THE TORRAY FUND
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1998
As Revised September 15, 1998
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the Prospectus dated April 30, 1998 and should
be read in conjunction therewith. A copy of the Prospectus may be obtained by
writing The Torray Corporation, 6610 Rockledge Drive, Bethesda, Maryland 20817,
or by telephoning toll free at 1-800-443-3036.
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TABLE OF CONTENTS
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Page
INVESTMENT OBJECTIVE AND POLICIES......................................3
NOTE ON SHAREHOLDER APPROVAL...........................................3
INVESTMENT RESTRICTIONS................................................3
HOW TO REDEEM..........................................................6
HOW NET ASSET VALUE IS DETERMINED......................................7
CALCULATION OF RETURN..................................................8
PERFORMANCE COMPARISONS................................................9
DISTRIBUTIONS..........................................................9
TAXES ..............................................................9
MANAGEMENT OF THE FUND................................................11
OTHER SERVICES........................................................15
PORTFOLIO TRANSACTIONS................................................16
ORGANIZATION AND CAPITALIZATION OF THE FUND...........................18
SHAREHOLDER LIABILITY.................................................19
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of The Torray Fund (the "Fund")
are summarized on the front page of the Prospectus and in the text of the
Prospectus following the caption "Investment Objective and Policies." There is
no assurance that the Fund's objective will be achieved.
This Statement contains certain additional information about the
objective and policies, including "miscellaneous investment practices" in which
the Fund may engage.
U.S. Treasury Securities. The Fund is free to invest in U.S. Treasury
Securities of varying maturities. There are usually no brokerage commissions as
such paid by the Fund in connection with the purchase of such instruments. The
value of such securities can be expected to vary inversely to the changes in
prevailing interest rates. Thus, if interest rates have increased from the time
a security was purchased, such security, if sold, might be sold at a price less
than its cost. Similarly, if interest rates have declined from the time a
security was purchased, such security, if sold, might be sold at a price greater
than its cost. See "Portfolio Transactions - Brokerage and Research Services,"
for a discussion of underwriters' commissions and dealers' spreads involved in
the purchase and sale of such instruments.
NOTE ON SHAREHOLDER APPROVAL
The investment objective and policies of the Fund set forth above and
in the Prospectus may be changed without shareholder approval.
INVESTMENT RESTRICTIONS
Without a vote of the majority of the outstanding voting securities of
the Fund, the Fund will not take any of the following actions:
(1) Borrow money in excess of 5% of the value (taken at the
lower of cost or current value) of the Fund's total assets (not
including the amount borrowed) at the time the borrowing is made, and
then only from banks as a temporary
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measure to facilitate the meeting of redemption requests (and not for
leverage) or for extraordinary or emergency purposes.
(2) Pledge, hypothecate, mortgage or otherwise encumber its
assets in excess of 10% of the Fund's total assets (taken at cost), and
then only to secure borrowings permitted by Restriction 1 above.
(3) Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases and sales of
securities.
(4) Make short sales of securities or maintain a short
position for the account of the Fund unless at all times when a short
position is open the Fund owns an equal amount of such securities or
owns securities which, without payment of any further consideration,
are convertible into or exchangeable for securities of the same issue
as, and equal in amount to, the securities sold short.
(5) Underwrite securities issued by other persons except to
the extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under federal
securities laws.
(6) Purchase or sell real estate, although it may invest in
securities of issuers which deal in real estate, including securities
of real estate investment trusts, and may purchase securities which are
secured by interests in real estate.
(7) Purchase or sell commodities or commodity contracts,
including future contracts.
(8) Make loans, except by purchase of debt obligations or by
entering into repurchase agreements.
(9) Invest in securities of any issuer if, immediately after
such investment, more than 5% of the total assets of the Fund (taken at
current value) would be invested in the securities of such issuer,
except that up to 25% of the Fund's total assets taken at current value
may be invested without regard to such 5% limitation; provided,
however, that this limitation does not apply to obligations issued or
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guaranteed as to interest and principal by the U.S.
government or its agencies or instrumentalities.
(10) Acquire more than 10% of the voting securities of any
issuer.
(11) Concentrate more than 25% of the value of its total
assets in any one industry.
It is contrary to the Fund's present policy, which may be changed by
the Trustees without shareholder approval, to borrow money, pledge or
hypothecate its assets, make any short sales of securities, maintain any short
position for the account of the Fund, issue senior securities, or purchase
foreign securities which are not publicly traded in the United States. In
addition, it is contrary to the Fund's present policy to:
(1) Invest more than 10% of the Fund's net assets (taken at
current value) in securities which at the time of such investment are
not readily marketable.
(2) Write (sell) or purchase options.
(3) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts.
(4) Make investments for the purpose of gaining control of a
company's management.
All percentage limitations on investments set forth herein and in the
Prospectus will apply at the time of the making of an investment and shall not
be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
The phrase "shareholder approval," as used in the Prospectus, and the
phrase "vote of a majority of the outstanding voting securities," as used
herein, means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund, or (2) 67% or more of the shares of the Fund
present at a meeting if more than 50% of the outstanding shares are represented
at the meeting in person or by proxy.
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HOW TO REDEEM
The procedures for redemption of Fund shares are summarized in the text
of the Prospectus following the caption "How to Redeem." Redemption requests
must be in good order, as defined in the Prospectus. Upon receipt of a
redemption request in good order, the Shareholder will receive a check equal to
the net asset value of the redeemed shares next determined after the redemption
request has been received. The Fund will accept redemption requests only on days
the New York Stock Exchange is open. Proceeds will normally be forwarded on the
next day on which the New York Stock Exchange is open; however, the Fund
reserves the right to take up to seven days to make payment if, in the judgment
of the Manager, the Fund could be adversely affected by immediate payment. The
proceeds of redemption may be more or less than the shareholder's investment and
thus may involve a capital gain or loss for tax purposes. If the shares to be
redeemed represent an investment made by check, the Fund reserves the right not
to forward the proceeds of the redemption until the check has been collected.
The Fund may suspend the right of redemption and may postpone payment
only when the New York Stock Exchange is closed for other than customary
weekends and holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange is restricted or
during any emergency which makes it impracticable for the Fund to dispose of its
securities or to determine fairly the value of its net assets, or during any
other period permitted by order of the Securities and Exchange Commission.
It is currently the Trust's policy to pay all redemptions in cash. The
Trust retains the right, however, to alter this policy to provide for
redemptions in whole or in part by a distribution in-kind of securities held by
a Fund in lieu of cash. Shareholders may incur brokerage charges on the sale of
any such securities so received in payment of redemptions.
The Fund reserves the right to redeem shares and mail the proceeds to
the shareholder if at any time the net asset value of the shares in the
shareholder's account in the Fund falls below a specified level, currently set
at $10,000. Shareholders will be notified and will have 30 days to bring the
account up to the required level before any redemption action will be taken by
the Fund. The Fund also reserves the right to redeem shares in a
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shareholder's account in excess of an amount set from time to time by the
Trustees. No such limit is presently in effect, but such a limit could be
established at any time and could be applicable to existing as well as future
shareholders.
HOW NET ASSET VALUE IS DETERMINED
As described in the text of the Prospectus following the caption "How
Net Asset Value is Determined," the net asset value per share of the Fund is
determined once on each day on which the New York Stock Exchange is open, as of
the close of the Exchange. The Trust expects that the days, other than weekend
days, that the Exchange will not be open are New Year's Day, Martin Luther King,
Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. The Fund's portfolio securities for
which market quotations are readily available are valued at market value, which
is determined by using the last reported sale price, or, if no sales are
reported -- and in the case of certain securities traded over-the-counter -- the
last reported bid price.
As described in the Prospectus, certain securities and assets of the
Fund may be valued at fair value as determined in good faith by the Trustees or
by persons acting at their direction pursuant to guidelines established by the
Trustees. Such valuations and procedures are reviewed periodically by the
Trustees. The fair value of such securities is generally determined as the
amount which the Fund could reasonably expect to realize from an orderly
disposition of such securities over a reasonable period of time. The valuation
procedures applied in any specific instance are likely to vary from case to
case. However, consideration is generally given to the financial position of the
issuer and other fundamental analytical data relating to the investment and to
the nature of the restrictions on disposition of the securities (including any
registration expenses that might be borne by the Fund in connection with such
disposition). In addition, such specific factors are also generally considered
as the cost of the investment, the market value of any unrestricted securities
of the same class (both at the time of purchase and at the time of valuation),
the size of the holding, the prices of any recent transactions or offers with
respect to such securities and any available analysts' reports regarding the
issuer.
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Generally, trading in U.S. Government Securities is substantially
completed each day at various times prior to the close of the Exchange. The
value of such securities used for determining the Fund's net asset value per
share is computed as of such times. Occasionally, events affecting the value of
such securities may occur between such times and the close of the Exchange which
will not be reflected in the computation of the Fund's net asset value. If
events materially affecting the value of the Fund's securities occur during such
period, then these securities will be valued at their fair value as determined
in good faith by the Trustees.
CALCULATION OF RETURN
As summarized in the Prospectus under the heading "Performance
Information," Total Return is a measure of the change in value of an investment
in the Fund over the period covered, which assumes any dividends or capital
gains distributions are reinvested immediately rather than paid to the investor
in cash. The formula for Total Return used herein includes four steps: (1)
adding to the total number of shares purchased by a hypothetical $10,000
investment in the Fund all additional shares which would have been purchased if
all dividends and distributions paid or distributed during the period had been
immediately reinvested; (2) calculating the value of the hypothetical initial
investment of $10,000 as of the end of the period by multiplying the total
number of shares owned at the end of the period by the net asset value per share
on the last trading day of the period; (3) assuming redemption at the end of the
period; and (4) dividing this account value for the hypothetical investor by the
initial $10,000 investment and annualizing the result for periods of less than
one year.
The average annual total return for the Fund from commencement of
investment operations (December 31, 1990) through December 31, 1997 was 22.79%,
and the Fund's average annual total return for the one-year and five-year
periods ended December 31, 1997 was 37.12% and 23.73% respectively.
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PERFORMANCE COMPARISONS
The Fund may from time to time include its Total Return in information
furnished to present or prospective shareholders. The Fund may from time to time
also include its Total Return and Yield and the ranking of those performance
figures relative to such figures for groups of mutual funds categorized by
Lipper Analytical Services, Morningstar, the Investment Company Institute and
other similar services as having the same investment objective as the Fund.
DISTRIBUTIONS
Distributions from Net Investment Income. As described in the
Prospectus under the caption "Distributions," the Fund pays out substantially
all of its net investment income, (i.e., dividends, interest it receives from
its investments, and short-term gains). It is the present policy of the Fund to
declare and pay distributions from net investment income quarterly.
Distributions of Capital Gains. As described in the Prospectus, the
Fund's policy is to distribute annually substantially all of the net realized
capital gain, if any, after giving effect to any available capital loss
carryover. Net realized capital gain is the excess of net realized long-term
capital gain over net realized short-term capital loss.
TAXES
The tax status of the Fund and the distributions which it intends to
make are summarized in the text of the Prospectus immediately following the
caption "Taxes." All dividends and distributions of the Fund, whether received
in shares or cash, are taxable to the Fund's shareholders as described in the
Prospectus, and must be reported by each shareholder on his federal income tax
return. Although a dividend or capital gains distribution received after the
purchase of the Fund's shares reduces the net asset value of the shares by the
amount of the dividend or distribution, it will be treated as a dividend even
though, economically, it represents a return of capital, and will be subject to
federal income taxes as ordinary income or, if properly designated by the Fund,
as long-term capital gain. In general, any gain or loss realized upon a taxable
disposition of
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Fund shares by a shareholder will be treated as long-term capital gain or loss
if the shares have been held for more than one year and otherwise as short-term
capital gain or loss. However, any loss realized upon a taxable disposition of
shares held for six months or less will be treated as long-term capital loss to
the extent of any long-term capital gain distributions received by the
shareholder with respect to those shares. All or a portion of any loss realized
upon a taxable disposition of Fund shares will be disallowed if other Fund
shares are purchased by the shareholder within 30 days before or after the
disposition.
The Fund intends to qualify each year as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). In order to so qualify, the Fund must, among other things, (a)
derive at least 90% of its gross income from dividends, interest, payments with
respect to certain securities loans, and gains from the sale of stock or
securities, or other income derived with respect to its business of investing in
such stock or securities; (b) each year distribute at least 90% of its
"investment company taxable income," which, in general, consists of investment
income and short-term capital gains; and (c) diversify its holdings so that, at
the end of each fiscal quarter (i) at least 50% of the market value of the
Fund's assets is represented by cash, cash items, U.S. Government securities,
securities of other regulated investment companies, and other securities,
limited in respect of any one issuer to a value not greater than 5% of the value
of the Fund's total assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in the
securities (other than those of the U.S. Government or other regulated
investment companies) of any one issuer or of two or more issuers which the Fund
controls and which are engaged in the same, similar or related trades or
businesses. By so qualifying, the Fund will not be subject to federal income
taxes to the extent that its net investment income, net realized short-term
capital gains and net realized long-term capital gains are distributed.
In years when the Fund distributes amounts in excess of its earnings
and profits, such distributions may be treated in part as a return of capital. A
return of capital is not taxable to a shareholder and has the effect of reducing
the shareholder's basis in the shares. The Fund currently has no intention or
policy to distribute amounts in excess of its earnings and profits.
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It is expected that at least some of the distributions from the Fund
will qualify for the dividends-received deduction for corporations to the extent
that the Fund's gross income was derived from qualifying dividends from domestic
corporations.
Annually, shareholders will receive information as to the tax status of
distributions made by the Fund in each calendar year.
The Fund is required to withhold and remit to the U.S. Treasury 31% of
all dividend income earned by any shareholder account for which an incorrect or
no taxpayer identification number has been provided or where the Fund is
notified that the shareholder has under-reported income in the past (or the
shareholder fails to certify that he is not subject to such withholding). In
addition, the Fund will be required to withhold and remit to the U.S. Treasury
31% of the amount of the proceeds of any redemption of shares of a shareholder
account for which an incorrect or no taxpayer identification number has been
provided.
The foregoing relates to federal income taxation. Distributions from
investment income and capital gains may also be subject to state and local
taxes. The Fund is organized as a Massachusetts business trust. Under current
law, as long as the Fund qualifies for the federal income tax treatment
described above, it is believed that the Fund will not be liable for any income
or franchise tax imposed by Massachusetts.
MANAGEMENT OF THE FUND
Trustees and officers of the Trust and their principal occupations during
the past five years are as follows:
Professor Frederick Amling (DOB 12/23/26), Trustee of the Fund. Professor
of Finance, The George Washington University; President, Amling & Company,
Inc. (financial advisors).
Robert P. Moltz (DOB 10/03/47), Trustee of the Fund. President and Chief
Executive Officer, Weaver Bros. Insurance Associates, Inc. (insurance).
Professor Roy A. Schotland (DOB 03/18/33), Trustee of the Fund. Professor
of Law, Georgetown University Law Center; Director, Custodial Trust Company
(banking). Director, Croft Funds Corporation (open-end management
investment company).
Wayne H. Shaner (DOB 08/23/47), Trustee of the Fund. Vice President,
Investments, Lockheed Martin Corporation and Lockheed Martin Investment
Management Company; Member, Investment Committee, Maryland State Retirement
System.
Bruce C. Ellis (DOB 07/26/44), Trustee of the Fund. Director, Shepards
Foundation (charity); since 1992, Director, Rushmore/Cappiello Fund
(investment company) and Rushmore Funds (investment companies).
* William M. Lane (DOB 05/21/50, Chairman of the Board of Trustees, President
and Secretary of the Fund. Vice President, Secretary and Treasurer, Robert
E. Torray & Co., Inc,; Vice President and Secretary, The Torray
Corporation; Secretary and Treasurer, Birmingham Capital Management
Co., Inc.
Douglas C. Eby (DOB 07/28/59), Vice President and Treasurer of the Fund.
President, Robert E. Torray & Co., Inc.; Vice President and Treasurer, The
Torray Corporation. Through April, 1992, Vice President and Portfolio
Manager of Foxhall Investment Management (investment advisor).
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* Mr. Lane is an "interested person" of the Fund under the
Investment Company Act of 1940.
The mailing address of the officers and Trustees is c/o the Fund, 6610
Rockledge Drive, Bethesda, Maryland 20817.
The Fund's Agreement and Declaration of Trust provides that the Fund
will indemnify its Trustees and each of its officers against liabilities and
expenses incurred in connection with the litigation in which they may be
involved because of their offices with the Fund, except if it is determined in
the manner specified in the Agreement and Declaration of Trust that they have
not acted in good faith in the reasonable belief that their actions were in the
best interests of the Fund or that such indemnification would relieve any
officer or Trustee of any errors and omissions to the Fund or its shareholders
by reason of
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willful misfeasance, bad faith, gross negligence or reckless disregard of his or
her duties.
Each Trustee who is not an "interested person" of the Fund receives an
annual fee of $5,000, plus $500 for each Trustees' meeting attended. The
salaries and expenses of each of the Fund's officers are paid by the Manager.
Mr. Lane and Mr. Eby as stockholders and/or officers of the Manager, will
benefit from the management fees paid by the Fund.
The following table exhibits Trustee Compensation for the fiscal year
ended December 31, 1997.
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<CAPTION>
Name of Aggregate Pension or Estimated
Person, Compensation From Retirement Annual
Position Registrant for the Benefits Benefits Upon
Fiscal Year Ended Accrued as Retirement
December 31, 1997 Part of Fund
Expenses
<S> <C>
Frederick Amling $2,850 -0- -0-
Robert P. Moltz $2,850 -0- -0-
Roy A. Schotland $2,850 -0- -0-
Wayne H. Shaner $2,850 -0- -0-
Bruce C. Ellis $2,850 -0- -0-
</TABLE>
As of April 15, 1998 , the Trustees, officers, and affiliated persons
of the Fund, as a group, owned 703,659 shares (2.025%) of the Fund.
The Manager. Under a written management contract ("Management
Agreement") between the Fund and the Manager, subject to such policies as the
Trustees of the Fund may determine, the Manager, at its expense, will furnish
continuously an investment program for the Fund and will make investment
decisions on behalf of the Fund and place all orders for the purchase and sale
of portfolio securities subject always to applicable investment objective,
policies and restrictions.
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Pursuant to the Management Agreement and subject to the control of the
Trustees, the Manager also manages, supervises and conducts the other affairs
and business of the Fund, furnishes office space and equipment, provides
bookkeeping and certain clerical services and pays all fees and expenses of the
officers of the Fund. As indicated under "Portfolio Transactions -Brokerage and
Research Services," the Fund's portfolio transactions may be placed with brokers
which furnish the Manager, without cost, certain research, statistical and
quotation services of value to them or their respective affiliates in advising
the Fund or their other clients. In so doing, the Fund may incur greater
brokerage commissions than it might otherwise pay.
The Manager's compensation under the Management Agreement is subject to
reduction to the extent that in any year the expenses of the Fund exceed the
limits on investment company expenses imposed by any statute or regulatory
authority of any jurisdic tion in which shares of such Fund are qualified for
offer and sale. The term "expenses" is subject to interpretation by each of such
jurisdictions, and, generally speaking, excludes brokerage commissions, taxes,
interest, distribution-related expenses and extraordinary expenses. As of this
date, shares are not sold in any state which imposes such a restriction. The
Manager received the following compensation for the fiscal years indicated:
Advisory Fees Paid
1995 1996 1997
$313,512 $732,902 $3,446,533
The Management Agreement has been approved by the Trustees of the Fund.
By its terms, the Management Agreement will continue in force from year to year,
but only so long as its continuance is approved at least annually by the
Trustees at a meeting called for that purpose or by the vote of a majority of
the outstanding shares of the Fund. The Management Agreement automatically
terminates on assignment, and is terminable upon notice by the Fund. In
addition, the Management Agreement may be terminated on not more than 60 days'
notice by the Manager to the Fund. In the event the Manager ceases to be the
manager of the
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Fund, the right of the Fund to use the identifying name of "Torray" may be
withdrawn.
As described in the text of the Prospectus under the caption
"Management of the Fund," the Fund pays, in addition to the management fee
described above, all expenses not borne by the Manager, including, without
limitation, fees and expenses of the Trustees, interest charges, taxes,
brokerage commissions, expenses of issue or redemption of shares, fees and
expenses of registering and qualifying the shares of the Fund for distribution
under federal and state laws and regulations, charges of custodians, auditing
and legal expenses, expenses of determining net asset value of the Fund's
shares, reports to shareholders, expenses of meetings of shareholders, expenses
of printing and mailing prospectuses, proxy statements and proxies to existing
shareholders, and insurance premiums. The Fund is also responsible for such
nonrecurring expenses as may arise, including litigation in which the Fund may
be a party, and other expenses as determined by the Trustees. The Fund may have
an obligation to indemnify its officers and Trustees with respect to such
litigation.
The Management Agreement provides that the Manager shall not be subject
to any liability in connection with the performance of its services thereunder
in the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
The Manager is a Maryland corporation organized in 1990. Approximately
sixty-four percent (64%) of the outstanding voting shares of the Manager is
owned by Robert E. Torray.
OTHER SERVICES
Custodial Arrangements. United Missouri Bank ("UMB"), 928 Grand Blvd.,
Kansas City, MO 64141, is the custodian for the Fund. As such, UMB holds in
safekeeping certificated securities and cash belonging to the Fund and, in such
capacity, is the registered owner of securities in book-entry form belonging to
the Fund. Upon instruction, UMB receives and delivers cash and securities of the
Fund in connection with the Fund transactions and collects all dividends and
other distributions made with respect to the Fund's portfolio securities. UMB
also maintains certain accounts and records of the Fund.
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Transfer and Shareholder Servicing Agent. First Data Investor Services Group,
3200 Horizon Drive, King of Prussia, PA 19406- 0903 serves as transfer agent and
shareholder servicing agent to the Fund pursuant to a Transfer Agent Service
Agreement (the "Transfer Agent Agreement"). Under the Transfer Agent Agreement,
First Data Investor Services Group has agreed to (i) issue and redeem Shares of
the Fund; (ii) provide shareholder services which includes responding to
Shareholder correspondence and inquiries; (iii) maintain Shareholder accounts
and certain subaccounts; and (iv) prepare periodic reports to the Fund's
officers and/or Board of Trustees. The Transfer Agent received $140,797 in fees
for the fiscal year ended December 31, 1997.
Certified Public Accountants. The Fund's independent public accountants are
Briggs, Bunting & Dougherty, LLP. Briggs, Bunting & Dougherty, LLP conducts an
annual audit of the Fund, assists in the preparation of the Fund's federal and
state income tax returns and consults with the Fund as to matters of accounting
and federal and state income taxation.
PORTFOLIO TRANSACTIONS
Brokerage and Research Services. Transactions on stock exchanges and
other agency transactions involve the payment by the Fund of negotiated
brokerage commissions. Such commissions vary among different brokers. Also, a
particular broker may charge different commissions according to such factors as
the difficulty and size of the transaction. There is generally no stated
commission in the case of securities, such as U.S. Government Securities, traded
in the over-the-counter markets or in the case of gold bullion but the price
paid by the Fund usually includes an undisclosed dealer commission or mark-up.
It is anticipated that most purchases and sales of short-term portfolio
securities will be with the issuer or with major dealers in money market
instruments acting as principals. In underwritten offerings, the price paid
includes a disclosed, fixed commission or discount retained by the underwriter
or dealer.
When the Manager places orders for the purchase and sale of portfolio
securities for the Fund and buys and sells securities for the Fund, it is
anticipated that such transactions will be effected through a number of brokers
and dealers. In so doing, the Manager intends to use its best efforts to obtain
for the Fund the most favorable price and execution available, except to
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the extent that it may be permitted to pay higher brokerage commissions as
described below. In seeking the most favorable price and execution, the Manager
considers all factors it deems relevant, including, by way of illustration,
price, the size of the transaction, the nature of the market for the security,
the amount of commission, the timing of the transaction taking into account
market prices and trends, the reputation, experience and financial stability of
the broker/dealer involved and the quality of service rendered by the
broker/dealer in other transactions.
It has for many years been a common practice in the investment advisory
business for advisors of investment companies and other institutional investors
to receive research, statistical and quotation services from brokers which
execute portfolio transactions for the clients of such advisors. Consistent with
this practice, the Manager may receive research, statistical and quotation
services from brokers with which the Fund's portfolio transactions are placed.
These services, which in some instances could also be purchased for cash,
include such matters as general economic and security market reviews, industry
and company reviews, evaluations of securities and recommendations as to the
purchase and sale of securities. Some of these services may be of value to the
Manager in advising various of its clients (including the Fund), although not
all of these services are necessarily useful and of value in managing the Fund.
The fees paid to the Manager are not reduced because it receives such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934
and the Management Agreement, the Manager may cause the Fund to pay a broker
which provides "brokerage and research services" (as defined in the Act) to the
Manager an amount of disclosed commission for effecting a securities transaction
for the Fund in excess of the commission which another broker would have charged
for effecting that transaction. The authority of the Manager to cause the Fund
to pay any such greater commissions is subject to such policies as the Trustees
may adopt from time to time.
Under the Investment Company Act, persons affiliated with the Fund are
prohibited from dealing with the Fund as a principal in the purchase and sale of
securities.
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The total brokerage commissions paid for the fiscal year ended December
31, 1995, 1996, and 1997 were $64,932, $160,089, and $757,611.00 respectively.
ORGANIZATION AND CAPITALIZATION OF THE FUND
The Fund was established as a Massachusetts business trust under the
laws of Massachusetts by an Agreement and Declaration of Trust dated April 19,
1990. A copy of the Agreement and Declaration of Trust is on file with the
Secretary of The Commonwealth of Massachusetts. The Trust's fiscal year ends on
December 31 of each year.
As described in the text of the Prospectus following the caption
"Organization and Capitalization of the Fund," shares of the Fund are entitled
to one vote per share (with proportional voting for fractional shares) on such
matters as shareholders are entitled to vote. There will normally be no meetings
of shareholders for the purpose of electing Trustees, except insofar as
elections are required under the 1940 Act in the event that (i) less than a
majority of the Trustees have been elected by shareholders, or (ii) if, as a
result of a vacancy, less than two-thirds of the Trustees have been elected by
the shareholders, the vacancy will be filled only by a vote of the shareholders.
In addition, the Trustees may be removed from office by a written consent signed
by the holders of two-thirds of the outstanding shares of the Fund and filed
with the Fund's custodian or by a vote of the holders of two-thirds of the
outstanding shares of the Fund at a meeting duly called for the purpose, which
meeting shall be held upon the written request of the holders of not less than
10% of the outstanding shares. Upon written request by ten or more shareholders,
who have been such for at least six months, and who hold shares constituting 1%
of the outstanding shares, stating that such shareholders wish to communicate
with the other shareholders for the purpose of obtaining the signatures
necessary to demand a meeting to consider removal of a Trustee, the Fund has
undertaken to provide a list of shareholders or to disseminate appropriate
materials (at the expense of the requesting shareholders). Except as set forth
above, each Trustee shall continue to hold office and may appoint his successor.
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SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held liable for the obligations of the Fund. However, the
Fund's Agreement and Declaration of Trust disclaims shareholder liability for
acts or obligations of the Fund and requires that notice of such disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Fund or the Trustees. The Agreement and Declaration of Trust provides for
indemnification out of the Fund's property for all loss and expense of any
shareholder of the Fund held liable on account of being or having been a
shareholder. Thus, the risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which the Fund would be
unable to meet its obligations.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended December 31, 1997
including notes thereto and the report thereon of Briggs, Bunting & Dougherty,
LLP are herein incorporated by reference. A copy of the 1997 Annual Report to
Shareholders must accompany the delivery of this Statement of Additional
Information.
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