Fund upon 60 days notice to all shareholders of the Fund.
The privilege to initiate redemption transactions by telephone
will be made available to fund shareholders automatically.
Telephone redemptions will only be sent to the address of record
or to bank accounts specified in the account application. When
acting on instructions believed to be genuine, the Fund will not
be liable for any loss resulting from a fraudulent telephone
redemption request and the investor would bear the risk of any
such loss. The Fund will employ reasonable procedures to confirm
that redemption instructions communicated by telephone are
genuine; and if the Fund does not employ such procedures, then
the Fund may be liable for any losses due to unauthorized or
fraudulent instructions. The Fund follows specific procedures
for transactions initiated by telephone, including among others,
requiring some form of personal identification prior to acting on
instructions received by telephone, providing written
confirmation not later than five business days after such
transactions, and/or tape recording of telephone transactions.
The proceeds of redemptions will be sent directly to the
investor's address of record. If the investor requests payment
of redemptions to a third party or to a location other than his
address of record listed on the account application, the request
must be in writing and the investor's signature must be
guaranteed by an eligible institution. Eligible institutions
generally include banking institutions, securities exchanges,
associations, agencies or broker/dealers, and "STAMP" program
participates. There are no fees charged for redemptions.
The Fund will redeem its shares at a redemption price equal to
their net asset value as next computed following the receipt of a
request for redemption. There is no redemption charge. Payment
for the redemption price will be made within seven days after the
Fund's receipt of the request for redemption. For investments
that have been made by check, payment on withdrawal requests may
be delayed for up to ten business days or until the check clears,
whichever occurs first. This delay is necessary to assure the
Fund that investments made by checks are good funds. The
proceeds of the redemption will be forwarded promptly upon
confirmation of receipt of good funds.
The right of redemption may also be suspended, or the date of
payment postponed, (a) for any period during which the New York
Stock Exchange ("NYSE") is closed (other than customary weekend
or holiday closings); or (b) when trading on the NYSE is
restricted, or an emergency exists, as determined by the
Securities and Exchange Commission, so that disposal of the
Fund's investments for determination of net asset value is not
reasonably practicable; or (c) for such other periods as the
Commission, by order, may permit for protection of the Fund's
investors. Investors should also be aware that telephone
redemptions or exchanges may be difficult to implement in a
timely manner during periods of drastic economic or market
changes. If such conditions occur, redemption or exchange orders
can be made by mail. Because of the administrative expense of
handling small accounts, the Fund reserves the right to
involuntarily redeem an investor's account which falls below $500
in total value in all portfolios of the Fund due to redemptions
or exchanges after providing 60 days written notice.
EXCHANGES
The Fund is composed of two separate portfolios. This Prospectus
describes the features of the Rushmore U.S. Government Bond
Portfolio. The other portfolio of the Fund is the Rushmore Nova
Portfolio; however, shares of the Rushmore Nova Portfolio
currently are not available or sold to the public. Shares of The
Rushmore Fund, Inc. may also be exchanged for shares of Fund for
Government Investors, Fund for Tax-Free Investors, Inc., American
Gas Index Fund, Inc., or the Cappiello-Rushmore Trust on the
basis of the respective net asset values of the shares involved.
Exchanges may be made by telephone or letter. Written requests
should be sent to The Rushmore Fund, Inc., 4922 Fairmont Avenue,
Bethesda, Maryland 20814, and should be signed by the record
owner or owners. Telephone exchange requests may be made by
calling the Fund at (800) 622-1386 or (301) 657-1510 between 8:30
A.M. and 4:00 P.M., Eastern time. Exchanges will be effected at
the respective net asset values of the portfolios as next
determined after receipt of the exchange request. To implement
an exchange, shareholders should provide the following
information: account registration including address and number,
taxpayer identification number, percentage or dollar value of
shares to be redeemed, and name and account number of the
portfolio to which the investment is to be transferred.
Exchanges may be made only if they are between identically
registered accounts. Shareholders contemplating such an exchange
should obtain and review the prospectuses of those funds. The
exchange privilege is available only in states where the exchange
may legally be made. Telephone exchange privileges may be
terminated or modified by the Fund upon 60 days notice to all
shareholders of the Fund.
TRANSACTION CHARGES
In addition to charges described elsewhere in this Prospectus,
the Fund may impose a charge of $5 per month for any account
whose average daily balance is below $500. The fee may continue
to be imposed during months when the account balance remains
below $500. This fee will be paid to Rushmore Trust and Savings,
FSB. The fee will not be imposed on tax-sheltered retirement
plans or accounts established under the Uniform Gifts or
Transfers to Minors Act. The Fund may also assess a charge of
$10 for items returned for insufficient or uncollectible funds.
TAX-SHELTERED RETIREMENT PLANS
Tax-sheltered retirement plans of the following types will be
available to investors:
Individual Retirement Accounts (IRAs)
Defined Contribution Plans
(Profit-Sharing Plans)
Money Purchase Plans (Pension Plans)
Internal Revenue Code
Section 401(k) Plans
Internal Revenue Code
Section 403(b) Plans
Additional information regarding these accounts may be obtained
by contacting the Fund.
DIVIDENDS AND DISTRIBUTIONS
Dividends of the Portfolio are declared daily. Investors will
receive dividends in additional shares at month end unless they
elect in writing to receive cash. Dividends paid in cash to
those investors so electing will be mailed on the second business
day of the following month. Statements of account showing
dividends paid will be sent to shareholders at least quarterly.
Long-term capital gains, if any, will be distributed on an annual
basis while short-term capital gains, if any, will be distributed
quarterly.
NET ASSET VALUE
The net asset value of the Portfolio's shares will be determined
daily as of 4:00 P.M., Eastern time, except on customary national
business holidays which result in the closing of the NYSE and
weekends. The net asset value per share is calculated by
dividing the net worth by the number of shares. The securities
of the Portfolio will be valued on the basis of the average of
quoted bid and ask price when quotations are available. If
market quotations are not readily available, the Board of
Directors of the Fund will value the Portfolio's securities in
good faith. The directors will continuously review these methods
of valuation and recommend changes which may be necessary to
assure that the Portfolio's investments are valued at fair value.
TAXES
The Portfolio will seek to qualify for treatment as a regulated
investment company (a "RIC") under Subchapter M of the Internal
Revenue Code. If the Portfolio qualifies as a RIC, the Portfolio
will not be liable for Federal income taxes to the extent its
earnings are distributed within the time periods specified in the
Code. To qualify as a RIC under the Code, the Portfolio must
satisfy certain requirements, including the requirement that the
Portfolio receive at least 90% of its gross income each year from
dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of securities or foreign
currencies, or other income derived with respect to the
Portfolio's investments in stock, securities, and foreign
currencies (the "90% Test"), and that the Portfolio derive less
than 30% of the Portfolio's gross income from the sale or other
disposition of any of the following instruments which was held
less than three months (the "30% Test"): (i) stock or
securities; (ii) options, futures, or forward contracts; or (iii)
foreign currencies (or options, futures, or forward contracts on
such foreign currencies). Provided that the Portfolio (i) is a
RIC and (ii) distributes at least 98% of the Portfolio's net
investment income (including, for this purpose, net realized
short-term capital gains), the Portfolio will not be liable for
Federal income taxes to the extent the Portfolio's net investment
income and the Portfolio's net realized long- and short-term
capital gains, if any, are distributed to the shareholders of the
Portfolio.
Dividends paid by the Portfolio are taxable to shareholders
whether such dividends and distributions are reinvested in shares
of the Portfolio or are received in cash. Under current law,
dividends derived from interest and dividends received by the
Portfolio, together with distributions of any short-term capital
gains, are taxable to the shareholders as ordinary income at
rates of up to 39.6%.
Under current law, distributions of net long-term gains, if any,
realized by the Portfolio and designated as capital gains
distributions will be made annually and will be taxed to
shareholders as long-term capital gains regardless of the length
of time the shares have been held. Currently, long-term capital
gains are taxed at a maximum rate of 28%. Statements as to the
Federal tax status of shareholders' dividends and distributions
will be mailed annually. Shareholders should consult their tax
advisers concerning the tax status of the Portfolio's dividends
in their own states and localities.
Shareholders are required by law to certify that their tax
identification number is correct and that they are not subject to
back-up withholding. In the absence of this certification, the
Fund is required to withhold taxes at the rate of 31% on
dividends, capital gains distributions, and redemptions.
Shareholders who are non-resident aliens may be subject to a
withholding tax on dividends earned.
Ordinary dividends paid to corporate or individual residents of
foreign countries are subject to a 30% withholding tax. The rate
of withholding tax may be reduced if the United States has an
income tax treaty with the foreign country where the recipient
resides. Capital gains distributions received by foreign
investors should, in most cases, be exempt from U.S. tax. A
foreign investor will have to provide the Fund with any required
documentation in order for the Fund to apply a reduced rate or
exemption from U.S. withholding tax.
ORGANIZATION AND DESCRIPTION OF COMMON STOCK
The Fund is an open-end, diversified investment company. It was
incorporated in Maryland on July 24, 1985 and has a present
authorized capital of 1,000,000,000 shares of $.001 par value
common stock which may be issued in two separate classes:
Rushmore U.S. Government Bond Portfolio and the Rushmore Nova
Portfolio.
All shares of the Fund are freely transferable. The shares do
not have preemptive rights, and none of the shares have any
preference to conversion, exchange, dividends, retirements,
liquidation, redemption or any other feature. Shares have equal
voting rights, except that in a matter affecting only a
particular portfolio, such as a change in investment policy, only
shares of that portfolio may be entitled to vote on the matter.
Because the shares have non-cumulative voting rights, the holders
of more than 50% of the shares voting for the election of
directors can elect 100% of the directors, if they choose to do
so. In such event, the holders of the remaining less than 50% of
the shares voting will not be able to elect any directors.
Shareholder inquiries can be made by telephone ((800) 343-3355)
or by mail (4922 Fairmont Avenue, Bethesda, Maryland 20814).
Under Maryland Corporate law, a registered investment company is
not required to hold an annual shareholders' meeting if the
Investment Company Act of 1940 does not require a meeting. The
Act does require a meeting if the following actions are
necessary: ratification of the selection of independent public
accountants, approval of the investment advisory agreement,
election of the board of directors, or approval of the
appointment of directors to board vacancies when such vacancies
cause less than two-thirds of the board to have been elected or
approval of a change in a fundamental investment policy. Under
the Investment Company Act of 1940, shareholders have the right
to remove directors and, if holders of 10% of the outstanding
shares request in writing, a shareholders' meeting must be
called. As of the date of this Prospectus, officers and
directors of the Fund, as a group, own less than 1% of the shares
outstanding.
MANAGEMENT OF THE FUND
Investment Adviser and Administrative Servicing Agent
The investment adviser of the Fund is Money Management
Associates, 1001 Grand Isle Way, Palm Beach Gardens, Florida
33418 (the "Adviser"). Subject to the general supervision of the
Board of Directors of the Fund, the Adviser renders investment
advice and is responsible for the overall management of the
Fund's business affairs. Investment decision for the Portfolio
are made by committee and no one person is primarily responsible
for making recommendations to the committee.
The Adviser currently is the investment adviser of four
registered investment companies, including The Rushmore Fund,
Inc., which was established in 1985 and currently is comprised of
one series in addition to the Portfolio, the Rushmore Nova
Portfolio. The Adviser also advises: Fund for Government
Investors, a money market fund established in 1975 that invests
only in U.S. Treasury securities; Fund for Tax-Free Investors,
Inc., which was established in 1983 and currently consists of
three series, each of which invests primarily in securities the
interest on which is exempt either from federal income tax or
from state income tax; and American Gas Index Fund, Inc., a
common stock index fund established in 1989 that seeks to provide
investment results that correlate to those of an index comprising
the common stocks of natural gas distribution and transmission
company members of the American Gas Association. As of August
31, 1996, total assets under the Adviser's management were
approximately $900 million.
Under an Investment Advisory Agreement between the Fund and the
Adviser, the Portfolio pays the Adviser a fee at an annual rate
based on 0.50% of the net assets of the Portfolio. The Adviser
manages the investment and reinvestment of the assets of the
portfolios of the Fund and administers the affairs of the Fund,
subject to the control of the officers and the Board of Directors
of the Fund. Investment decisions are made by committee. The
Adviser bears all costs associated with providing these services
and the fees and expenses of the directors of the Fund who are
affiliated persons of the Adviser. For additional information
concerning the Adviser and the Investment Advisory Agreement, see
"Management of the Fund" in the Statement of Additional
Information.
Under a Service Agreement between the Fund and Rushmore Trust and
Savings, FSB ("RTS"), 4922 Fairmont Avenue, Bethesda, Maryland
20814, a majority-owned subsidiary of the Adviser, RTS provides
transfer agency, dividend-disbursing, and administrative services
to the Fund. Under the Service Agreement with RTS, which has
been approved by the Board of Directors, RTS receives an annual
fee of 0.30% of the average daily net assets of the Portfolio for
these services. RTS pays all fees and expenses that are directly
related to the services provided by RTS to the Fund. For
additional information concerning RTS and the Service Agreement,
see "Management of the Fund" in the Statement of Additional
Information.
Officers and Directors
The Fund has a Board of Directors which is responsible for the
general supervision of the Fund's business. The day-to-day
operations of the Fund are the responsibility of the Fund's
officers.
<PAGE>
THE RUSHMORE FUND, INC.
RUSHMORE U.S. GOVERNMENT BOND PORTFOLIO
PROSPECTUS
January 1, 1997
Table of Contents
Page
Fee Table
Financial Highlights
Management's Discussion of Portfolio Performance
Performance Data
Investment Objective and Policies
Portfolio Turnover
How to Invest in the Fund
How to Redeem an Investment (Withdrawals)
Exchanges
Transaction Charges
Tax-Sheltered Retirement Plans
Dividends and Distributions
Net Asset Value
Taxes
Organization and Description of Common Stock
Management of the Fund
<PAGE>
PART B
<PAGE>
THE RUSHMORE FUND, INC.
RUSHMORE NOVA PORTFOLIO
4922 Fairmont Avenue, Bethesda, Maryland 20814
(301) 657-1517 (800) 343-3355
STATEMENT OF ADDITIONAL INFORMATION
The Rushmore Nova Portfolio (the "Portfolio") is one of a series
of portfolios in The Rushmore Fund, Inc. (the "Fund"), an open-
end management investment company. The objective of the
Portfolio is to provide total returns over time that are superior
to the market average as measured by the Standard & Poor's 500
Composite Price Index. The Portfolio is designed for investors
seeking growth of capital rather than current income. In
attempting to achieve its objective, the Portfolio will employ
aggressive investment techniques, which include engaging in
shorts sales and transactions in options and futures contracts,
as well as the use of leverage. Because of the inherent risks in
any investment, there can be no assurance that the Portfolio's
investment objective will be met. The Portfolio is not intended
for investors whose principal objective is assured income or
preservation of capital.
This Statement of Additional Information is not a prospectus. It
should be read in conjunction with the Portfolio's Prospectus,
dated January 1, 1997. A copy of the Portfolio's Prospectus may
be obtained without charge by writing or telephoning the Fund.
The date of this Statement of Additional Information is January 1, 1997.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Table of Contents
Cross Reference to Related Item in Prospectus
Page in
Statement of Page in
Additional Information Prospectus
Investment Policies
Investment Restrictions
Portfolio Transactions and Brokerage
Management of the Fund
Principal Holders of Securities
Net Asset Value
Performance Information
Calculation of Return Quotations
Dividends, Distributions, and Taxes
Auditors and Custodian
Financial Statements
<PAGE>
INVESTMENT POLICIES
Options Transactions
Options on Securities
In an effort to enhance performance and to hedge the Portfolio's
risk exposure, the Portfolio may write (sell) covered call and
secured put options with respect to certain of the Portfolio's
portfolio securities, at such time and from time to time, as
Money Management Associates, the investment advisor to the
Portfolio (the "Adviser"), shall determine to be appropriate and
consistent with the investment objective of the Portfolio. A
covered call option means that the Portfolio owns the underlying
security on which the option is written. By writing a call
option, the Portfolio may become obligated during the term of the
option to deliver the securities underlying the option at the
exercise price if the option is exercised. A secured put option
means that the Portfolio has and maintains on deposit with its
custodian bank cash or U.S. Government securities having a value
equal to the exercise value of the option. By writing a put
option, the Portfolio may become obligated during the term of the
option to purchase the securities underlying the option at the
exercise price. Options written by the Portfolio will be
conducted on recognized securities exchanges. The Portfolio does
not presently intend to invest more than 5% of its net assets in
securities options transactions.
When writing call options on securities, the Portfolio may cover
its position by owning the underlying security on which the
option is written. Alternatively, the Portfolio may cover its
position by owning a call option on the underlying security which
is deliverable under the option contract at a price no higher
than the exercise price of the call option written by the
Portfolio or, if higher, by owning such call option and
depositing and maintaining in a segregated account cash or liquid
high-grade debt securities equal in value to the difference
between the two exercise prices. In addition, the Portfolio may
cover its position by depositing and maintaining in a segregated
account cash or liquid high-grade debt securities equal in value
to the exercise price of the call option written by the
Portfolio. When the Portfolio writes a put option, the Portfolio
will have and maintain on deposit with its custodian bank cash or
liquid high-grade debt securities having a value equal to the
exercise value of the option.
During the term of the option, the writer may be assigned an
exercise notice by the broker-dealer through whom the option was
sold. The exercise notice would require the writer to deliver,
in the case of a call, or take delivery of, in the case of a put,
the underlying security against payment of the exercise price.
This obligation terminates upon expiration of the option, or at
such earlier time that the writer effects a closing purchase
transaction by purchasing an option covering the same underlying
security and having the same exercise price and expiration date
as the one previously sold. Once an option has been exercised,
the writer may not execute a closing purchase transaction. To
secure the obligation to deliver the underlying security in the
case of a call option, the writer of the option is required to
deposit in escrow the underlying security or other assets in
accordance with the rules of the Options Clearing Corporation
("OCC"), an institution created to interpose itself between
buyers and seller of options. The OCC assumes the other side of
every purchase and sale transaction on an exchange and, by doing
so, gives its guarantee to the transaction.
The principal reason for writing call options on stocks held by
the Portfolio is to attempt to realize, through the receipt of
premiums, a greater return than would be realized on the
underlying securities alone. In return for the premium, the call
option writer has given up the opportunity for profit from a
price increase in the underlying security above the exercise
price so long as the option remains open, but retains the risk of
loss should the price of the security decline. Conversely, the
put option writer gains a profit, in the form of the premium, so
long as the price of the underlying security remains above the
exercise price, but assumes an obligation to purchase the
underlying security from the buyer of the put option at the
exercise price, even though the security may fall below the
exercise price, at any time during the option period. If an
option expires, the writer realizes a gain in the amount of the
premium. Such a gain may, in the case of a covered call option,
be offset by a decline in the market value of the underlying
security during the option period. If a call option is
exercised, the writer realizes a gain or loss from the sale of
the underlying security. If a put option is exercised, the
writer must fulfill his obligation to purchase the underlying
security at the exercise price, which will usually exceed the
then market value of the underlying security.
The writing of option contracts is a highly specialized activity
which involves investment techniques and risks different from
those ordinarily associated with investment companies, although
the Adviser believes that the writing of covered call options
listed on an exchange, where the Portfolio owns the underlying
security, tends to reduce such risks. The option writer forgoes
the opportunity to profit from an increase in market price of the
underlying security above the exercise price so long as the
option remains open. Securities for the Portfolio's portfolio
will continue to be bought and sold solely on the basis of
investment considerations and appropriateness to the fulfillment
of the Portfolio's objective.
Options on Securities Indexes
The Portfolio may write (sell) covered call options and secured
put options on stock indexes listed on national securities
exchanges or traded in the over-the-counter market as an
investment vehicle for the purpose of realizing the Portfolio's
investment objective. Options on indexes are settled in cash,
not in delivery of securities. The exercising holder of an index
option receives, instead of a security, cash equal to the
difference between the closing price of the securities index and
the exercise price of the option. When the Portfolio writes a
covered option on an index it will be required to deposit and
maintain with a custodian cash or high-grade, liquid short-term
debt securities equal in value to the aggregate exercise price of
a put or call option pursuant to the requirements and the rules
of the applicable exchange. If, at the close of business on any
day, the market value of the deposited securities falls below the
contract price, the Portfolio will deposit with the custodian
cash or U.S. Government securities equal in value to the
deficiency.
From time to time, the Portfolio may purchase options on the
individual stocks comprising the index or options on indexes
themselves. The purchase of index options would be made in an
effort to increase the Portfolio's correlations to the index
when, in the opinion of the Adviser, purchase of stocks
comprising the index could not be done without incurring
disproportionately high transaction and brokerage costs.
Repurchase Agreements
As discussed in the Portfolio's Prospectus, the Portfolio may
enter into repurchase agreements with financial institutions.
The Portfolio follows certain procedures designed to minimize the
risks inherent in such agreements. These procedures include
effecting repurchase transactions only with large, well-
capitalized and well-established financial institutions whose
condition will be continually monitored by the Adviser. In
addition, the value of the collateral underlying the repurchase
agreement will always be at least equal to the repurchase price,
including any accrued interest earned on the repurchase
agreement. In the event of a default or bankruptcy by a selling
financial institution, the Portfolio will seek to liquidate such
collateral. However, the exercising of the Portfolio's right to
liquidate such collateral could involve certain costs or delays
and, to the extent that proceeds from any sale upon a default of
the obligation to repurchase were less than the repurchase price,
the Portfolio could suffer a loss. It is the current policy of
the Portfolio not to invest in repurchase agreements that do not
mature within seven days if any such investment, together with
any other illiquid assets held by the Portfolio, amounts to more
than 10% of the Portfolio's total assets. The investment by the
Portfolio in repurchase agreements, at times, may be substantial
when, in the view of the Adviser, liquidity or other
considerations so warrant.
Lending of Portfolio Securities
The Portfolio may lend portfolio securities to brokers, dealers,
and member banks of the Federal Reserve System for the purpose of
earning additional income, provided that cash equal to at least
100% of the market value of the securities loaned is deposited by
the borrower with the Portfolio and is maintained each business
day in a segregated account pursuant to applicable regulations.
While such securities are on loan, the borrower will pay the
Portfolio any income accruing thereon, and the Portfolio may
invest the cash collateral in portfolio securities, thereby
earning additional income. The Portfolio will enter into
securities lending transactions only with parties who meet the
creditworthiness standards approved and monitored by the Fund's
Board of Directors. In the event of a default or bankruptcy by a
borrower, the Portfolio will promptly seek to liquidate
collateral. However, the exercise of the Portfolio's right to
liquidate such collateral could involve certain costs or delays
and, to the extent that proceeds from any sale of collateral on a
default of a borrower were less than the borrower's obligation to
the Portfolio, the Portfolio could suffer a loss. The Portfolio
will not lend its portfolio securities if such loans are not
permitted by the laws or regulations of any state in which the
Portfolio's shares are qualified for sale and does not presently
intend to lend more than 5% of the value of the Portfolio's total
assets.
The Portfolio will enter into securities lending and repurchase
transactions only with parties who meet credit worthiness
standards approved and monitored by the Fund's Board of
Directors. In the event of a default or bankruptcy by a seller
or borrower, the Portfolio will promptly seek to liquidate
collateral. However, the exercise of the Portfolio's right to
liquidate such collateral could involve certain costs or delays
and, to the extent that proceeds from any sale of collateral on a
default of the seller or borrower were less than the seller's or
borrower's obligation, the Portfolio could suffer a loss.
Portfolio Transactions
Brokerage commissions are normally paid on options and common
stock transactions. A higher portfolio turnover on those
transactions involving commissions will lead to higher portfolio
expenses. It is the policy of the Portfolio to obtain the best
price and execution for all of its security transactions.
INVESTMENT RESTRICTIONS
The following investment restrictions supplement those set forth
in the Prospectus. These restrictions are fundamental and may
not be changed without prior approval of a majority of the
Portfolio's outstanding voting shares. As defined in the
Investment Company Act of 1940, as amended, the term "majority"
means the vote of the lesser of: (a) 67% or more of the shares
of the Portfolio at a meeting where more than 50% of the
outstanding shares of the Portfolio are present in person or
represented by proxy; or (b) more than 50% of the outstanding
shares of the Portfolio. (All policies of the Portfolio not
specifically identified in this Statement of Additional
Information or the Portfolio's Prospectus as fundamental may be
changed without a vote of the shareholders of the Portfolio.)
For purposes of the following limitations, all percentage
limitations apply immediately after a purchase or initial
investment. Any subsequent change in a particular percentage
resulting from fluctuations in value does not require the
elimination of any security from the Portfolio's portfolio.
The Portfolio may not:
1. borrow money except as a temporary measure to facilitate
redemptions. Such borrowing may be in an amount not to
exceed 30% of the Portfolio's total assets, taken at current
value, before such borrowing. The Portfolio may not
purchase an investment security if a borrowing by the
Portfolio is outstanding.
2. make short sales of Portfolio securities or purchase any
portfolio securities on margin, except for such short-term
credits as are necessary for the clearance of transactions.
The deposit or payment by the Portfolio of initial or
variation margin in connection with futures or options
transactions is not considered to be a securities purchase
on margin.
3. make loans except through repurchase agreements and through
the loans of portfolio securities provided the borrower
maintains collateral equal to at least 100% of the value of
the borrowed security, and marked to market daily.
4. underwrite securities of any other issuer.
5. purchase or sell real estate, including limited partnership
interests.
6. purchase or sell restricted securities or warrants, nor may
it issue senior securities.
7. purchase any security whereby it would account for more
than 10% of any issuer's outstanding shares.
8. purchase securities of any issuer if, as a result of such a
purchase, as to 50% of the Portfolio's assets, such
securities would account for more than 5%, (as defined by
Section 5 (b)(1) of the Investment Company Act of 1940), of
the Portfolio's assets. There is no limitation, however, as
to investments issued or guaranteed by the United States
Government, its agencies or instrumentalities, or in
obligations of the United States Government, its agencies or
instrumentalities, which are purchased in accordance with
the Portfolio's investment objective and policies.
9. concentrate more than 25% of its assets in any one industry,
except to the extent that such concentration may be directed
by the stock indexes.
The following restrictions have been adopted by the Portfolio but
are not considered fundamental and may be changed by the Board of
Directors of the Fund.
The Portfolio may not:
1. invest in companies for the purpose of exercising management
or control.
2. purchase more than 10% of the voting securities of any one
issuer, or more than 10% of the securities of any class of
any one issuer.
3. purchase or hold the securities of any issuer if those
officers or directors of the Fund, or of Money Management
Associates, who individually own beneficially more than 5%
of the outstanding securities of the issuer, together own
beneficially more than 5% of those securities.
4. invest in securities of other investment companies, except
at customary brokerage commission rates or in connection
with mergers, consolidations or offers of exchange.
5. purchase the securities of companies which, including
predecessors, have a record of less than three years
continuous operation if, as a result, more than 5% of the
market value of the Portfolio's assets would be invested in
such companies.
6. invest more than 10% of their assets in illiquid securities.
7. invest in oil, gas or other mineral leases.
8. issue shares for other than cash.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision by the Board of Directors of
the Fund (the "Board"), the Adviser is responsible for decisions
to buy and sell securities for the Portfolio, the selection of
brokers and dealers to effect the transactions, and the
negotiation and payment of any and all brokerage commissions, if
any. Purchases and sales of portfolio securities are normally
transacted through issuers, underwriters or major dealers in U.S.
Government securities acting as principals. Such transactions
are made on a net basis and do not involve payment of brokerage
commissions. The cost of securities purchased from an
underwriter usually includes a commission paid by the issuer to
the underwriters; transactions with dealers normally reflect the
spread between bid and asked prices.
The Adviser may serve as an investment manager to a number of
clients, including other investment companies. It is the
practice of the Adviser to cause purchase and sale transactions
to be allocated among the Portfolio and others whose assets the
Adviser manages in such manner as it deems equitable. The main
factors considered by the Adviser in making such allocations
among the Portfolio and other client accounts of the Adviser are
the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment
commitments generally held, and the opinions of the person
responsible for managing the portfolios of the Portfolio and the
other client accounts.
The policy of the Portfolio regarding purchases and sales of
securities for its portfolio is that primary consideration will
be given to obtaining the most favorable prices and efficient
executions of transactions. Consistent with this policy, when
securities transactions are effected on a stock exchange, the
Portfolio's policy is to pay commissions which are considered
fair and reasonable without necessarily determining that the
lowest possible commissions are paid in all circumstances. The
Portfolio believes that a requirement always to seek the lowest
possible commission cost could impede effective portfolio
management and preclude the Portfolio and the Adviser from
obtaining a high quality of brokerage and research services. In
seeking to determine the reasonableness of brokerage commissions
paid in any transaction, the Adviser relies upon its experience
and knowledge regarding commissions generally charged by various
brokers and on its judgment in evaluating the brokerage and
research services received from the broker effecting the
transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those
services is not ascertainable.
In seeking to implement the Portfolio's policies, the Adviser
effects transactions with those brokers and dealers who the
Adviser believes provide the most favorable prices and are
capable of providing efficient executions. If the Adviser
believes such prices and executions are obtainable from more than
one broker or dealer, the Adviser may give consideration to
placing portfolio transactions with those brokers and dealers who
also furnish research and other services to the Portfolio or the
Adviser. Such services may include, but are not limited to, any
one or more of the following: information as to the availability
of securities for purchase or sale; statistical or factual
information or opinions pertaining to investment; wire services;
and appraisals or evaluations of portfolio securities. If the
broker-dealer providing these additional services is acting as a
principal for its own account, no commissions would be payable.
If the broker-dealer is not a principal, a higher commission may
be justified, at the determination of the Adviser, for the
additional services.
The information and services received by the Adviser from brokers
and dealers may be of benefit to the Adviser in the management of
accounts of some of its other clients and may not in all cases
benefit the Portfolio directly. While the receipt of such
information and services is useful in varying degrees and would
generally reduce the amount of research or services otherwise
performed by the Adviser and thereby reduce the Adviser's
expenses, this information and these services are of
indeterminable value and the management fee paid to the Adviser
is not reduced by any amount that may be attributable to the
value of such information and services.
For the fiscal years ended August 31, 1996, 1995, and 1994, total
brokerage commissions paid by the Adviser amounted to
approximately $252, $1,394, and $-0-, respectively.
MANAGEMENT OF THE FUND
The names and addresses of the directors and officers of the Fund
and the officers of the Fund's investment adviser, Money
Management Associates (the "Adviser"), together with information
as to their principal business occupations during the past five
years, are set forth below. Fees and expenses for non-interested
directors will be paid by the Fund.
*Daniel L. O'Connor, 54 - Chairman of the Board of Directors,
President, and Treasurer of the Fund. General Partner of the
adviser since 1975. President of Rushmore Trust and Savings, FSB
since 1989. Address: 1001 Grand Isle Way, Palm Beach Gardens,
FL 33418.
*Richard J. Garvey, 63 - Director of the Fund. Employee of
Rushmore Services, Inc., a subsidiary of the Adviser, since 1995.
Limited Partner of the Adviser since 1975. Address: 4922
Fairmont Avenue, Bethesda, Maryland 20814.
Jeffrey R. Ellis, 52 - Director of the Fund. Vice President,
LottoFone, Inc., a telephone state lottery service, since 1993.
Vice President Shoppers Express, Inc. 1988-1992. Address: 513
Kerry Lane, Virginia Beach, Virginia 23451.
Bruce C. Ellis, 52 - Director of the Fund. Vice President,
LottoFone, Inc., a telephone state lottery service, since 1991.
Vice President, Shoppers' Express, Inc. 1986-1992. Address: 7108
Heathwood Court Bethesda, Maryland 20817.
Patrick F. Noonan, 54 - Director of the Fund. Chairman and Chief
Executive Officer of the Conservation Fund since 1986. Vice
Chairman, American Farmland Trust and Trustee, American
Conservation Association since 1985. President, Conservation
Resources, Inc. since 1981. Address: 11901 Glen Mill Drive,
Potomac, Maryland 20854.
Michael D. Lange, 55 - Director of the Fund. Vice President,
Capital Hill Management Corporation since 1967. Owner of Michael
D. Lange, Ltd., a builder and developer since 1980. Partner of
Greatful Falls, a building developer since 1994. Address: 7521
Pepperell Drive, Bethesda, Maryland 20817.
Leo Seybold, 82 - Director of the Fund. Retired 1988. Address:
5804 Rockmere Drive, Bethesda, Maryland 20816.
*Rita A. Gardner, 53 - Director of the Fund. Limited Partner of
the Adviser since 1979. Vice President and Director of MMA
Services, Inc. until 1993. Address: 4922 Fairmont Avenue,
Bethesda, Maryland 20814.
Timothy N. Coakley, CPA, 29 - Vice President and Controller since
1994. Chief Financial Officer, Rushmore Trust and Savings, FSB
since 1995. Formerly Audit Manager, Deloitte & Touche LLP until
1994. Address: 4922 Fairmont Avenue, Bethesda, MD 20814.
Stephenie E. Adams, 27 - Secretary. Director of Marketing,
Rushmore Services, Inc., from July 1994 to present. Regional
Sales Coordinator, Media General Cable, from June 1993 to June
1994. Graduate Student, Northwestern University, M.S., from
September 1991 to December 1992. Address: 4922 Fairmont Avenue,
Bethesda, Maryland 20814.
*Indicates an "interested person" as that term is defined in the
Investment Company Act of 1940.
Certain directors and officers of the Fund are also directors and
officers of Fund for Government Investors, Fund for Tax-Free
Investors, Inc., and American Gas Index Fund, Inc., other
investment companies that are managed by the Adviser. As of
December 2, 1996, the directors and officers of the Fund, as a
group, owned, of record and beneficially, 100% of the shares of
the Portfolio.
The Adviser, which has its office at 1001 Grand Isle Way, Palm
Beach Gardens, Florida 33418, provides the Fund with investment
advisory services. The Adviser is a limited partnership which
was formed under the laws of the District of Columbia on August
15, 1974. Its primary business since inception has been to serve
as the investment adviser to Fund for Government Investors, Fund
for Tax-Free Investors, Inc., The Rushmore Fund, Inc., and the
American Gas Index Fund, Inc. Daniel L. O'Connor is the sole
general partner of the Adviser, and, as such, exercises control
thereof.
Under an Investment Advisory Agreement between the Fund and the
Adviser, dated October 10, 1985 (the "Advisory Agreement"), the
Adviser provides investment advice to the Portfolio and oversees
its day-to-day operations, subject to direction and control by
the Fund's Board of Directors. Pursuant to the Advisory
Agreement, the Portfolio pays the Adviser a fee at an annual rate
based on 0.75% of the net assets of the Portfolio. The Adviser
may, from its own resources, including profits from advisory fees
received from the Portfolio provided such fees are legitimate and
not excessive, make payments to broker-dealers and other
financial institutions for their expenses in connection with the
distribution of Portfolio shares. For the fiscal years ended
August 31, 1996, 1995, and 1994, the Portfolio paid advisory fees
to the Adviser of approximately $1,641, $3,223, and $274,
respectively.
Under a Service Agreement between the Fund and Rushmore Trust and
Savings, FSB ("RTS"), dated September 1, 1993, RTS provides
transfer agency, dividend-disbursing and administrative services
to the Portfolio. The services of RTS are provided to the
Portfolio on a fee basis and are paid by the Portfolio. RTS will
charge an annual fee of 50 basis points (0.50%) on the average
daily net assets of the Portfolio. The non-interested directors
of the Fund have reviewed the fee structure and determined that
it is competitive and in the best interest of the shareholders of
the Portfolio. The fee will be reviewed and approved annually by
the non-interested directors of the Fund. For the fiscal year
ended August 31, 1996, the Portfolio paid service fees to RTS of
approximately $1,186. The Portfolio is subject to the self-
custodian rules of the Securities and Exchange Commission. These
rules require that the custodian be subject to three securities
verification examinations each year conducted by the Fund's
independent accountant. Two of the examinations must be
performed on an unannounced surprise basis.
PRINCIPAL HOLDERS OF SECURITIES
On December 2, 1996, there were 10,000 shares of the Portfolio
outstanding. Daniel L. O'Connor, Palm Beach Gardens, Florida and
Money Management Associates, the Fund's investment adviser, each
beneficially owned 50% of the Portfolio.
<PAGE>
PERFORMANCE INFORMATION
The Portfolio from time to time may include its total return in
advertisements or reports to shareholders or prospective
shareholders. Quotations of average annual total return for the
Portfolio will be expressed in terms of the average annual
compounded rate of return on a hypothetical investment in the
Portfolio over a period of at least one, five, and ten years (up
to the life of the Portfolio) (the ending date of the period will
be stated). Total return is calculated from two factors: the
amount of dividends earned by each Portfolio share and by the
increase or decrease in value of the Portfolio's share price.
Performance information for the Portfolio contained in reports
and promotional literature may be compared to various unmanaged
indexes, including, but not limited to, the Standard & Poor's 500
Composite Stock Price Index (the "S&P500") or the Dow Jones
Industrial Average (the "DJIA"). Such unmanaged indexes may
assume the reinvestment of dividends, but generally do not
reflect deductions for operating costs and expenses. In
addition, the Portfolio's total return may be compared to other
mutual funds' performances as published by such organizations as
Lipper Analytical Services, Inc. ("Lipper"), and CDA Investment
Technologies, Inc., among others. When Lipper's tracking results
are used, the Portfolio will be compared to Lipper's appropriate
fund category, that is, by fund objective and portfolio holdings.
The Portfolio, therefore, may be compared to funds within
Lipper's capital appreciation fund category. Rankings may be
listed among one or more of the asset-size classes as determined
by Lipper. Since the assets in all mutual funds are always
changing, the Portfolio may be ranked within one Lipper asset-
size class at one time and in another Lipper asset-size class at
some other time. Footnotes in advertisements and other marketing
literature will include the time period and Lipper asset-size
class, as applicable, for the ranking in question. Performance
figures are based on historical results and are not intended to
indicate future performance.
CALCULATION OF RETURN QUOTATIONS
For purposes of quoting and comparing the performance of the
Portfolio to that of other mutual funds and to other relevant
market indices in advertisements or in reports to shareholders,
performance may be stated in terms of total return. Under the
rules of the Securities and Exchange Commission ("SEC Rules"),
Portfolio advertising performance must include total return
quotes calculated according to the following formula:
P (1+T)N = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years (1, 5, or 10); and
ERV = ending redeemable value of a
hypothetical $1,000 payment made at the
beginning of the 1, 5, or 10 year periods
at the end of the 1, 5, or 10 year periods
(or fractional portion thereof).
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, and will cover 1, 5, and 10 year
periods or a shorter period dating from the effectiveness of the
Registration Statement of the Portfolio. In calculating the
ending redeemable value, all dividends and distributions by the
Portfolio are assumed to have been reinvested at net asset value
as described in the Portfolio's Prospectus on the reinvestment
dates during the period. Total return, or "T" in the formula
above, is computed by finding the average annual compounded rates
of return over the 1, 5, and 10 year periods (or fractional
portion thereof) that would equate the initial amount invested to
the ending redeemable value.
The Portfolio, from time to time, also may include in such
advertising a total return figure that is not calculated
according to the formula set forth above in order to compare more
accurately the performance of the Portfolio with other measures
of investment return. For example, in comparing the total return
of the Portfolio with data published by Lipper Analytical
Services, Inc., or with the performance of the S&P 500 or the
DJIA, the Portfolio calculates its aggregate total return for the
specified periods of time by assuming the investment of $10,000
in Portfolio shares and assuming the reinvestment of each
dividend or other distribution at net asset value on the
reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending
value and by dividing the remainder by the beginning value. Such
alternative total return information will be given no greater
prominence in such advertising than the information prescribed
under SEC Rules.
The Portfolio's average annual compounded rate of return for the
one and five year periods ended August 31, 1996, assuming the
reinvestment of all dividends and distributions, was 7.58% and
3.55%, respectively.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
The Portfolio will seek to qualify for treatment as a regulated
investment company (a "RIC") under Subchapter M of the U.S.
Internal Revenue Code of 1986, as amended (the "Code"). Provided
that the Portfolio (i) is a RIC and (ii) distributes at least 98%
of its net investment income (including, for this purpose, net
realized short-term capital gains), the Portfolio will not be
liable for Federal income taxes to the extent its net investment
income and its net realized long- and short-term capital gains,
if any, are distributed to the Portfolio's shareholders. One of
several requirements for RIC qualification is that the Portfolio
receives at least 90% of the Portfolio's gross income each year
from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of securities or
foreign currencies, or other income derived with respect to the
Portfolio's investments in stock, securities, and foreign
currencies (the "90% Test").
In addition, under the Code, the Portfolio will not qualify as a
RIC for any taxable year if more than 30% of the Portfolio's
gross income for that year is derived from gains on the sale of
securities held less than three months (the "30% Test"). These
requirements may also restrict the extent of the Portfolio's
activities in option and other portfolio transactions.
Specifically, the 30% Test will limit the extent to which the
Portfolio may: (i) sell securities held for less than three
months; (ii) write options which expire in less than three
months; and (iii) effect closing transactions with respect to
call or put options that have been written or purchased within
the preceding three months. Finally, as discussed below, this
30% Test requirement also may limit investments by the Portfolio
in futures contracts and options on stock indexes, securities,
and futures contracts.
When the Portfolio is required to sell securities to meet
significant redemptions or exchanges, the Portfolio may enter
into futures contracts for the S&P 500 as a hedge against price
declines in the securities to be sold. Gains realized by the
Portfolio upon closing out the Portfolio's position in these
contracts are subject to the 30% Test. Ordinarily, these gains
could not be offset by declines in the value of the hedged
securities. Section 851(g)(1) of the Code, however, provides
that, in the case of a "designated hedge," for purposes of the
30% Test, increases and decreases in value (during the period of
the hedge) of positions which are part of the hedge are to be
netted. Section 851(g)(2) of the Code provides that a
"designated hedge" exists when: (i) the risk of loss is reduced
by reason of a contractual obligation to sell substantially
identical property; and (ii) the taxpayer clearly identifies the
positions which are part of the hedge in the manner prescribed in
Internal Revenue Service ("IRS") regulations.
IRS regulations have not yet been issued specifying how this
identification requirement can be satisfied. The legislative
history with respect to Section 851(g) states that, prior to
issuance of regulations, the identification requirement is
satisfied either by: (i) placing the positions that are part of
the hedge in a separate account that is maintained by a broker,
futures commission merchant ("FCM"), custodian, or similar
person, and that is designated as a hedging account, provided
that such person maintaining such account makes notations
identifying the hedged and hedging positions and the date on
which the hedge is established; or (ii) the designation by such a
broker, FCM, custodian, or similar person of such positions as a
hedge for purposes of these provisions, provided that the RIC is
provided with a written confirmation stating the date that the
hedge is established and identifying the hedged and hedging
positions.
When the Portfolio enters into futures contracts to hedge against
price declines of securities to be sold, the Portfolio may
identify such securities and contracts as a hedge so as to
qualify under Section 851(g)(1) of the Code. There can be no
assurances, however, that the Portfolio (or the Portfolio's
agents) will be able to comply with the identification
requirements that may be contained in future IRS regulations.
Moreover, the netting rule of Section 851(g)(1) is available only
if the securities to be sold and the futures contracts constitute
"substantially identical" property. The Portfolio generally
intends to sell pro rata all such securities, but it is unclear
whether the securities and the futures contracts would constitute
"substantially identical" property.
The Portfolio may experience difficulty in satisfying the 30%
Test because of frequent redemptions and exchanges of shares that
may occur. To the extent it is possible to do so, the Portfolio
will seek to meet its obligations in connection with redemptions
and exchanges without the realization of gains on the sales of
stock or securities, options, futures or forward contracts, or
foreign currencies (or options, futures contracts, or forward
contracts on such foreign currencies). In this regard, the
Portfolio will seek (consistent with its investment strategies)
to use available cash, proceeds of borrowing facilities, proceeds
of the sale of stock or securities, options, futures or forward
contracts, or foreign currencies (or options, futures contracts,
or forward contracts on such foreign currencies) that have been
held for three months or more, and the proceeds of the sale of
such assets that produce either no gain or the smallest amount of
such gain.
Section 851(h)(3) of the Code also provides a special rule for
series mutual funds with respect to the 30% Test. Pursuant to
Section 851(h)(3), a RIC that is part of a series fund will not
fail the 30% Test as a result of sales made within five days of
"abnormal redemptions" if: (i) the sum of the percentages for
abnormal redemptions exceeds 30%; and (ii) the RIC of which such
fund is a part would meet the 30% Test if all the funds of the
investment company were treated as a single corporation.
Abnormal redemptions are deemed to occur on any day when net
redemptions exceed one percent of net asset value. If abnormal
redemptions require the Portfolio to sell securities with a
holding period of less than three months, the Portfolio intends
to make those sales within five days of such redemptions so as to
qualify for the exclusion afforded by Section 851(h)(3) of the
Code if it is possible to do so.
Despite the Portfolio's objective to satisfy the requirements of
Section 851 of the Code, there can be no assurance that the
Portfolio's efforts to achieve that objective will be successful.
In this regard, the risk of a failure of the 30% Test by the
Portfolio is greatest in the Portfolio's first taxable year
following the recommencement of the Portfolio's operations,
because any gains realized by the Portfolio on sales of stock or
securities, options, futures or forward contracts, or foreign
currencies (or options, futures contracts, or forward contracts
on such foreign currencies) that are made before the Portfolio
has completed three month of such operations will inevitably be
gains from the sales of such assets that have been held by the
Portfolio for less than three months, and because such first
taxable year of the Portfolio will be for a period of less than
12 months, so that the opportunity for the Portfolio to produce
income that would not be disqualifying income under the 30% Test
will be limited. In addition, while Section 851(h)(3) of the
Code excludes gains from certain sales of stock or securities,
options, futures or forward contracts, or foreign currencies (or
options, futures contracts, or forward contracts on such foreign
currencies) for purposes of the 30% Test, the benefit of this
exclusion is limited where, as is the case with the Portfolio of
the Fund, the series fund(s) of a series investment company is
newly formed (or newly reactivated) and has not yet produced
substantial amounts of income that would not be disqualifying
income under the 30% Test.
If the Portfolio does not satisfy the 30% Test for any taxable
year of the Portfolio, the Portfolio will not qualify as a RIC
for that year. If the Portfolio fails to qualify as a RIC for
any taxable year, the Portfolio would be taxed in the same manner
as an ordinary corporation. In that event, the Portfolio would
not be entitled to deduct the distributions which the Portfolio
had paid to shareholders and, thus, would incur a corporate
income tax liability on all of the Portfolio's taxable income
whether or not distributed. The imposition of corporate income
taxes on the Portfolio would directly reduce the return to an
investor from an investment in the Portfolio.
In the event of a failure by the Portfolio to qualify as a RIC,
the Portfolio's distributions, to the extent such distributions
are derived from the Portfolio's current or accumulated earnings
and profits, would constitute dividends that would be taxable to
shareholders as ordinary income and would be eligible for the
dividends-received deduction for corporate shareholders. This
treatment would also apply to any portion of the distributions
that might have been treated in the shareholder's hands as long-
term capital gains, as discussed below, had the Portfolio
qualified as a RIC.
If the Portfolio were to fail to qualify as a RIC for one or more
taxable years, the Portfolio could then qualify (or requalify) as
a RIC for a subsequent taxable year only if the Portfolio had
distributed to the Portfolio's shareholders a taxable dividend
equal to the full amount of any earnings or profits (less the
interest charge mentioned below, if applicable) attributable to
such period. The Portfolio might also be required to pay to the
IRS interest on 50% of such accumulated earnings and profits. In
addition, pursuant to the Code and an interpretative notice
issued by the IRS, if the Portfolio should fail to qualify as a
RIC and should thereafter seek to requalify as a RIC, the
Portfolio may be subject to tax on the excess (if any) of the
fair market of the Portfolio's assets over the Portfolio's basis
in such assets, as of the day immediately before the first
taxable year for which the Portfolio seeks to requalify as a RIC.
If the Portfolio determines that the Portfolio will not qualify
as a RIC under Subchapter M of the Code, the Portfolio will
establish procedures to reflect the anticipated tax liability in
the Portfolio's net asset value.
As a RIC, the Fund will not be subject to Federal income taxes on
the net investment income and capital gains that it distributes
to its shareholders. The distribution of net investment income
and capital gains will be taxable to shareholders regardless of
whether the shareholder elects to receive these distributions in
cash or in additional shares. Distributions reported to
shareholders as long-term capital gains shall be taxable as such,
regardless of how long the shareholder has owned the shares.
Shareholders will be notified annually by the Fund as to the
Federal tax status of all distributions made by the Portfolio.
Distributions may be subject to state and local taxes.
The Portfolio has available to it a number of elections under the
Code concerning the treatment of option transactions for tax
purposes. The Portfolio will utilize the tax treatment most
favorable to a majority of investors in the Portfolio. Taxation
of these transactions will vary according to the elections made
by the Portfolio. These tax considerations may have an impact on
investment decisions made by the Portfolio.
If a call option written by the Portfolio expires, the amount of
the premium received by the Portfolio for the option will be
short-term or long-term capital gain to the Portfolio depending
on the Portfolio's holding period for the underlying security.
If such an option is closed by the Portfolio, any gain or loss
realized by the Portfolio as a result of the closing purchase
transaction will be short-term or long-term capital gain or loss
to the Portfolio depending on the Portfolio's holding period for
the underlying security. If the holder of a call option
exercises its right under the option, any gain or loss realized
by the Portfolio upon the sale of the underlying security
pursuant to such exercise will be short-term or long-term capital
gain or loss to the Portfolio depending on the Portfolio's
holding period for the underlying security.
With respect to call options purchased by the Portfolio, the
Portfolio will realize short-term or long-term capital gain or
loss if such option is sold and will realize short-term or long-
term capital loss if the option is allowed to expire depending on
the Portfolio's holding period for the call option. If such a
call option is exercised, the amount paid by the Portfolio for
the option will be added to the basis of the stock so acquired.
The Portfolio in its operations will also utilize options on
stock indexes. Options on broad-based stock indexes are
classified as nonequity options under the Code. As such, gains
and losses resulting from the expiration, exercise, or closing of
such nonequity options, as well as gains and losses resulting
from futures contract transactions, will be treated as long-term
capital gain or loss to the extent of 60% thereof and short-term
capital gain or loss to the extent of 40% thereof (hereinafter
blended gain or loss). In addition, any option held by the
Portfolio on the last day of a fiscal year will be treated as
sold for market value on that date, and gain or loss recognized
as a result of such deemed sale will be blended gain or loss.
The Portfolio's trading strategies involving nonequity options on
stock indexes may constitute "straddle" transactions.
"Straddles" may effect the taxation of such instruments and may
cause the postponement of recognition of losses incurred in
certain closing transactions.
The Portfolio's transactions in options could, under some
circumstances, preclude the Portfolio's qualifying for the
special tax treatment available to investment companies meeting
the requirements of Subchapter M of the Code. However, it is the
intention of the Portfolio's management to limit gains from such
investments to less than 10% of the gross income of the Portfolio
during any fiscal year in order to maintain this qualification.
AUDITORS AND CUSTODIAN
Deloitte & Touche LLP, independent certified public accountants,
are the auditors of the Fund. Rushmore Trust and Savings, FSB,
Bethesda, Maryland, acts as the custodian bank for the Fund.
FINANCIAL STATEMENTS
Following are the financial statements of the Portfolio for the
fiscal year ended August 31, 1996. Such financial statements
have been audited by the Portfolio's independent auditor,
Deloitte & Touche LLP.
<PAGE>
NOVA PORTFOLIO FINANCIAL STATEMENTS
<PAGE>
Annual Report
August 31, 1996
The Rushmore Fund, Inc.
Nova Portfolio
<PAGE>
THE RUSHMORE FUND, INC.
NOVA PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1996
ASSETS
Mutual Funds--Fund for Government Investors
100,170 shares (Cost $100,170) (Note 1) $ 100,170
Interest Receivable 379
Total Assets 100,549
LIABILITIES
Administration Fee Payable 60
Total Liabilities 60
NET ASSETS $ 100,489
Shares Outstanding 10,000
Net Asset Value Per Share $ 10.05
See Notes to Financial Statements.
<PAGE>
THE RUSHMORE FUND, INC.
NOVA PORTFOLIO
STATEMENT OF OPERATIONS
For the Year Ended August 31, 1996
INVESTMENT INCOME
Interest (Note 1) $ 9,360
Dividends (Note 1) 1,369
Total Investment Income 10,729
EXPENSES
Investment Advisory Fee (Note 2) 1,641
Administrative Fee (Note 2) 1,186
Total Expenses 2,827
NET INVESTMENT INCOME 7,902
Net Realized Gain on Investments 34,335
Net Change in Unrealized Appreciation
(Depreciation) of Investments (3,633)
NET GAIN ON INVESTMENTS 30,702
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 38,604
See Notes to Financial Statements.
<PAGE>
THE RUSHMORE FUND, INC.
NOVA PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended August 31,
1996 1995
FROM INVESTMENT ACTIVITIES
Net Investment Income $ 7,902 $ 12,760
Net Realized Gains on Investment Transactions 34,335 38,774
Net Change in Unrealized Appreciation
(Depreciation) of Investments (3,633) 3,633
Net Increase in Net Assets Resulting
from Operations 38,604 55,167
DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income (Note 1) (20,173) -
From Net Realized Capital Gains (73,109) -
Total Distributions to Shareholders (93,282) -
FROM SHARE TRANSACTIONS
Net Proceeds from Sales of Shares 156,369 625,000
Shares Issued in Reinvestment of Dividends 12,407 -
Cost of Shares Redeemed (693,776) -
Net (Increase) Decrease in Net Assets
Resulting from Share Transactions (525,000) 625,000
Total Increase (Decrease) in Net Assets (579,678) 680,167
NET ASSETS - Beginning of Year 680,167 -
NET ASSETS - End of Year $100,489 $ 680,167
SHARES
Sold 14,855 62,500
Issued in Reinvestment of Distributions 1,123 -
Redeemed (68,478) -
Net Increase in Shares (52,500) 62,500
See Notes to Financial Statements.
<PAGE>
<TABLE>
THE RUSHMORE FUND, INC.
NOVA PORTFOLIO
FINANCIAL HIGHLIGHTS
<CAPTION>
For the Year Ended August 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value - Beginning of Year $ 10.88 $ 0.00 $ 10.01 $ 9.46 $10.73
Income from Investment Operations:
Net Investment Income 0.435 0.310 0.060 0.157 0.186
Net Realized and Unrealized Gains
(Losses) on Securities 3.529 0.570 - 0.711 (1.170)
Total from Investment Operations 3.964 0.880 0.060 0.868 (0.984)
Distributions to Shareholders:
From Net Investment Income (0.590) - - (0.318) (0.286)
From Net Realized Capital Gains (3.114) -
Total Distributions to Shareholders (3.704) - - (0.318) (0.286)
Liquidation of Assets and Redemption of
all Outstanding Shares (11.090) - (10.070) - -
From Share Transactions 10.000 1 10.000 2 - - -
Net Increase (Decrease) in Net Asset Value (0.83) 10.88 (10.01) 0.55 (1.27)
Net Asset Value - End of Year $ 10.05 $10.88 $ 0.00 $10.01 $9.46
Total Investment Return 7.58% 8.80% b 0.90% 9.36% (7.79)%
Ratios to Average Net Assets:
Expenses 1.19% a 1.25% c 0.90% a 1.36% 1.12%
Net Investment Income 3.32% 2.97% c 2.41% 1.56% 1.88%
Supplementary Data:
Portfolio Turnover Rate 71.2% 224.4% 0.0% 1,288.9% 2,100.8%
Net Assets at End of Year (000's omitted) 100 680 0 468 13,918
Number of Shares Outstanding at End
of Year (000's omitted) 10 63 0 47 1,471
1 During the year ended August 31, 1996, all outstanding shares were redeemed at a net
asset value of $11.09 per share, thereby resulting in the liquidation of all net assets
of the Portfolio. Subsequently, 10,000 shares were sold at $10.00 per share when net
asset value of the Portfolio was $0.00 thereby resulting in Money Management
Associates, the Portfolio's adviser, and another affiliated person of the Portfolio,
owning 100% of the Portfolio's shares.
2 During the year ended August 31, 1995, 62,500 shares were sold at $10.00 per share
when the net asset value of the portfolio was $0.00 thereby resulting in Money
Management Associates, the Portfolio's adviser, and other affiliated persons of the
Portfolio, owning 80% of the Portfolio's shares.
a Reflects all fees paid for services provided during the period. Investment advisory
services were not provided for part of the period due to investment activity having
ceased.
b Reflects the total return for the period January 3, 1995 through August 31, 1995.
January 3, 1995 represents the first date during fiscal year 1995 that the fund had
net assets and shareholders.
c Annualized.
See Notes to Financial Statements.
</TABLE>
<PAGE>
THE RUSHMORE FUND, INC.
NOVA PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
August 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
The Rushmore Fund, Inc. ("Fund") is registered with the
Securities and Exchange Commission under the Investment Company
Act of 1940 as an open-end, diversified investment company.
The Fund consists of two separate portfolios each with its own
investment objectives and policies. These financial statements
report on one of the two portfolios: the Nova Portfolio. The
Nova Portfolio ("Portfolio") is a non-diversified investment
company. On August 31, 1996, there were 1,000,000,000 shares
of $0.001 par value capital stock authorized. The financial
statements have been prepared in conformity with generally
accepted accounting principles which permit management to make
certain estimates and assumptions at the date of the financial
statements. The following is a summary of significant
accounting policies which the Portfolio consistently follows:
(a) Listed securities are valued at the last sales price.
Options and futures contracts are valued at the last sales
price as of the close of trading on the applicable
exchanges. If market quotations are not readily available,
the Board of Directors will value the Portfolio's
securities in good faith.
(b) Security transactions are recorded on the trade date (the
date the order to buy or sell is executed). Interest
income is accrued on a daily basis. Dividend income is
recorded on the ex-dividend date. Realized gains and
losses from securities are computed on an identified cost
basis.
(c) Income dividends are declared and paid annually in the
Portfolio. Dividends are reinvested in additional shares
unless shareholders request payment in cash. Generally,
short-term capital gains are distributed annually in the
Portfolio. Long-term gains, if any, are distributed
annually.
(d) The Fund complies with the provisions of the Internal
Revenue Code applicable to regulated investment companies
and distributes all net investment income to its
shareholders. Therefore, no Federal income tax provision
is required.
(e) When the Portfolio writes (sells) an option, an amount equal
to the premium received is entered in the Portfolio's
accounting records as an asset and an equivalent liability.
The amount of the liability is subsequently marked-to-market
to reflect the current value of the option written. When an
option expires, or if the Portfolio enters into a closing
purchase transaction, the Portfolio realizes a gain (or loss
if the cost of a closing purchase transaction exceeds the
premium received when the option was sold).
2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Investment advisory and management services are provided by
Money Management Associates, ("Adviser"). Under an agreement
with the Adviser, the Portfolio pays a fee for such services at
an annual rate of 0.75% of the average daily net assets of the
Portfolio. Certain Officers and Directors of the Fund are
affiliated with the Adviser.
Rushmore Trust and Savings, FSB (Trust), a majority owned
subsidiary of the Adviser, provides transfer agency, dividend-
disbursing and shareholder services to the Portfolio. In
addition, the Trust serves as custodian of the Portfolio's
assets and pays the operating expenses of the Portfolio. For
these services, the Trust receives an annual fee of 0.50% of
the average net assets of the Portfolio.
The Portfolio invests its excess cash in Fund for Government
Investors, a money market mutual fund. Certain Officers and
Trustees of Fund for Government Investors are affiliated with
the Portfolio.
3. SECURITIES TRANSACTIONS
For the year ended August 31, 1996, purchases and sales (including
maturities) of securities (excluding short-term securities) were as
follows:
Purchases $ 33,280
Sales $180,497
4.NET UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS
Unrealized appreciation (depreciation) as of August 31, 1996, cost for
Federal income tax purposes is as follows:
Gross Unrealized Appreciation $ 0
Gross Unrealized Depreciation 0
Net Unrealized Appreciation $ 0
Cost of Investments for Federal Income Tax purposes $ 0
5.NET ASSETS
At August 31, 1996, net assets consisted of the following:
Paid-in Capital $100,000
Undistributed Net Investment Income 489
Accumulated Net Realized Gain on Investments 0
Net Unrealized Appreciation on Investments 0
Net Assets $100,489
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
of The Rushmore Fund, Inc.:
We have audited the statement of assets and liabilities of the
Nova Portfolio (one of the Portfolios) of The Rushmore Fund, Inc.
as of August 31, 1996, the related statements of operations and
changes in net assets and the financial highlights for the
periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and financial highlights are free from
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned at August 31, 1996 by correspondence with the
custodian and broker. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the
financial position of the Nova Portfolio (one of the Portfolios)
of The Rushmore Fund, Inc. at August 31, 1996, the results of
its operations, the changes in its net assets and the financial
highlights for the presented periods in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
October 11, 1996
<PAGE>
THE RUSHMORE FUND, INC.
RUSHMORE U.S. GOVERNMENT BOND PORTFOLIO
4922 Fairmont Avenue, Bethesda, Maryland 20814
(301) 657-1517 (800) 621-7874
STATEMENT OF ADDITIONAL INFORMATION
The Rushmore U.S. Government Bond Portfolio (the "Portfolio) is
one of a series of portfolios in The Rushmore Fund, Inc. (the
"Fund"), an open-end management investment company. The
objective of the Portfolio is to provide investors with maximum
current income to the extent that such investment is consistent
with safety of principal. In attempting to achieve its
objective, the Portfolio invests principally in the current
thirty-year U.S. Treasury bond and in other U.S. Government
securities with maturities of ten years or more.
This Statement of Additional Information is not a prospectus. It
should be read in conjunction with the Portfolio's Prospectus,
dated January 1, 1997. A copy of the Portfolio's Prospectus may
be obtained without charge by writing or telephoning the Fund.
The date of this Statement of Additional Information is January 1, 1997.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Cross Reference to Related Item in Prospectus
Page in
Statement of
Additional Page in
Information Prospectus
Investment Policies
Investment Restrictions
Management of the Fund
Principal Holders of Securities
Net Asset Value
Performance Information
Calculations of Yield and
Return Quotations
Dividends, Distributions, and
Taxes
Auditors and Custodian
Financial Statements
<PAGE>
INVESTMENT POLICIES
Lending of Securities
Subject to the investment restrictions set forth below, the
Portfolio may lend portfolio securities to brokers, dealers, and
financial institutions, provided that cash equal to at least 100%
of the market value of the securities loaned is deposited by the
borrower with the Portfolio and is maintained each business day
in a segregated account pursuant to applicable regulations.
While such securities are on loan, the borrower will pay the
Portfolio any income accruing thereon, and the Portfolio may
invest the cash collateral in portfolio securities, thereby
earning additional income. The Portfolio will not lend its
portfolio securities if such loans are not permitted by the laws
or regulations of any state in which the Portfolio's shares are
qualified for sale, and the Portfolio will not lend more than 33-
1/3% of the value of the Portfolio's total assets. Loans would
be subject to termination by the Portfolio on four business days'
notice, or by the borrower on one day's notice. Borrowed
securities must be returned when the loan is terminated. Any
gain or loss in the market price of the borrowed securities which
occurs during the term of the loan inures to the Portfolio and
that Portfolio's shareholders. The Portfolio may pay reasonable
finders, borrowers, administrative, and custodial fees in
connection with a loan.
Repurchase Agreements
As discussed in the Portfolio's Prospectus, the Portfolio may
enter into repurchase agreements with financial institutions.
The Portfolio follows certain procedures designed to minimize the
risks inherent in such agreements. These procedures include
effecting repurchase transactions only with large, well-
capitalized and well-established financial institutions whose
condition will be continually monitored by the Portfolio's
investment adviser, Money Management Associates (the "Adviser").
In addition, the value of the collateral underlying the
repurchase agreement will always be at least equal to the
repurchase price, including any accrued interest earned in the
repurchase agreement. In the event of a default or bankruptcy by
a selling financial institution, the Portfolio will seek to
liquidate such collateral. However, the exercising of the
Portfolio's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any
sale upon a default of the obligation to repurchase were less
than the repurchase price, the Portfolio could suffer a loss. It
is the current policy of the Portfolio not to invest in
repurchase agreements that do not mature within seven days if any
such instrument, together with any other illiquid assets held by
the Portfolio, amounts to more than 10% of the Portfolio's total
assets. The investments of the Portfolio in repurchase
agreements, at times, may be substantial when, in the view of the
Adviser, liquidity or other considerations so warrant.
Zero Coupon Securities
The Portfolio may invest in zero coupon securities. Zero coupon
securities is the term used by the Fund to describe U.S. Treasury
notes and bonds which have been stripped of their unmatured
interest coupons, the coupons themselves, and receipts or
certificates representing interests in such stripped debt
obligations and coupons. A zero coupon security pays no interest
to its holder during the life of the security. The value of the
zero-coupon security to an investor consists of the difference
between the security's face value at the time of maturity and the
price for which the security was acquired, which is generally an
amount much less than the face value (sometimes referred to as a
"deep discount" price).
Currently the only U.S. Treasury security issued without coupons
is the Treasury bill. However, in the last few years a number of
banks and brokerage firms have separated ("stripped") the
principal portions ("corpus") from the coupon portions of the
U.S. Treasury bonds and notes and sold them separately in the
form of receipts or certificates representing undivided interests
in these instruments (which instruments are generally held by a
bank in a custodial or trust account). More recently, the U.S.
Treasury Department has facilitated the stripping of Treasury
notes and bonds by permitting the separated corpus and coupons to
be transferred directly through the Federal Reserve Banks' book-
entry system. This program, which eliminates the need for
custodial or trust accounts to hold the Treasury securities, is
called "Separate Trading of Registered Interest and Principal of
Securities" ("STRIPS"). Each such stripped instrument (or
receipt) entitles the holder to a fixed amount of money from the
Treasury at a single, specified future date. The U.S. Treasury
redeems zero coupon securities consisting of the corpus for the
face value thereof at maturity, and those consisting of stripped
coupons for the amount of interest, and at the date, stated
thereon.
Portfolio Transactions
The Portfolio's securities are normally purchased on a net basis
which does not involve payment of brokerage commissions.
INVESTMENT RESTRICTIONS
The following investment restrictions supplement those set forth
in the Portfolio's Prospectus. These restrictions are
fundamental and may not be changed without prior approval of a
majority of the Portfolio's outstanding voting shares. As
defined in the Investment Company Act of 1940, as amended, the
term "majority" means the vote of the lesser of (a) 67% of the
shares of the Portfolio at a meeting where more than 50% of the
outstanding shares are present in person or by proxy; or (b) more
than 50% of the outstanding shares of the Portfolio.
The Portfolio may not:
1.borrow money except as a temporary measure to facilitate
redemptions. Such borrowing may be in an amount not to exceed
30% of the Portfolio's total assets, taken at current value,
before such borrowing. The Portfolio may not purchase an
investment security if a borrowing by the Portfolio is
outstanding.
2.make loans except through repurchase agreements and through
the lending of portfolio securities provided the borrower
maintains collateral equal to at least 100% of the value of
the borrowed security, and marked to market daily.
3.underwrite securities of any other issuer.
4.purchase or sell real estate, including limited partnership
interests.
5.purchase or sell restricted securities or warrants, nor may it
issue senior securities.
6.purchase any security whereby it would account for more than
10% of any issuer's outstanding shares.
7.purchase securities of any issuer if, as a result of such a
purchase, such securities would account for more than 5%, (as
defined by Section 5 (b)(1) of the Investment Company Act of
1940), of the Fund's assets. There is no limitation, however,
as to investments issued or guaranteed by the United States
Government, its agencies or instrumentalities, or in
obligations of the United States Government, its agencies or
instrumentalities, which are purchased in accordance with the
Fund's investment objective and policies.
8.purchase or sell commodities or commodities contracts.
9.concentrate more than 25% of its assets in any one industry.
The following restrictions have been adopted by the Fund for the
Portfolio, but are not considered fundamental and may be changed
by the Board of Directors of the Fund.
The Portfolio may not:
1.invest in companies for the purpose of exercising management
or control.
2.purchase more than 10% of the voting securities of any one
issuer, or more than 10% of the securities of any class of any
one issuer.
3.purchase or hold the securities of any issuer if those
officers or directors of the Fund, or of Money Management
Associates, who individually own beneficially more than 0.5%
of the outstanding securities of the issuer, together own
beneficially more than 5% of those securities.
4.invest in securities of other investment companies, except at
customary brokerage commission rates or in connection with
mergers, consolidations or offers of exchange.
5.purchase the securities of companies which, including
predecessors, have a record of less than three years
continuous operation if, as a result, more than 5% of the
market value of the Portfolio's assets would be invested in
such companies.
6.invest more than 10% of their assets in illiquid securities.
7.invest in oil, gas or other mineral leases.
8.issue shares for other than cash.
9.purchase put or call options.
10.sell securities short.
MANAGEMENT OF THE FUND
The names and addresses of the directors and officers of the Fund
and officers of Money Management Associates, the Fund's Adviser,
together with information as to their principal business
occupations during the past five years, are set forth below.
Fees and expenses for non-interested directors will be paid by
the Fund.
*Daniel L. O'Connor, 54 - Chairman of the Board of Directors,
President, and Treasurer of the Fund. General Partner of the
adviser since 1975. President of Rushmore Trust and Savings, FSB
since 1989. Address: 1001 Grand Isle Way, Palm Beach Gardens,
FL 33418.
*Richard J. Garvey, 63 - Director of the Fund. Employee of
Rushmore Services, Inc., a subsidiary of the Adviser, since 1995.
Limited Partner of the Adviser since 1975. Address: 4922
Fairmont Avenue, Bethesda, Maryland 20814.
Jeffrey R. Ellis, 52 - Director of the Fund. Vice President,
LottoFone, Inc., a telephone state lottery service, since 1993.
Vice President Shoppers Express, Inc. 1988-1992. Address: 513
Kerry Lane, Virginia Beach, Virginia 23451.
Bruce C. Ellis, 52 - Director of the Fund. Vice President,
LottoFone, Inc., a telephone state lottery service, since 1991.
Vice President, Shoppers' Express, Inc. 1986-1992. Address: 7108
Heathwood Court Bethesda, Maryland 20817.
Patrick F. Noonan, 54 - Director of the Fund. Chairman and Chief
Executive Officer of the Conservation Fund since 1986. Vice
Chairman, American Farmland Trust and Trustee, American
Conservation Association since 1985. President, Conservation
Resources, Inc. since 1981. Address: 11901 Glen Mill Drive,
Potomac, Maryland 20854.
Michael D. Lange, 55 - Director of the Fund. Vice President,
Capital Hill Management Corporation since 1967. Owner of Michael
D. Lange, Ltd., a builder and developer since 1980. Partner of
Greatful Falls, a building developer since 1994. Address: 7521
Pepperell Drive, Bethesda, Maryland 20817.
Leo Seybold, 82 - Director of the Fund. Retired 1988. Address:
5804 Rockmere Drive, Bethesda, Maryland 20816.
*Rita A. Gardner, 53 - Director of the Fund. Limited Partner of
the Adviser since 1979. Vice President and Director of MMA
Services, Inc. until 1993. Address: 4922 Fairmont Avenue,
Bethesda, Maryland 20814.
Timothy N. Coakley, CPA, 29 - Vice President and Controller since
1994. Chief Financial Officer, Rushmore Trust and Savings, FSB
since 1995. Formerly Audit Manager, Deloitte & Touche LLP until
1994. Address: 4922 Fairmont Avenue, Bethesda, MD 20814.
Stephenie E. Adams, 27 - Secretary. Director of Marketing,
Rushmore Services, Inc., from July 1994 to present. Regional
Sales Coordinator, Media General Cable, from June 1993 to June
1994. Graduate Student, Northwestern University, M.S., from
September 1991 to December 1992. Address: 4922 Fairmont Avenue,
Bethesda, Maryland 20814.
* Indicates interested person as defined in the Investment
Company Act of 1940.
Certain Directors and Officers of the Fund are also Directors and
Officers of Fund for Government Investors, Fund for Tax-Free
Investors, Inc., and American Gas Index Fund, Inc., other
investment companies that are managed by the Adviser. As of
December 2, 1996, the directors and officers of the Fund, as a
group, owned, of record and beneficially, less than 1% of the
shares of the Portfolio.
The Adviser, Money Management Associates, which has its office at
1001 Grand Isle Way, Palm Beach Gardens, Florida 33418, provides
the Fund with investment advisory services. The Adviser is a
limited partnership which was formed under the laws of the
District of Columbia on August 15, 1974. Its primary business
since inception has been to serve as the Investment Adviser to
Fund for Government Investors, Fund for Tax-Free Investors, Inc.,
The Rushmore Fund, Inc., and American Gas Index Fund, Inc. Daniel
L. O'Connor is the sole general partner of the Adviser, and, as
such, exercises control thereof.
Under an Investment Advisory Agreement with the Adviser, dated
October 10, 1985 (the "Agreement"), the Adviser provides
investment advice to the Fund and oversees its day-to-day
operations, subject to direction and control by the Fund's Board
of Directors. Pursuant to the Agreement, the Fund pays the
Adviser a fee at an annual rate based on 0.50% of the net assets
of the Fund. Normal expenses which are borne by the Fund,
include, but are not limited to, taxes, corporate fees, federal
and state registration fees, interest expenses (if any), office
expenses, the costs incident to preparing, registering and
redeeming stock certificates for shareholders, custodian charges,
the expenses of shareholders' and directors' meetings, data
processing, preparation, printing and distribution of all reports
and proxy materials, legal services rendered to the Fund,
compensation for those directors who do not serve as employees of
the Adviser, insurance coverage for the Fund and its directors
and officers, and its membership in trade associations. The
Adviser will pay the costs of office space. The Adviser may,
from its own resources, including profits from advisory fees
received from the Fund provided such fees are legitimate and not
excessive, make payments to broker-dealers and other financial
institutions for their expenses in connection with the
distribution of Fund shares.
For the fiscal year ended August 31, 1996, 1995 and 1994, the
Portfolio paid advisory fees to the Adviser of approximately
$127,595, $134,573, and $111,890, respectively.
Under an Agreement dated September 1, 1993, Rushmore Trust and
Savings, FSB ("RTS"), 4922 Fairmont Avenue, Bethesda, Maryland
20814, a majority-owned subsidiary of the Adviser, provides
transfer agency, dividend-disbursing and administrative services
to the Fund. The services of RTS are provided to the Fund on a
fee basis and are paid by the Fund. RTS will charge an annual
fee of 30 basis points (0.30%) of the average daily net assets of
the Portfolio. The non-interested directors of the Fund have
reviewed the fee structure and determined that it is competitive
and in the best interest of the shareholders of the Fund. The
fees will be reviewed and approved annually by the non-interested
directors. The Fund is subject to the self-custodian rules of
the Securities and Exchange Commission. These rules require that
the Custodian be subject to three securities verification
examinations each year conducted by the Fund's independent
accountant. Two of the examinations must be performed on an
unannounced surprise basis.
PRINCIPAL HOLDERS OF SECURITIES
On December 2, 1996, there were 1,941,021.921 shares of the
Portfolio outstanding. Charles Schwab & Company, San Francisco,
California, National Financial Services Corporation, New York,
New York, and IUE Strike Insurance Fund, Washington, D.C., owned
for the benefit of others 19.55%, 6.15%, and 5.66%, shares of the
Portfolio, respectively. Officers and Directors of the Fund, as
a group, own less than 1% of the shares outstanding.
NET ASSET VALUE
The net asset value of the Portfolio's shares will be determined
daily at 4:00 P.M., Eastern time, except on customary national
business holidays which result in the closing of the New York
Stock Exchange, and weekends. The net asset value per share is
calculated by dividing the net worth by the number of shares.
The securities of the Portfolio will be valued on the basis of
the average of quoted bid and ask prices when market quotations
are available.
PERFORMANCE INFORMATION
The Portfolio from time to time may include its total return in
advertisements or reports to shareholders or prospective
shareholders. Quotations of average annual total return for the
Portfolio will be expressed in terms of the average annual
compounded rate of return on a hypothetical investment in the
Portfolio over a period of at least one, five, and ten years (up
to the life of the Portfolio) (the ending date of the period will
be stated). Total return is calculated from two factors: the
amount of dividends earned by each Portfolio share and by the
increase or decrease in value of the Portfolio's share price.
See "Calculation of Yield and Return Quotations."
Performance information for the Portfolio contained in reports
and marketing and other Portfolio promotional literature may be
compared to various unmanaged indexes, including, but not limited
to, the Shearson Lehman Government (LT) Index, the Standard &
Poor's 500 Composite Stock Price IndexTM, and the Dow Jones
Industrial Average. Such unmanaged indexes may assume the
reinvestment of dividends, but generally do not reflect
deductions for operating costs and expenses. In addition, the
Portfolio's total return may be compared to the performance of
broad groups of comparable mutual funds with similar investment
goals, as such performance is tracked and published by such
independent organizations as Lipper Analytical Services, Inc.
("Lipper"), and CDA Investment Technologies, Inc., among others.
When Lipper's tracking results are used, the Portfolio will be
compared to Lipper's appropriate fund category, that is, by fund
objective and portfolio holdings. The Portfolio, therefore, will
be compared to funds within Lipper's bond fund category.
Rankings may be listed among one or more of the asset-size
classes as determined by Lipper. Since the assets in all mutual
funds are always changing, the Portfolio may be ranked within one
Lipper asset-size class at one time and in another Lipper asset-
size class at some other time. Footnotes in advertisements and
other marketing literature will include the time period and
Lipper asset-size class, as applicable, for the ranking in
question. Performance figures are based on historical results
and are not intended to indicate future performance.
CALCULATION OF YIELD AND RETURN QUOTATIONS
A current quotation of yield and total return may appear from
time to time in advertisements and in communications to
shareholders and others. The yields and returns quoted may be
calculated as follows:
Under the rules of the Securities and Exchange Commission ("SEC
Rules"), yield is calculated is based on a specified 30 day
period computed by dividing the net investment income per share
earned during the period by the offering price per share on the
last day of the period according to the following formula:
YIELD = 2[(a-b/cd) + 1)6 - 1] where:
a = income earned during the period
b = expenses
c = average number of shares outstanding during the period
entitled to receive dividends
d = offering price on last day of the period
Under this formula, interest earned on debt obligations for
purposes of "a" above, is calculated by (i) computing the yield
to maturity of each obligation held by the Portfolio based on the
market value of the obligation (including actual accrued
interest) at the close of business on the last day of each month,
or, with respect to obligations purchased during the month, the
purchase price (plus actual accrued interest), (ii) dividing that
figure by 360 and multiplying the quotient by the market value of
the obligation (including actual accrued interest as referred to
above) to determine the interest income on the obligation that is
in the Portfolio's portfolio (assuming a month of thirty days),
and (iii) computing the total of the interest earned on all debt
obligations and all dividends accrued on all equity securities
during the thirty-day or one month period. In computing
dividends accrued, dividend income is recognized by accruing
1/360 of the stated dividend rate of a security each day that the
security is in the Portfolio's portfolio. Undeclared earned
income, computed in accordance with generally accepted accounting
principles, may be subtracted from the maximum offering price
calculation required pursuant to "d" above.
The Portfolio from time to time may also advertise its yield
based on a thirty-day period ending on a date other than the most
recent balance sheet included in its Registration Statement,
computed in accordance with the yield formula described above, as
adjusted to conform with the differing period for which the yield
computation is based.
Any quotation of performance stated in terms of yield (whether
based on a thirty-day or one month period) will be given no
greater prominence than the information prescribed under SEC
Rules. In addition, all advertisements containing performance
data of any kind will include a legend disclosing that such
performance data represents past performance and that the
investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
For purposes of quoting and comparing the performance of the
Portfolio to that of other mutual funds and to other relevant
market indices in advertisements or in reports to shareholders,
performance may be stated in terms of total return. Under the
SEC Rules, Portfolio advertising performance must include total
return quotes calculated according to the following formula:
P (1+T)N = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years (1, 5, or 10); and
ERV = ending redeemable value of a
hypothetical $1,000 payment made at the
beginning of the 1, 5, or 10 year periods
at the end of the 1, 5, or 10 year periods
(or fractional portion thereof).
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, and will cover 1, 5, and 10 year
periods or a shorter period dating from the effectiveness of the
Registration Statement of the Portfolio. In calculating the
ending redeemable value, all dividends and distributions by the
Portfolio are assumed to have been reinvested at net asset value
as described in the Portfolio's Prospectus on the reinvestment
dates during the period. Total return, or "T" in the formula
above, is computed by finding the average annual compounded rates
of return over the 1, 5, and 10 year periods (or fractional
portion thereof) that would equate the initial amount invested to
the ending redeemable value.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
Dividends and Distributions. Dividends from net investment
income and any distributions of net realized capital gains from
the Portfolio will be distributed as described in the Portfolio's
Prospectus under "Dividends and Distributions." All such
distributions of the Portfolio normally automatically will be
reinvested without charge in additional shares of the Portfolio.
With respect to the investment by the Portfolio in U.S. Treasury
zero coupon bonds, a portion of the difference between the issue
price of zero coupon securities and the face value of such
securities (the "original issue discount") is considered to be
income to the Portfolio each year, even though the Portfolio will
not receive cash interest payments from these securities. This
original issue discount (imputed income) will comprise a part of
the investment company taxable income of the Portfolio which must
be distributed to shareholders of the Portfolio in order to
maintain the qualification of the Portfolio as a regulated
investment company (a "RIC") under Subchapter M of the U.S.
Internal Revenue Code of 1986, as amended (the "Code"), as
described immediately below under "Regulated Investment Company
Status," and to avoid Federal income tax at the level of the
Portfolio. Shareholders of the Portfolio will be subject to
income tax on such original issue discount, whether or not such
shareholders elect to receive their distributions in cash.
Regulated Investment Company Status. As a RIC, the Portfolio
would not be subject to Federal income taxes on the net
investment income and capital gains that the Portfolio
distributes to the Portfolio's shareholders. The distribution of
net investment income and capital gains will be taxable to
Portfolio shareholders regardless of whether the shareholder
elects to receive these distributions in cash or in additional
shares. Distributions reported to Portfolio shareholders as long-
term capital gains shall be taxable as such, regardless of how
long the shareholder has owned the shares. Portfolio
shareholders will be notified annually by the Portfolio as to the
Federal tax status of all distributions made by the Portfolio.
Distributions may be subject to state and local taxes.
The Portfolio will seek to qualify for treatment as a RIC under
Subchapter M of the U.S. Internal Revenue Code of 1986, as
amended (the "Code"). Provided that the Portfolio (i) is a RIC
and (ii) distributes at least 98% of its net investment income
(including, for this purpose, net realized short-term capital
gains), the Portfolio will not be liable for Federal income taxes
to the extent its net investment income and its net realized long-
and short-term capital gains, if any, are distributed to the
Portfolio's shareholders. One of several requirements for RIC
qualification is that the Portfolio receives at least 90% of the
Portfolio's gross income each year from dividends, interest,
payments with respect to securities loans, gains from the sale or
other disposition of securities or foreign currencies, or other
income derived with respect to the Portfolio's investments in
stock, securities, and foreign currencies (the "90% Test"). In
addition, under the Code, the Portfolio will not qualify as a RIC
for any taxable year if more than 30% of the Portfolio's gross
income for that year is derived from gains on the sale of
securities held less than three months (the "30% Test").
If the Portfolio does not satisfy the 30% Test for any taxable
year of the Portfolio, the Portfolio will not qualify as a RIC
for that year. If the Portfolio fails to qualify as a RIC for
any taxable year, the Portfolio would be taxed in the same manner
as an ordinary corporation. In that event, the Portfolio would
not be entitled to deduct the distributions which the Portfolio
had paid to shareholders and, thus, would incur a corporate
income tax liability on all of the Portfolio's taxable income
whether or not distributed. The imposition of corporate income
taxes on the Portfolio would directly reduce the return to an
investor from an investment in the Portfolio.
In the event of a failure by the Portfolio to qualify as a RIC,
the Portfolio's distributions, to the extent such distributions
are derived from the Portfolio's current or accumulated earnings
and profits, would constitute dividends that would be taxable to
shareholders as ordinary income and would be eligible for the
dividends-received deduction for corporate shareholders. This
treatment would also apply to any portion of the distributions
that might have been treated in the shareholder's hands as long-
term capital gains, as discussed below, had the Portfolio
qualified as a RIC.
If the Portfolio were to fail to qualify as a RIC for one or more
taxable years, the Portfolio could then qualify (or requalify) as
a RIC for a subsequent taxable year only if the Portfolio had
distributed to the Portfolio's shareholders a taxable dividend
equal to the full amount of any earnings or profits (less the
interest charge mentioned below, if applicable) attributable to
such period. The Portfolio might also be required to pay to the
Internal Revenue Service ("IRS") interest on 50% of such
accumulated earnings and profits. In addition, pursuant to the
Code and an interpretative notice issued by the IRS, if the
Portfolio should fail to qualify as a RIC and should thereafter
seek to requalify as a RIC, the Portfolio may be subject to tax
on the excess (if any) of the fair market of the Portfolio's
assets over the Portfolio's basis in such assets, as of the day
immediately before the first taxable year for which the Portfolio
seeks to requalify as a RIC.
If the Portfolio determines that the Portfolio will not qualify
as a RIC under Subchapter M of the Code, the Portfolio will
establish procedures to reflect the anticipated tax liability in
the Portfolio's net asset value.
As a RIC, the Fund will not be subject to Federal income taxes on
the net investment income and capital gains that it distributes
to its shareholders. The distribution of net investment income
and capital gains will be taxable to shareholders regardless of
whether the shareholder elects to receive these distributions in
cash or in additional shares. Distributions reported to
shareholders as long-term capital gains shall be taxable as such,
regardless of how long the shareholder has owned the shares.
Shareholders will be notified annually by the Fund as to the
Federal tax status of all distributions made by the Portfolio.
Distributions may be subject to state and local taxes.
AUDITORS AND CUSTODIAN
Deloitte & Touche LLP, independent certified public accountants,
are the auditors of the Fund. Rushmore Trust and Savings, FSB,
Bethesda, Maryland acts as custodian bank for the Fund.
FINANCIAL STATEMENTS
The Fund incorporates by reference in this Statement of
Additional Information the financial statements and notes
contained in its annual report to the shareholders for the year
ended August 31, 1996, which must accompany this Statement of
Additional Information.
<PAGE>
U.S. GOVERNMENT BOND PORTFOLIO FINANCIAL STATEMENTS
<PAGE>
Deleted Rushmore Logo
ANNUAL REPORT, August 31, 1996
THE RUSHMORE FUND, INC.
4922 Fairmont Avenue, Bethesda, Maryland 20814
(800) 343-3355 (301) 657-1500
Dear Shareholder:
On December 22, 1995, the majority of the shareholders of
the Rushmore U.S. Government Intermediate-Term Securities
Portfolio approved the Intermediate-Term Portfolio's merger into
the Rushmore U.S. Government Long-Term Securities Portfolio
effective December 31, 1995. The resulting Portfolio was renamed
the Rushmore U.S. Government Bond Portfolio. The U.S. Government
Bond Portfolio invests in ten-year Treasury notes and thirty-year
Treasury bonds. The objective is to provide high current income
while maintaining safety of principal. For the year ended August
31, 1996, the Portfolio posted a total return of 0.41%. During
the same period, the Lehman Brothers U.S. Government Long-Term
Treasury Bond Index's total return was 1.46%. The average
maturity of the Portfolio as of August 31, 1996 was 26.8 years.
The Federal Reserve has left rates unchanged since January
1996 when it cut Federal Funds by 25 basis points. Since then,
the economy has grown nicely. As we move into the third quarter
it appears the economy has quite a bit of momentum, with consumer
spending up, factory orders strong, and wage pressures building,
consumers are optimistic. Indeed, fresh economic data shows
healthy consumer and factory sectors.
Given the strength in the recent data we believe that it is
only a matter of time before the Federal Reserve raises the
Federal Funds' rate a quarter of a point.
Thank you for your continued support.
Sincerely,
Daniel L. O'Connor Richard J. Garvey
Chairman of the Board President
September 9, 1996
<PAGE>
THE RUSHMORE FUND, INC.
U.S. Government Bond Portfolio
STATEMENT OF NET ASSETS
August 31, 1996
Face Value
Amount (Note 1)
U.S. TREASURY OBLIGATIONS - 96.76%
U.S. Treasury Notes, 5.875%, 11/15/05 $ 2,100,000 1,951,030
U.S. Treasury Bonds, 8.00%, 11/15/21 100,000 108,125
U.S. Treasury Bonds, 7.50%, 11/15/24 3,900,000 4,020,654
U.S. Treasury Bonds, 7.625%, 2/15/25 4,050,000 4,241,107
U.S. Treasury Bonds, 6.875%, 8/15/25 10,850,000 10,409,219
Total U.S. Treasury Obligations (Cost $22,553,049) 20,730,135
REPURCHASE AGREEMENTS - 2.75%
With PaineWebber at 5.18%, dated 8/30/96,
due 9/3/96, collateralized by U.S. Treasury Notes,
due 11/30/96 (Cost $589,940) 589,940
Total Investments - 99.51% (Cost $23,142,989*) 21,320,075
Other Assets Less Liabilities - 0.49% 103,827
Net Assets (Note 7) - 100.00% $ 21,423,902
Net Asset Value Per Share (Based on 2,280,728
Shares Outstanding) $9.39
*Same cost is used for Federal income tax purposes.
See Notes to Financial Statements.
<PAGE>
THE RUSHMORE FUND, INC.
U.S. Government Bond Portfolio
STATEMENT OF OPERATIONS
For the Year Ended August 31, 1996
Investment Income (Note 1) $ 1,631,057
Expenses
Investment Advisory Fee (Note 2) 127,595
Administrative Fee (Note 2) 76,557
Total Expenses 204,152
Net Investment Income 1,426,905
Net Realized Gain on Investment Transactions 1,147,575
Net Change in Unrealized Appreciation
(Depreciation) of Investments (2,989,249)
Net Loss on Investments (1,841,674)
Net Decrease in Net Assets Resulting
from Operations $ (414,769)
See Notes to Financial Statements.
<PAGE>
<TABLE>
THE RUSHMORE FUND, INC.
U.S. Government Bond Portfolio
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended August 31,
<CAPTION>
1996 1995
<S> <C> <C>
From Investment Activities
Net Investment Income $ 1,426,905 $ 1,814,519
Net Realized Gain (Loss) on Investment Transactions 1,147,575 (162,740)
Net Change in Unrealized Appreciation (Depreciation)
of Investments (2,989,249) 1,939,775
Net Increase (Decrease) in Net Assets Resulting
from Operations (414,769) 3,591,554
Distributions to Shareholders
From Net Investment Income (1,421,749) (1,814,519)
From Net Realized Gain on Investments - -
Total Distributions to Shareholders (1,421,749) (1,814,519)
From Share Transactions
Proceeds from Sales of Shares 27,184,950 24,815,509
Net Assets Acquired in Connection with Acquisition
of the Rushmore U.S. Government Intermediate-Term
Securities Portfolio (Note 4) 12,773,496 -
Reinvestment of Distributions 1,242,904 1,657,955
Cost of Shares Redeemed (34,331,636) (41,136,186)
Net Increase (Decrease) in Net Assets Resulting
from Share Transactions 6,869,714 (14,662,722)
Total Increase (Decrease) in Net Assets 5,033,196 (12,885,687)
Net Assets - Beginning of Year 16,390,706 29,276,393
Net Assets - End of Year $21,423,902 $16,390,706
Shares
Sold 2,724,777 2,729,920
Issued in Connection with Acquisition of the
Rushmore U.S. Government Intermediate-Term
Securities Portfolio (Note 4) 1,182,595 -
Issued in Reinvestment of Distributions 124,401 183,562
Redeemed (3,408,891) (4,480,768)
Net Increase (Decrease) in Shares 622,882 (1,567,286)
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
THE RUSHMORE FUND, INC.
U.S. Government Bond Portfolio
FINANCIAL HIGHLIGHTS
For the Year Ended August 31,
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value - Beginning of Year $ 9.89 $ 9.08 $ 11.55 $ 10.62 $ 9.97
Income from Investment Operations:
Net Investment Income 0.563 0.606 0.599 0.650 0.697
Net Realized and Unrealized Gains (Losses) on
Securities (0.502) 0.810 (1.880) 1.304 0.649
Total from Investment Operations 0.061 1.416 (1.281) 1.954 1.346
Distributions to Shareholders:
From Net Investment Income (0.561) (0.606) (0.602) (0.650) (0.696)
From Net Realized Capital Gains - - (0.583) (0.374) -
Total Distributions to Shareholders (0.561) (0.606) (1.185) (1.024) (0.696)
Net Increase (Decrease) in Net Asset Value (0.50) 0.81 (2.47) 0.93 0.65
Net Asset Value - End of Year $ 9.39 $ 9.89 $ 9.08 $ 11.55 $10.62
Total Investment Return 0.41% 16.35% (10.29)% 20.92% 13.97%
Ratios to Average Net Assets:
Expenses 0.80% 0.80% 0.80% 0.80% 0.80%
Net Investment Income 5.59% 6.75% 5.97% 6.08% 6.80%
Supplementary Data:
Portfolio Turnover Rate 95.0% 63.3% 188.3% 173.6% 298.0%
Net Assets at End of Year (000's omitted) $21,424 $16,391 $29,276 $24,094 $22,803
Number of Shares Outstanding at End of Year
(000's omitted) 2,281 1,658 3,225 2,085 2,148
See Notes to Financial Statements.
</TABLE>
<PAGE>
THE RUSHMORE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
August 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
The Rushmore Fund, Inc. (the "Fund") is registered with the
Securities and Exchange Commission under the Investment Company
Act of 1940 as an open-end, diversified investment company. The
Fund currently consists of two separate portfolios each with its
own investment objectives and policies. These financial
statements report on one of the two portfolios: U.S. Government
Bond Portfolio. On August 31, 1996, there were 1,000,000,000
shares of $0.001 par value capital stock authorized. The
financial statements have been prepared in conformity with
generally accepted accounting principles which permit management
to make certain estimates and assumptions at the date of the
financial statements. The following is a summary of significant
accounting policies which the Fund consistently follows:
(a) Securities of the U.S. Government Bond Portfolio are
valued on the basis of the average of quoted bid and
ask prices when market quotations are available. If
market quotations are not readily available, the Board
of Directors will value the portfolio's securities in
good faith.
(b) Security transactions are recorded on the trade date
(the date the order to buy or sell is executed).
Interest income is accrued on a daily basis. Realized
gains and losses from security transactions are
computed on an identified cost basis.
(c) Net investment income is computed and dividends are
declared daily in the U.S. Government Bond Portfolio.
Income dividends in this portfolio are paid monthly.
Dividends are reinvested in additional shares unless
shareholders request payment in cash. Capital gains,
if any, are distributed annually.
(d) The Fund complies with the provisions of the Internal
Revenue Code applicable to regulated investment
companies and distributes all net investment income to
its shareholders. Therefore, no Federal income tax
provision is required.
2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Investment advisory and management services are provided by Money
Management Associates, ("the Adviser"). Under an agreement with
the Adviser, the Fund pays a fee for such services at an annual
rate of 0.50% of the average daily net assets of the U.S.
Government Bond Portfolio. Certain Officers and Directors of the
Fund are affiliated with the Adviser.
Rushmore Trust and Savings, FSB ("Rushmore Trust"), a majority-
owned subsidiary of the Adviser, provides transfer agency,
dividend-disbursing and shareholder services to the Fund. In
addition, Rushmore Trust serves as custodian of the Fund's assets
and pays the operating expenses of the Fund.
For these services, Rushmore Trust receives an annual fee of 0.30% of the
average daily net assets of the U.S. Government Bond Portfolio.
3. SECURITIES TRANSACTIONS
For the year ended August 31, 1996, purchases of securities were
$29,103,622 and sales (including maturities) of securities were
$21,965,766. These totals exclude short-term securities.
4. MERGER
On December 31, 1995, the Rushmore U.S. Government Long-Term Securities
Portfolio acquired all the net assets of the Rushmore U.S. Government
Intermediate-Term Securities Portfolio; pursuant to a plan of
reorganization approved by the Rushmore U.S. Government Intermediate-Term
Securities Portfolio shareholders on December 22, 1995. The acquisition
was accomplished by a tax-free exchange of 1,182,595 shares of Rushmore
U.S. Government Long-Term Securities Portfolio (valued at $12,773,496) for
1,291,408 shares of Rushmore U.S. Government Intermediate-Term Securities
Portfolio, outstanding on December 31, 1995. The transferred Portfolio's
net assets at that date were $12,773,496, including $962,905 of unrealized
appreciation and $979,097 of accumulated loss carryforwards, which combined
with those of the Rushmore U.S. Government Long-Term Securities Portfolio.
The aggregate net assets of the Portfolios immediately before and after the
acquisition were as follows:
Before After
Acquisition Acquisition
Rushmore U.S. Government Long-Term
Securities Portfolio $ 20,483,071 $ 33,256,567
Rushmore U.S. Government
Intermediate-Term Securities Portfolio $ 12,773,496 -
Immediately following the Reorganization, the Rushmore U.S. Government Long-
Term Securities Portfolio was renamed "The Rushmore U.S. Government Bond
Portfolio."
5. REORGANIZATION
On May 31, 1996, Fund for Government Investors acquired all the net assets
of the Rushmore Money Market Portfolio ("Portfolio") of the Fund pursuant
to a plan of reorganization approved by the Portfolio's shareholders on May
24, 1996. The acquisition was accomplished by a tax-free exchange of
21,852,849 shares (valued at $1 per share) of Fund for Government Investors
for 21,852,849 shares of the Portfolio, outstanding on May 31, 1996. The
transferred Portfolio's net assets at that date were $21,852,849,
consisting solely of capital stock.
6. NET UNREALIZED APPRECIATION/DEPRECIATION OF INVESTMENTS
As of August 31, 1996, net depreciation of investments for Federal income
tax purposes was $1,822,914, of which $253,597 related to appreciated
investments and $2,076,511 related to depreciated investments. At August
31, 1996, the cost of the Fund's securities for Federal income tax purposes
was $23,142,989.
7. NET ASSETS
At August 31, 1996, net assets consisted of the following:
Paid-in-Capital $ 23,698,217
Undistributed Net Investment Income 5,156
Accumulated Net Realized Loss on Investments (456,557)
Net Unrealized Depreciation on Investments (1,822,914)
NET ASSETS $ 21,423,902
8. CAPITAL LOSS CARRYOVERS
Permanent differences between tax and financial reporting of net investment
income and realized gains/(losses) are reclassified to paid-in-capital. As
of August 31, 1996, realized losses of $692 were reclassified to paid-in-
capital.
At August 31, 1996, for Federal income tax purposes, the U.S. Government
Bond Portfolio had capital loss carryovers which may be applied against
future net taxable realized gains of each succeeding year until the earlier
of its utilization or its expiration as follows:
Expires August 31,
2001 $ 253,963
2002 233,727
$ 487,690
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
of The Rushmore Fund, Inc.:
We have audited the statement of net assets of the U.S.
Government Bond Portfolio (one of the Portfolios) of The Rushmore
Fund, Inc. as of August 31, 1996, and the related statements of
operations and changes in net assets and the financial highlights
for the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and financial highlights are free from
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned at August 31, 1996 by correspondence with the
custodian and broker. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the
financial position of the U.S. Government Bond Portfolio (one of
the Portfolios) of The Rushmore Fund, Inc. at August 31, 1996,
the results of its operations, the changes in its net assets and
the financial highlights for the presented periods in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
October 11, 1996
<PAGE>
Deleted Rushmore Logo
THE RUSHMORE FUND, INC.
Annual Report
August 31, 1996
<PAGE>
PART C
<PAGE>
OTHER INFORMATION
The Rushmore Fund, Inc.
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial statements: The following audited financial
statements are incorporated by reference in Part B of this
registration statement's amendment:
For the Rushmore Nova Portfolio:
Statement of Net Assets as of August 31, 1996;
Statement of Operations for the year ended August 31, 1996;
Statements of Changes in Net Assets for the years ended
August 31, 1996 and 1995; and
Financial Highlights for each of the five years in the period
ended August 31, 1996.
For the Rushmore U.S. Government Bond Portfolio:
Statement of Net Assets as of August 31, 1996;
Statement of Operations for the year ended August 31, 1996;
Statements of Changes in Net Assets for the years ended
August 31, 1996 and 1995; and
Financial Highlights for each of the five years in the period
ended August 31, 1996.
b. Exhibits:
(11) Consent of Deloitte & Touche LLP, independent public
accountants for Registrant.
(16) Schedule for computation of performance quotations.
(27) Financial Data Schedule.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Number of Shareholders
of Record at
Title of Class December 2, 1996
(Common Stock, $.001 par value)
The Rushmore Nova Portfolio 2
The Rushmore U.S. Government Bond Portfolio 705
ITEM 27. INDEMNIFICATION
The Registrant was incorporated in the State of Maryland on
July 24, 1985 and is operated pursuant to the Articles of
Incorporation of the Registrant, dated as of July 17, 1985, and
as last amended, that permit the Registrant to indemnify its
directors and officers under certain circumstances. Such
indemnification, however, is subject to the limitations imposed
by the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended.
The Articles of Incorporation of the Fund provide that officers
and directors shall be indemnified by the Fund against
liabilities and expenses of defense in proceedings against them
by reason of the fact that they serve as officers or directors
of the Fund or as an officer or director of another entity at
the request of the entity. This indemnification is subject to
the following conditions:
(a) no director or officer is indemnified against any
liability to the Fund or its security holders which was the
result of any willful misfeasance, bad faith, gross
negligence, or reckless disregard of his duties;
(b) officers and directors are indemnified only for actions
taken in good faith which the officers and directors
believed were in or not opposed to the best interests of the
Fund; and
(c) expenses of any suit or proceeding will be paid in
advance only if the persons who will benefit by such advance
undertake to repay the expenses unless it is subsequently
determined that they are entitled to indemnification.
The Articles of Incorporation of the Registrant provide that if
indemnification is not ordered by a court, indemnification may
be authorized upon determination by shareholders, or by a
majority vote of a quorum of the directors who were not parties
to the proceedings or, if a quorum is not obtainable, or if
directed by a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion that the persons
to be indemnified have met the applicable standard.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Money Management Associates ("MMA"), 1001 Grand Isle Way, Palm
Beach Gardens, Florida 33418, a limited partnership organized
under the laws of the District of Columbia on August 15, 1974,
has one general partner and four limited partners. Daniel L.
O'Connor is the general partner and sole employee of MMA.
Limited partners Richard J. Garvey, Martin M. O'Connor, and
John R. Cralle, are full-time employees of Rushmore Services,
Inc. ("RSI"), a subsidiary of MMA, at 4922 Fairmont Avenue,
Bethesda, Maryland 20814. Limited partner Rita A. Gardner is a
retired employee of Rushmore Trust and Savings, FSB, the Fund's
transfer agent and custodian.
MMA also serves as the investment adviser to Fund for
Government Investors, Fund for Tax-Free Investors, Inc., and
American Gas Index Fund, Inc., all regulated investment
companies since their inception.
ITEM 29. PRINCIPAL UNDERWRITERS
Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The physical location for all accounts, books, and records
required to be maintained and preserved by Section 31(a) of the
Investment Company Act of 1940, as amended, and Rules 31a-1 and
31a-2 thereunder, is 4922 Fairmont Avenue, Bethesda, Maryland
20814.
ITEM 31. MANAGEMENT SERVICES
Not Applicable
ITEM 32. UNDERTAKINGS
(a) The Registrant undertakes to furnish each person to
whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders upon
request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that
it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in this City of Bethesda and State of Maryland
on the 26th day of December 1996.
The Rushmore Fund, Inc.
By:
/s/ Daniel L. O'Connor*
Daniel L. O'Connor, Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 20 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates
indicated.
Name Title Date
/s/ Daniel L. O'Connor* Chairman of the Board, December 26, 1996
Daniel L. O'Connor Treasurer, Director
/s/ Richard J. Garvey President, Director December 26, 1996
Richard J. Garvey
/s/ Timothy N. Coakley Vice President, Controller December 26, 1996
Timothy N. Coakley
/s/ Jeffrey R. Ellis* Director December 26, 1996
Jeffrey R. Ellis
/s/ Bruce C. Ellis* Director December 26, 1996
Bruce C. Ellis
/s/ Rita A. Gardner Director December 26, 1996
Rita A. Gardner
/s/ Michael D. Lange* Director December 26, 1996
Michael D. Lange
/s/ Patrick F. Noonan* Director December 26, 1996
Patrick F. Noonan
/s/ Leo Seybold* Director December 26, 1996
Leo Seybold
*Richard J. Garvey, Attorney-in-Fact
<PAGE>
Exhibit 11
Consent of Deloitte & Touche LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Rushmore Fund, Inc.:
We hereby consent to the incorporation by reference in this Post-
Effective Amendment No. 20 to Registration Statement No. 2-99388
of our report dated October 11, 1996 appearing in the Annual
Report of The Rushmore Fund, Inc. for the year ended August 31,
1996 and to the reference to us under the caption "Financial
Highlights" appearing in the Prospectuses, which are also a part
of such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Washington, D.C.
December 26, 1996
Exhibit 16
Schedule for Computation of Performance Quotations
<PAGE>
THE RUSHMORE FUND, INC.
Rushmore U.S. Government Bond Portfolio
Computation of Yield Quotation
a. Interest Income $135,368
b. Less: Management Fees and 15,338
Fund Expenses
Net Income $120,030
c. Average Number of Shares 2,402,544
Outstanding
d. Closing Share Price 8/31/96 $9.39
Value of Shares $22,559,888
Yield: 2[(a-b/cd + 1)6 - 1] 6.47%
<PAGE>
THE RUSHMORE FUND, INC.
Rushmore U.S. Government Bond Portfolio
Computation of Average Annual Total Return
1 Year 5 Year Since
Inception*
P (1+T)n = ERV P (1+T)n = ERV P (1+T)n = ERV
P = $10,000 P = $10,000 P = $10,000
T = 0.41% T = 7.62% T = 7.89%
N = 1 N = 5 N = 10.71
ERV = 10,041 ERV = 14,437 ERV = 22,554
* Commencement of Operations December 18, 1985
<PAGE>
THE RUSHMORE FUND, INC.
Rushmore Nova Portfolio
Computation of Average Annual Total Return
1 Year 5 Year Since Inception*
P (1+T)n = ERV P (1+T)n = ERV P (1+T)n = ERV
P = $10,000 P = $10,000 P = $10,000
T = 7.58% T = 3.56% T = 3.96%
N = 1 N = 5 N = 6.73
ERV = 10,758 ERV = 11,906 ERV = 12,979
* Commencement of Operations December 7, 1989
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000773754
<NAME> THE RUSHMORE FUND, INC.
<SERIES>
<NUMBER> 3
<NAME> U.S. GOVERNMENT BOND PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 23,142,989
<INVESTMENTS-AT-VALUE> 21,320,075
<RECEIVABLES> 175,297
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,495,372
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 71,470
<TOTAL-LIABILITIES> 71,470
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,698,217
<SHARES-COMMON-STOCK> 2,280,728
<SHARES-COMMON-PRIOR> 1,657,846
<ACCUMULATED-NII-CURRENT> 5,156
<OVERDISTRIBUTION-NII> 0
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