AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1996
REGISTRATION NO. 33-45437
FILE NO. 811-6549
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. ____ [ ]
POST-EFFECTIVE AMENDMENT NO. 5 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 9 [X]
(CHECK APPROPRIATE BOX OR BOXES)
AMERICA'S UTILITY FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
901 EAST BYRD STREET
RICHMOND, VIRGINIA 23219
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (804) 775-5719
DAVID L. HEAVENRIDGE
901 EAST BYRD STREET
RICHMOND, VIRGINIA 23219
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO
TIMOTHY W. DIGGINS, ESQ.
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MA 02110
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX)
[ ] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)
[ ] ON (DATE) PURSUANT TO PARAGRAPH (B)
[X] 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(1)
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[ ] ON (DATE) PURSUANT TO PARAGRAPH (A)(1)
[ ] 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2)
[ ] ON (DATE) PURSUANT TO PARAGRAPH (A)(2) OF RULE 485
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 REGISTERED AN INDEFINITE NUMBER OR AMOUNT OF SECURITIES UNDER
THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2. A RULE 24F-2 NOTICE FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1995 HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ON FEBRUARY 29, 1996.
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CROSS REFERENCE SHEET
(as required by Rule 495)
Part A
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<CAPTION>
N-1A Item No. Location
<S> <C> <C>
1. Cover Page..................................................... Cover Page
2. Synopsis....................................................... Cover Page; Expense summary
3. Condensed Financial Information................................ Expense summary; Financial
Highlights
4. General Description of Registrant.............................. Cover Page; Investment objective
and policies; Other investment
practices
5. Management of the Fund......................................... Management of the Fund; The
Fund; Transfer and dividend agent
services
5A. Management's Discussion of Fund Performance.................... Contained in the Annual Report of
the Registrant
6. Capital Stock and Other
Securities................................................... Management of the Fund; Taxes;
How distributions are made; The
Fund
7. Purchase of Securities Being
Offered...................................................... Management of the Fund; How to
invest in the Fund
8. Redemption or Repurchase....................................... How to invest in the Fund;
Redemption of shares
9. Pending Legal Proceedings...................................... Not Applicable
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Part B
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N-1A Item No. Location
<S> <C> <C>
10. Cover Page.................................................... Cover Page
11. Table of Contents............................................. Table of Contents
12. General Information and History............................... General; Ratings
13. Investment Objectives and
Policies.................................................... Investment Restrictions; Certain
Investment Techniques
14. Management of the Fund........................................ Management
15. Control Persons and Principal
Holders of Securities....................................... Control Persons and Principal
Holders
16. Investment Advisory and Other
Services.................................................... Investment Advisory Services;
Other Services; Brokerage; Officers
of Commonwealth; Independent
Auditors; Custodian
17. Brokerage Allocation.......................................... Brokerage
18. Capital Stock and Other
Securities.................................................. General
19. Purchase, Redemption and Pricing
of Securities Being Offered................................. Determination of Net Asset Value
20. Tax Status.................................................... Tax Status
21. Underwriters.................................................. Distribution
22. Calculations of Performance Data.............................. Performance Information
23. Financial Statements ......................................... Financial Statements
</TABLE>
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Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
<PAGE>
[LOGO]
PROSPECTUS May , 1996
AMERICA'S UTILITY FUND, INC.
America's Utility Fund, Inc. seeks current income and moderate capital
growth. The Fund invests primarily in the equity securities of utility
companies. Commonwealth Investment Counsel, Inc. is the Fund's investment
adviser.
This Prospectus sets forth concisely the information about the Fund
that a prospective investor should know before investing. Please read this
Prospectus and retain it for future reference. INVESTORS CAN FIND MORE DETAILED
INFORMATION IN THE MAY , 1996 STATEMENT OF ADDITIONAL INFORMATION, AS AMENDED
FROM TIME TO TIME. FOR A FREE COPY OF THE STATEMENT, CALL AMERICA'S UTILITY FUND
SERVICE COMPANY AT 1-800-487-3863. The Statement has been filed with the
Securities and Exchange Commission and is incorporated into this Prospectus by
reference. The Fund's address is 901 East Byrd Street, Richmond, Virginia 23219.
-------------------------
PROJECT AMERICA, INC.
DISTRIBUTOR
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESEN-
TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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EXPENSE SUMMARY
Expenses are one of several factors to consider when investing
in the Fund. The following table summarizes an investor's maximum transaction
costs from investing in the Fund and expenses incurred by the Fund for the last
fiscal year. The Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in the Fund over specified periods.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees 0.23%
12b-1 Fees None
Other Expenses
Administrative Services Expenses* 0.42%
Shareholder Servicing Arrangements 0.25%
Other Fund Expenses (after expense limitation)** 0.31%
Total Other Expenses (after expense limitation)** 0.98%
-----
Total Fund Operating Expenses** 1.21%
- -----------------
* The aggregate of Management Fees and Administrative Services Expenses may
not exceed 0.65% of net assets per annum.
** Other Fund Expenses, Total Other Expenses, and Total Fund Operating
Expenses reflect an expense limitation currently in effect. The
expense limitation does not apply to any extraordinary expenses
incurred by the Fund. See the Statement of Additional Information. Absent
the expense limitation, Other Fund Expenses, Total Other Expenses, and
Total Fund Operating Expenses would be 0.44%, 1.10%, and 1.34% of net
assets, respectively.
EXAMPLE
Your investment of $1,000 in the Fund would incur the following
expenses, assuming a 5% annual return and redemption at the end of each period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$13 $39 $67 $147
$13 $39 $67 $147
The tables are provided to help you understand the expenses of
investing in the Fund and your share of the operating expenses of the Fund. The
Examples should not be considered a representation of future performance; actual
expenses may be greater or less than those shown.
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FINANCIAL HIGHLIGHTS
The following selected data has been audited and reported on by
Deloitte & Touche LLP, the Fund's independent auditors. Their report dated
January 26, 1996 on the financial statements of the Fund is included in the
Fund's annual report to shareholders, and is included in the Statement of
Additional Information. A copy of the Fund's annual report may be obtained free
of charge from the Fund. This table should be read in conjunction with the
financial statements and related notes which appear in the Fund's Statement of
Additional Information.
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<CAPTION>
For the period
May 5, 1992
(commencement of operations) Year ended Year ended Year Ended
to December 31, 1992(a) December 31, 1993(b) December 31, 1994(b) December 31, 1995
<S> <C> <C> <C>
Net Asset Value, beginning of period 20.54 $21.95 $23.54 $19.50
Income from Investment Operations
Net investment income 0.63 0.91 0.96 0.96
Net realized and unrealized gain
(loss) on investments 1.80 2.00 (4.04) 5.22
---- ---- ------ ----
Total from investment operations 2.43 2.91 (3.08) 6.18
Less Distributions
Dividends (for investment income) 0.67 0.92 0.96 0.96
Distributions (from net realized 0.35 0.40 0.00
capital gains)
Return of capital 0.00 0.00 0.00 0.00
---- ---- ---- ----
Total distributions 1.02 1.32 0.96 0.96
Net Asset Value, end of period $21.95 $23.54 $19.50 $24.72
====== ====== ====== ======
Total Return 18.76% 13.26% (13.10%) 32.30%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $43.67 $133.53 $125.01 $162.83
Ratio of expenses to average net assets 1.21% 1.21% 1.21% 1.21%
Ratio of expenses to average net assets
before expense reductions 1.41% 1.41% 1.33% 1.34%
Ratio of net investment income to average
net assets 4.99% 4.19% 4.40% 4.66%
Portfolio turnover rate 24.16% 21.20% 28.85% 27.77
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(a) Dividends from net investment income include investment income earned prior
to commencement of sales to the public. The total return and the ratios to
average net assets are annualized.
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INVESTMENT OBJECTIVE AND POLICIES
THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK CURRENT INCOME AND MODERATE
CAPITAL GROWTH. The Fund invests principally in the equity securities of utility
companies, including common stocks, preferred stocks, warrants, and securities
convertible into common or preferred stocks. Commonwealth Investment Counsel,
Inc. ("Commonwealth") is the Fund's investment manager.
"Utility companies" include companies engaged in the manufacture,
production, generation, transmission, sale, or distribution of electric or gas
energy or other types of energy and companies engaged in telecommunications,
including telephone, telegraph, satellite, microwave and other communications
media (but not companies engaged in public broadcasting or cable television).
Commonwealth considers a particular company to be a "utility company" if at the
time of investment Commonwealth determines that at least 50% of the company's
assets, revenues, or profits are derived from one or more of the activities
described above. Under normal circumstances, the Fund will invest at least 65%
of its total assets in the securities of utility companies.
The Fund may invest the remainder of its assets in other securities it
believes have the potential to produce current income, capital growth, or both.
These may include U.S. government securities, corporate bonds, notes, and
debentures, and equity securities of other kinds of companies. The types of
securities held by the Fund will vary from time to time in light of the Fund's
investment objective, changes in interest rates, and economic and other factors.
The Fund may hold a portion of its assets in cash and money market instruments.
Debt securities in which the Fund may invest will be rated at the time
of purchase at least Baa by Moody's Investors Service, Inc. or BBB by Standard &
Poor's (or comparably rated by another nationally recognized rating
organization), or may be unrated securities determined to be of comparable
quality by Commonwealth. Investments in securities rated BBB or Baa have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of the issuer to
make principal and interest payments than would likely be the case with
investments in securities with higher credit ratings. The Fund will not
necessarily dispose of security when its rating is reduced below its rating at
the time of purchase, although Commonwealth will monitor the investment to
determine whether continued investment in the security would serve the Fund's
investment objective.
The investment policies in this prospectus are not fundamental, and the
Board of Directors may change such policies without shareholder approval. As a
matter of policy, the Board of Directors would not change the Fund's investment
objective without shareholder approval.
Special considerations regarding the Fund's investments in utility
companies. Since the Fund's investments are concentrated in securities of
utility companies, the value of its shares can be expected to change in response
to factors affecting utilities and their industries, and may fluctuate more
widely than the value of shares of a portfolio that invests in a broader range
of companies. Many utility companies, especially electric, gas, and other
energy-related utility companies, have historically been subject to risks of
increase in fuel and other operating costs, changes in interest rates on
borrowings for capital improvement programs, changes in applicable laws and
regulations, changes in technology which may render existing plants, equipment,
or products obsolete, the effects of energy conservation and operating
constraints, and increased costs and delays associated with compliance with
environmental regulations. In particular, regulatory changes could increase
costs or impair the ability of utility companies to operate their facilities or
obtain adequate return on invested capital. Generally, prices charged by
utilities are regulated in the United States and in foreign countries with the
intention of protecting the public while ensuring that utility companies earn a
return sufficient to allow them to attract capital in order to grow and continue
to provide appropriate services. There can be no assurance that such pricing
policies or rates of return will continue in the future.
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In recent years, regulatory changes in the United States have
increasingly allowed utility companies to provide services and products outside
their traditional geographic areas and lines of business, creating new areas of
competition within the utilities industries. This trend toward deregulation and
the emergence of new entrants have caused non-regulated providers of utility
services to become a significant part of the utilities industries. Commonwealth
believes that the emergence of competition and deregulation will result in
certain utility companies being able to earn more than their traditional
regulated rates of return, while others may be forced to defend their core
business from increased competition and may be less profitable. Although
Commonwealth seeks to take advantage of favorable investment opportunities that
may arise from these structural changes, there can be no assurance that the Fund
will benefit from any such changes.
FOREIGN INVESTMENTS. The Fund may invest up to 20% of its assets in
foreign securities. Foreign investments can involve risks that may not be
present in domestic investments. Since foreign securities are normally
denominated and traded in foreign currencies, the value of the Fund's assets may
be affected favorably or unfavorably by currency exchange rates and exchange
control regulations. There may be less information publicly available about a
foreign company than a U.S. company, and foreign companies are not generally
subject to accounting, auditing, and financial reporting standards and practices
comparable with those in the United States.
The securities of some foreign companies are less liquid and at times
more volatile than securities of comparable U.S. companies. Foreign brokerage
commissions and other fees are also generally higher than those in the United
States. Foreign settlement procedures and trade regulations may involve certain
risks (such as delay in payment or delivery of securities or in the recovery of
fund assets held abroad) and expenses not present in the settlement of domestic
investments. In addition, there may be a possibility of nationalization or
expropriation of assets, impositions of currency exchange controls, confiscatory
taxation, political or financial instability and diplomatic developments that
could affect the value of investments in certain foreign countries. Legal
remedies available to investors in certain foreign countries may be more limited
than those available with respect to investments in the United States or in
certain other foreign countries. The laws of some foreign countries may limit
investments in securities of certain issuers located in those foreign countries.
Special tax considerations apply to foreign securities.
The Fund may buy and sell foreign currencies and foreign currency
forward and futures contracts for hedging purposes in connection with its
foreign investments.
OTHER INVESTMENT PRACTICES.
The Fund will invest principally in equity securities of utility
companies. The Fund may also from time to time make other investments, and use
other investment techniques, Commonwealth believes to be consistent with the
Fund's investment objective. Such investments and investment techniques may
include the following (although the Fund may, subject to the general oversight
of the Directors, make such other investments or invest in such other techniques
as may be consistent with applicable law):
INVESTMENTS IN COMPANIES ENGAGED IN THE OIL INDUSTRY. The Fund may
invest up to 15% of its assets in securities of issuers engaged in the
production, refining, sale, or distribution of oil or oil-related products.
Under certain market conditions, the prices of such securities vary inversely to
the prices of securities of utility companies, and so may provide some limited
protection against a decline in the Fund's net asset value at times of a general
decline in prices of securities of utility companies. The Fund may invest in
such securities in an attempt to gain such protection or in an attempt generally
to increase the Fund's capital growth.
The prices of securities of companies in the oil industry and the price
of oil are subject to substantial fluctuations, and may be affected by
unpredictable economic and political circumstances such as social, political, or
military disturbances in or near oil-producing countries or oil shipping or
pipeline routes, the taxation and regulatory policies of various governments,
the activities and policies of OPEC (an organization of major oil
-5-
<PAGE>
producing countries), the discovery of new oil and gas reserves and the
development of new techniques for producing, refining and transporting oil, gas,
and related products, energy conservation practices, and the development of
alternative energy sources and alternative uses for oil and gas products. In
addition, the facilities and other assets of such companies in certain
jurisdictions may be subject to the risks of nationalization or expropriation,
confiscatory taxation, and the general risks of political or financial
instability and diplomatic developments that could affect their values
adversely.
REAL ESTATE INVESTMENT TRUSTS. The Fund may at times seek to increase
its current income by investing up to 10% of its assets in real estate
investment trusts ("REITs"). Investments in REITs are subject to many of the
risks associated with the direct ownership in real estate, including declines in
the value of real estate, risks related to general or local economic conditions,
overbuilding, difficulty in completing construction, increased competition,
changes in zoning laws, increases in property taxes and operating expenses, and
variations in rental income. Generally, increases in interest rates will
increase the costs of obtaining financing, which may result in a decrease in the
value of real estate investments. Equity REITs may be affected by changes in the
value of the underlying property owned by the trusts, while mortgage REITs will
be effected by changes in the value of the properties to which they have
extended credit. REITs are dependent upon management skill, may not be
diversified and are subject to the risks of financing projects. REITs are also
subject to heavy cash flow dependency, borrower defaults, self-liquidation, and
the possibility of failing to qualify for tax-free pass-through of income under
the Internal Revenue Code and to maintain exemption from the Investment Company
Act of 1940.
HEDGING TECHNIQUES. The Fund may at times seek to limit fluctuations in
the values of securities it owns or expects to purchase by buying and selling
put and call options on such securities or through the purchase and sale of
futures contracts and related options. The Fund will not purchase futures or
options on futures or sell futures if as a result the sum of the initial margin
deposits on the Fund's existing futures positions and premiums paid for
outstanding options would exceed 5% of the Fund's assets. (For options that are
"in-the-money" at the time of purchase, the amount by which the option is
"in-the-money" is excluded from this calculation.)
A call option gives the holder the right to purchase a security at the
exercise price at any time prior to the expiration of the option. A put option
gives the holder the right to sell a security at the exercise price at any time
prior to the expiration of the option. The Fund might, for example, buy a put
option on a security it owns to hedge against a decline in the value of the
security below the exercise price of the option.
The Fund may buy and sell index futures contracts ("index futures") and
options on index futures and on indices for hedging purposes. An "index futures"
is a contract to buy or sell units of a particular bond or stock index at an
agreed price on a specified future date. Depending on the change in value of the
index between the time when the Fund enters into and terminates an index futures
or option transaction, the Fund realizes a gain or loss.
The Fund may buy an index future if Commonwealth believed that there
was a substantial correlation between the value of a particular index and the
price of the securities in the Fund's portfolio that are the subject of the
hedge.
Risks related to options and futures strategies. Options and futures
transactions involve costs and may result in losses. Certain risks arise because
of the possibility of imperfect correlations between movements in the prices of
futures and options and movements in the prices of the underlying security or
index or of the securities held by the Fund that are the subject of a hedge. The
successful use by the Fund of the strategies described above further depends on
the ability of Commonwealth to forecast market movements correctly. Other risks
arise from the Fund's potential inability to close out futures or options
positions. Although the Fund will enter into options or futures transactions
only if Commonwealth believes that a liquid secondary market exists for such
option or futures contract, there can be no assurance that the Fund will be able
to effect closing transactions at any particular
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time or at an acceptable price. Transactions in options and futures contracts
involve brokerage costs. Federal tax considerations may also limit the Fund's
ability to engage in options and futures transactions. For more information, see
the Statement of Additional Information.
The Fund's futures transactions will be conducted on recognized
exchanges. In general, however, the Fund will purchase and sell options in
transactions in the over-the-counter markets. The Fund's ability to terminate
options in the over-the-counter markets may be more limited than for
exchange-traded options and may also involve the risk that securities dealers
participating in such transactions would be unable to meet their obligations to
the Fund. The Fund will, however, engage in over-the-counter transactions only
when appropriate exchange-traded transactions are unavailable and when, in
Commonwealth's opinion, the pricing mechanism and liquidity of the
over-the-counter markets are satisfactory and the participants are responsible
parties likely to meet their contractual obligations.
SECURITIES LOANS, REPURCHASE AGREEMENTS, AND FORWARD COMMITMENTS. The
Fund may lend portfolio securities and may enter into repurchase agreements with
banks, broker/dealers, and other recognized financial institutions, in each case
on up to 25% of its assets. These transactions must be fully collateralized at
all times, but involve some risk to the Fund if the other party should default
on its obligations and the Fund is delayed or prevented from recovering the
collateral.
PORTFOLIO TURNOVER. The length of time the Fund has held a particular
security is not generally a consideration in investment decisions. A change in
the securities held by the Fund is known as "portfolio turnover." Portfolio
turnover generally involves some expense to the Fund, including brokerage
commissions or dealer mark-ups and other transaction costs on the sale of
securities and reinvestment in other securities. Such sales may result in
realization of taxable capital gains. Portfolio turnover rates for the life of
the Fund are shown above in the section "Financial highlights."
MANAGEMENT OF THE FUND
The Board of Directors of the Fund has overall responsibility for the
management and supervision of the Fund. COMMONWEALTH INVESTMENT COUNSEL, INC.,
901 East Byrd Street, Richmond, Virginia 23219, serves as investment manager to
the Fund. Commonwealth, at its expense, furnishes continuously an investment
program for the Fund and makes investment decisions on behalf of the Fund
consistent with the Fund's stated investment objectives, policies, and
restrictions. Commonwealth currently has assets under management in excess of
$__ billion, and serves as investment adviser to Cash Resource Trust, Mentor
Balanced Portfolio, Mentor Quality Income Portfolio, and Mentor Short-Duration
Income Portfolio, each of which is an open-end investment company, and Mentor
Income Fund, Inc., a closed-end investment company. All investment decisions are
made by a team of investment professionals at Commonwealth.
MENTOR INVESTMENT GROUP, INC. ("Mentor"), 901 East Byrd Street,
Richmond, Virginia 23219, serves as administrator to the Fund. Mentor, as
administrator, continuously provides business management services to the Fund
and generally, subject to the oversight of the Board of Directors of the Fund,
manages all of the business and affairs of the Fund (other than those managed by
Commonwealth). The Fund pays Mentor a fee at an annual rate of 0.65% of the
Fund's average daily net assets, less the amount of any management fees paid to
Commonwealth.
Mentor, itself, through America's Utility Fund Service Company ("AUF
Service Company"), or through other financial institutions, provides shareholder
support services to the Fund and its shareholders. These services might include,
among other things, providing office space, equipment, telephone facilities, and
various clerical, supervisory, and computer personnel, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions; answering routine shareholder
inquiries regarding the Fund; assisting shareholders in changing dividend
options, account designations, and addresses; and providing
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such other services as the Fund may reasonably request. Mentor provides these
services at an annual rate of 0.25% of the Fund's average daily net assets.
Commonwealth, which is organized under the laws of Virginia, is a
wholly-owned subsidiary of Mentor, which in turn is a wholly-owned subsidiary of
Wheat First Butcher Singer, Inc. Wheat First Butcher Singer, through its
affiliated companies, engages in securities brokerage, investment advisory,
investment banking, and related businesses. AUF Service Company is a
wholly-owned subsidiary of Dominion Capital, Inc.
HOW TO INVEST IN THE FUND
There are two basic methods by which you may invest in the Fund: by
monthly payments through an installment, or by a single initial investment with
a higher minimum investment amount.
INVESTING THROUGH AN INSTALLMENT PLAN. Anyone wishing to invest in the
Fund may enroll in an installment plan to make regular monthly payments to the
Fund over the course of a year, except for IRA or other retirement plan
accounts. To invest by making monthly installments, you should complete an
enrollment application and mail it to Project America, Inc. ("Project America"),
the Fund's distributor, no later than the date specified on the application. To
complete the application, you will need to select your monthly investment, which
must be at least $20 and in multiples of $5. Once you choose a monthly payment,
you cannot decrease it during the 12-month payment period, although you may stop
participation in an installment plan for any reason and request a redemption of
your share account.
Investments over the amount of your monthly installment will be
accepted, and the excess will be applied to your next scheduled installment.
After the Fund receives your properly completed application, the Fund
will mail you a coupon book approximately two weeks before your first
installment is due. The coupon book will contain 12 coupons showing your chosen
monthly investment amount and the dates each of your payments is due. You should
mail the appropriate coupon and a check payable to the Fund to Project America,
P.O. Box 85124, Richmond Virginia 23285-5124 by the due date specified in the
coupon book.
INVESTMENT BY SINGLE INITIAL PAYMENT. Alternatively, you may make a
single initial investment in the Fund. This method requires a minimum investment
of $1,000 and is the method you should use for establishing an IRA or other
retirement plan account. Additional investments may be made at any time in
amounts of $100 or more. To invest in the Fund by this method, complete the
enrollment application and mail it, with a check payable to the Fund, to Project
America, P.O. Box 85124, Richmond, Virginia 23285-5124. If you are interested in
an IRA, call AUF Service Company at 1-800-487-3863 for an IRA enrollment kit.
Investors using the single payment method may also participate in a
monthly installment plan, if desired. However, the installment method is not
available for IRA or other retirement plan accounts.
If you do not have an enrollment application, call Project America at
1-800-487-3863 for one.
General. Shares of the Fund are sold at the net asset value next
determined after a purchase order is received by the Fund, whether by
installment or single payment method. Purchase orders that are received prior to
the close of trading on the New York Stock Exchange on a particular day are
priced according to the net asset value determined on that day.
-8-
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Project America, Inc., P.O. Box 26782, 901 East Byrd Street, Richmond,
Virginia 23261-6782, serves as distributor of the Fund's shares. Project America
is not obligated to sell any specific amount of shares of the Fund. Project
America is a wholly-owned subsidiary of Dominion Capital, Inc.
HOW THE FUND VALUES ITS SHARES
The Fund calculates the net asset value of its shares by dividing the
total value of its assets, less liabilities, by the number of its shares
outstanding. Shares are valued as of the close of regular trading on the New
York Stock Exchange each day the Exchange is open. Portfolio securities for
which market quotations are readily available are stated at market value.
Short-term investments that will mature in 60 days or less are stated at
amortized cost, which has been determined to approximate the fair market value
of such investments. All other securities and assets are valued at their fair
values.
HOW DISTRIBUTIONS ARE MADE
The Fund distributes net investment income quarterly and any net
realized capital gains at least annually. Distributions from capital gains are
made after applying any available capital loss carryovers. All Fund
distributions will be invested in additional Fund shares, unless the shareholder
instructs the Fund otherwise.
REDEMPTION OF SHARES
You may redeem all or any portion of your shares in the Fund at any
time by submitting a written request for redemption to AUF Service Company.
Redemptions will be effected at the net asset value per share of the Fund next
determined after the receipt by the Fund of redemption instructions in good
order. A redemption request will be considered to have been made in "good order"
if: (1) the request is in writing, states the number of shares to be redeemed,
and identifies the shareholder's Fund account number, (2) the request is signed
by each registered owner exactly as the shares are registered, and (3) it is
accompanied by any additional documentation required by the Fund. A check for
the proceeds will normally be mailed on the next business day. If shares of the
Fund to be redeemed represent an investment made by check, the Fund reserves the
right not to transmit the redemption proceeds to the shareholder until the check
has been collected, which may take up to 15 days after the purchase date.
Upon receipt of a request in good order, the Fund will determine the
net asset value of the redeemed shares, based upon the net asset value per share
of the Fund next determined after the redemption request has been received.
The Fund reserves the right to require signature guarantees. A
guarantor of a signature must be an eligible guarantor institution, which term
includes most banks and trust companies, savings associations, credit unions,
and securities brokers or dealers. The purpose of a signature guarantee is to
protect Fund shareholders against the possibility of fraud.
OTHER INFORMATION CONCERNING REDEMPTION. Under unusual circumstances,
the Fund may suspend redemptions, or postpone payment for more than seven days,
as permitted by federal securities laws. In addition, the Fund reserves the
right, if conditions exist which make cash payments undesirable, to honor any
request for redemption by making payment in whole or in part by securities
valued in the same way as they would be valued for purposes of computing the
Fund's per share net asset value. If payment is made in securities, a
shareholder may incur brokerage expenses in converting those securities into
cash.
If your account falls below the minimum amount set by the Board of
Directors (presently $240), the Fund may choose to redeem your shares and pay
you for them. You will receive at least 60 days' written notice before the Fund
redeems your shares, and you may purchase additional shares at any time to avoid
a redemption. The
-9-
<PAGE>
Fund may also redeem shares if you own shares of the Fund above any maximum
amount set by the Board of Directors. There is presently no maximum, but the
Board of Directors may establish one at any time, which could apply to both
present and future shareholders.
TAXES
The Fund intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to shareholders. The Fund will distribute substantially all of its
net investment income and capital gain net income on a current basis.
All Fund distributions will be taxable to shareholders as ordinary
income, except that any distributions of net capital gain will be taxed as
long-term capital gain, regardless of how long a shareholder has held the shares
(although the loss on a sale of shares held for six months or less will be
treated as long-term capital loss to the extent of any capital gain distribution
received with respect to those shares). Distributions will be taxable as
described above whether received in cash or in shares through the reinvestment
of distributions. Early in each year the Trust will notify shareholders of the
amount and tax status of distributions paid by the Fund for the preceding year.
In buying or selling securities for the Fund, Commonwealth will not normally
take into account the effect any purchase or sale of securities will have on the
tax positions of the Fund's shareholders.
The foregoing is a summary of certain federal income tax consequences
of investing in the Fund. Dividends and distributions also may be subject to
state and local taxes. Shareholders are urged to consult their tax advisers
regarding specific questions as to federal, state, or local taxes. Non-U.S.
investors should consult their tax advisers concerning the tax consequences of
ownership of shares of the Fund, including the possibility that distributions
may be subject to a 30% United States withholding tax (or a reduced rate of
withholding provided by treaty).
THE FUND
America's Utility Fund, Inc. is a Maryland corporation organized on
January 28, 1992. The Fund is an open-end, diversified, management investment
company with 500,000,000 shares of authorized common stock, $.001 par value.
Each share has one vote, with fractional shares voting proportionately. Shares
of the Fund are freely transferable, are entitled to dividends as declared by
the Board of Directors, and, if the Fund were liquidated, would receive the net
assets of the Fund. The Fund may suspend the sale of shares at any time and may
refuse any order to purchase shares. Although the Fund is not required to hold
annual meetings of its shareholders, shareholders have the right to call a
meeting to elect or remove Directors, or to take other actions as provided in
the Articles of Incorporation.
In the interest of economy and convenience, the Fund will not issue
certificates for its shares.
TRANSFER AND DIVIDEND AGENT SERVICES
STATE STREET BANK AND TRUST COMPANY, c/o Boston Financial Data
Services, Inc., 2 Heritage Drive, North Quincy, Massachusetts 02171, serves as
the Fund's transfer and dividend agent. AMERICA'S UTILITY FUND SERVICE COMPANY,
901 East Byrd Street, Richmond, Virginia, 23219, serves as the sub-transfer and
dividend agent of the Fund.
PERFORMANCE INFORMATION
Yield and total return data may from time to time be included in
advertisements about the Fund. The Fund's "yield" is calculated by dividing the
Fund's annualized net investment income per share during a recent
-10-
<PAGE>
30-day period by its net asset value on the last day of that period. "Total
return" for the one-, five-, and ten-year periods (or for the life of the Fund,
if shorter) through the most recent calendar quarter represents the actual rate
of return on an investment of $1,000 in the Fund over the period. The Fund's
performance may be compared to various indices. See the Statement of Additional
Information. Information may be presented in advertisements about the Fund
describing the background and professional experience of the Fund's investment
adviser or its personnel.
ALL DATA IS BASED ON THE FUND'S PAST INVESTMENT RESULTS AND DOES NOT
PREDICT FUTURE PERFORMANCE. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of the Fund's
investments, and the Fund's operating expenses. Investment performance also
often reflects the risks associated with the Fund's investment objectives and
policies. These factors should be considered when comparing the Fund's
investment results to those of other mutual funds and other investment vehicles.
-11-
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund. This Prospectus does not constitute an offer
in any State in which, or to any person to whom, such offering may not lawfully
be made. This Prospectus omits certain information contained in the Registration
Statement, to which reference is made, filed with the Securities and Exchange
Commission. Items which are thus omitted, including contracts and other
documents referred to or summarized herein, may be obtained from the Commission
upon payment of the prescribed fees.
Additional information concerning the securities offered hereby and the
Fund is to be found in the Registration Statement, including various exhibits
thereto and financial statements included or incorporated therein, which may be
inspected at the office of the Commission.
AMERICA'S UTILITY
FUND, INC.
----------
PROSPECTUS
----------
Project America, Inc.
<PAGE>
AMERICA'S UTILITY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
May , 1996
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of America's Utility Fund, Inc. dated
May , 1996, a copy of which may be obtained by writing America's Utility Fund
Service Company, 901 East Byrd Street, P.O. Box 26501, Richmond, Virginia
23261-6501, or by calling 1-800-487-3863.
TABLE OF CONTENTS
Page
GENERAL INFORMATION.....................................B-3
INVESTMENT RESTRICTIONS.................................B-3
CERTAIN INVESTMENT TECHNIQUES...........................B-5
MANAGEMENT.............................................B-19
CONTROL PERSONS AND PRINCIPAL HOLDERS..................B-24
INVESTMENT ADVISORY SERVICES...........................B-25
OTHER SERVICES.........................................B-26
BROKERAGE..............................................B-28
DETERMINATION OF NET ASSET VALUE.......................B-30
TAX STATUS.............................................B-32
DISTRIBUTION ..........................................B-34
PERFORMANCE INFORMATION................................B-34
OFFICERS OF COMMONWEALTH...............................B-38
CUSTODIAN..............................................B-39
INDEPENDENT AUDITORS...................................B-39
RATINGS................................................B-39
<PAGE>
GENERAL INFORMATION
America's Utility Fund, Inc. (the "Fund") was organized on
January 28, 1992 as a Maryland corporation, and is registered as a diversified,
open-end, management investment company.
INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions, which may not be
changed without approval by the holders of a majority of the outstanding shares
of the Fund:
1. Not to purchase any security (other than obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities, for temporary investment) if as a result
more than 5% of the Fund's total assets are invested in the
securities of any one issuer; the Fund will concentrate its
investments (more than 25% of its assets) in securities issued
by utility companies.
2. Not to purchase any security if as a result the Fund would
then hold more than 10% of any class of securities of an
issuer (taking all common stock issues as a single class, all
preferred stock issues as a single class and all debt issues
as a single class) or more than 10% of the outstanding voting
securities of any one issuer.
3. Not to borrow money or securities for any purpose except to
the extent that borrowing up to 10% of the Fund's total assets
is permitted for emergency purposes. (Any such borrowings will
be made on a temporary basis from banks and will not be made
for investment purposes.) Money borrowed will be repaid before
additional portfolio securities are purchased.
4. Not to invest in securities of any issuer if, to the knowledge
of the Fund, any officer or director of the Fund or of the
Manager owns more than 1/2 of 1% of the outstanding securities
of such issuer, and such officers and directors who own more
than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer.
5. Not to purchase securities for the purpose of exercising
control over the issuers thereof.
6. Not to underwrite securities of other issuers; provided, that
this policy shall not be construed to prevent or limit in any
manner the right of the Fund to purchase securities for
investment purposes.
<PAGE>
7. Not to make loans to other persons other than (i) through the
purchase of a portion of an issue of publicly distributed debt
securities which are not considered loans, (ii) through the
purchase of bonds, debentures, commercial paper, corporate
notes and similar evidences of indebtedness of a type commonly
sold privately to financial institutions, (iii) by entering
into repurchase agreements with respect to not more than 25%
of its total assets (taken at current value), or (iv) through
the lending of portfolio securities with respect to not more
than 25% of its assets.
8. Not to buy securities on margin, or to effect short sales of
securities. (Margin payments in connection with transactions
in futures contracts, options, forward contracts, and other
financial instruments are not considered to constitute the
purchase of securities on margin for this purpose.)
9. Not to issue senior securities other than as consistent with
borrowings permitted under 3 above.
10. Not to invest in the securities of other investment companies
except by purchases in the open market involving only
customary brokerage commissions and as a result of which not
more than 5% of its total assets (taken at current value)
would be invested in such securities, or except as part of a
merger, consolidation or other acquisition.
11. Not to own, buy or sell commodities or commodity futures
contracts (except that the Fund may purchase and sell
financial futures contracts and related options), or real
estate or interests in real estate; provided, that the Fund
may purchase and sell securities which are secured by real
estate and securities of companies which invest or deal in
real estate.
12. Not to invest in warrants if, as a result, such investments
(valued at the lower of cost or market) would exceed 5% of the
value of the Fund's assets.
13. Not to invest more than 2% of its total assets in puts, calls,
straddles, spreads, or any combination thereof (other than
futures contracts, options on futures contracts or indices,
and transactions in foreign currencies).
14. Not to invest in limited partnerships or similar interests in
oil, gas and other mineral exploration development programs;
provided, that the Fund may invest in the securities of other
corporations whose activities include such exploration and
development.
<PAGE>
15. Not to invest more than 5% of its total assets in any issuer
or issuers having a record of less than three years continuous
operation, which may include the operations of predecessor
companies.
16. Not to purchase any security restricted as to disposition
under federal securities laws.
The Investment Company Act of 1940, as amended (the "1940 Act"),
provides that a "vote of a majority of the outstanding voting securities" of the
Fund means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund, and (2) 67% or more of the shares present at a
meeting if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy.
Whenever any fundamental investment policy or investment restriction
states a maximum percentage of the Fund's assets, it is intended that if the
percentage limitation is met at the time the investment is made, a later change
in percentage resulting from changing total or net asset values will not be
considered a violation of such policy.
Subject to future changes in the law or in the rules or regulations of
the Securities and Exchange Commission, the Fund will not invest in Dominion
Resources, Inc. or any affiliates thereof unless appropriate exemptive relief is
first obtained from the Commission.
It is also a policy of the Fund, which may be changed without
shareholder approval, not to purchase any voting security of any electric or gas
utility company (as defined by the Public Utility Holding Company Act of 1935)
if as a result the Fund would then hold 5% or more of the outstanding voting
securities of such company.
Although not a fundamental policy, the Fund will not invest in
securities which are not readily marketable.
CERTAIN INVESTMENT TECHNIQUES
Set forth below is information concerning certain investment techniques
in which the Fund may engage, and certain of the risks they may entail.
<PAGE>
FORWARD COMMITMENTS
The Fund may enter into contracts to purchase securities for a fixed
price at a future date beyond customary settlement time ("forward commitments")
if the Fund holds, and maintains until the settlement date in a segregated
account, cash or high-grade debt obligations in an amount sufficient to meet the
purchase price, or if the Fund enters into offsetting contracts for the forward
sale of other securities it owns. Forward commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in the value of the Fund's other assets. Where
such purchases are made through dealers, the Fund relies on the dealer to
consummate the sale. The dealer's failure to do so may result in the loss to the
Fund of an advantageous yield or price.
Although the Fund will generally enter into forward commitments with
the intention of acquiring securities for its portfolio or for delivery pursuant
to options contracts it has entered into, the Fund may dispose of a commitment
prior to settlement if Commonwealth deems it appropriate to do so. The Fund may
realize short-term profits or losses upon the sale of forward commitments.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement
is a contract under which the Fund acquires a security for a relatively short
period (usually not more than one week) subject to the obligation of the seller
to repurchase and the Fund to resell such security at a fixed time and price
(representing the Fund's cost plus interest). It is the Fund's present intention
to enter into repurchase agreements only with member banks of the Federal
Reserve System and securities dealers meeting certain criteria as to
creditworthiness and financial condition established by the Board of Directors
and only with respect to obligations of the U.S. government or its agencies or
instrumentalities or other high quality short term debt obligations. Repurchase
agreements may also be viewed as loans made by the Fund which are collateralized
by the securities subject to repurchase. Commonwealth will monitor such
transactions to ensure that the value of the underlying securities will be at
least equal at all times to the total amount of the repurchase obligation,
including the interest factor. If the seller defaults, the Fund could realize a
loss on the sale of the underlying security to the extent that the proceeds of
sale including accrued interest are less than the resale price provided in the
agreement including interest. In addition, if the seller should be involved in
bankruptcy or insolvency proceedings, the Fund may incur delay and costs in
selling the underlying security or may suffer a loss of principal and interest
if the Fund is treated as an unsecured creditor and required to return the
underlying collateral to the seller's estate.
<PAGE>
OPTIONS
The Fund may purchase and sell put and call options on its portfolio
securities to enhance investment performance and to protect against changes in
market prices.
Covered call options. The Fund may write covered call options on its
securities to realize a greater current return through the receipt of premiums
than it would realize on its securities alone. Such option transactions may also
be used as a limited form of hedging against a decline in the price of
securities owned by the Fund.
A call option gives the holder the right to purchase, and obligates the
writer to sell, a security at the exercise price at any time before the
expiration date. A call option is "covered" if the writer, at all times while
obligated as a writer, either owns the underlying securities (or comparable
securities satisfying the cover requirements of the securities exchanges), or
has the right to acquire such securities through immediate conversion of
securities.
In return for the premium received when it writes a covered call
option, the Fund gives up some or all of the opportunity to profit from an
increase in the market price of the securities covering the call option during
the life of the option. The Fund retains the risk of loss should the price of
such securities decline. If the option expires unexercised, the Fund realizes a
gain equal to the premium, which may be offset by a decline in price of the
underlying security. If the option is exercised, the Fund realizes a gain or
loss equal to the difference between the Fund's cost for the underlying security
and the proceeds of sale (exercise price minus commissions) plus the amount of
the premium.
The Fund may terminate a call option that it has written before it
expires by entering into a closing purchase transaction. The Fund may enter into
closing purchase transactions in order to free itself to sell the underlying
security or to write another call on the security, realize a profit on a
previously written call option, or protect a security from being called in an
unexpected market rise. Any profits from a closing purchase transaction may be
offset by a decline in the value of the underlying security. Conversely, because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss resulting from a
closing purchase transaction is likely to be offset in whole or in part by
unrealized appreciation of the underlying security owned by the Fund.
Covered put options. The Fund may write covered put options in order to
enhance its current return. Such options transactions may also be used as a
limited form of hedging against an increase in the price of securities that the
Fund plans to purchase. A put option gives the holder the right to sell, and
obligates the writer to buy, a security at the exercise price at any time before
the expiration date. A put option is "covered" if the writer segregates cash and
high-grade short-term debt obligations or other permissible collateral equal to
the price to be paid if the option is exercised.
<PAGE>
In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, the Fund also
receives interest on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Fund assumes the risk
that it may be required to purchase the underlying security for an exercise
price higher than its then current market value, resulting in a potential
capital loss unless the security later appreciates in value.
The Fund may terminate a put option that it has written before it
expires by a closing purchase transaction. Any loss from this transaction may be
partially or entirely offset by the premium received on the terminated option.
Purchasing put and call options. The Fund may also purchase put options
to protect portfolio holdings against a decline in market value. This protection
lasts for the life of the put option because the Fund, as a holder of the
option, may sell the underlying security at the exercise price regardless of any
decline in its market price. In order for a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs that the Fund must
pay. These costs will reduce any profit the Fund might have realized had it sold
the underlying security instead of buying the put option.
The Fund may purchase call options to hedge against an increase in the
price of securities that the Fund wants ultimately to buy. Such hedge protection
is provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. These costs will reduce any profit the Fund might have
realized had it bought the underlying security at the time it purchased the call
option.
The Fund may also purchase put and call options to enhance its current
return.
Options on foreign securities. The Fund may purchase and sell options
on foreign securities if in the opinion of Commonwealth the investment
characteristics of such options, including the risks of investing in such
options, are consistent with the Fund's investment objectives. It is expected
that risks related to such options will not differ materially from risks related
to options on U.S. securities. However, position limits and other rules of
foreign exchanges may differ from those in the U.S. In addition, options markets
in some countries, many of which are relatively new, may be less liquid than
comparable markets in the U.S.
Risks involved in the sale of options. Options transactions involve
certain risks, including the risks that Commonwealth will not forecast interest
rate or market movements correctly, that the Fund may be unable at times to
close out such positions, or that hedging transactions may not accomplish their
purpose because of imperfect market correlations. The
<PAGE>
successful use of these strategies depends on the ability of Commonwealth to
forecast market and interest rate movements correctly.
An exchange-listed option may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If no secondary market were to
exist, it would be impossible to enter into a closing transaction to close out
an option position. As a result, the Fund may be forced to continue to hold, or
to purchase at a fixed price, a security on which it has sold an option at a
time when Commonwealth believes it is inadvisable to do so.
Higher than anticipated trading activity or order flow or other
unforeseen events might cause The Options Clearing Corporation or an exchange to
institute special trading procedures or restrictions that might restrict the
Fund's use of options. The exchanges have established limitations on the maximum
number of calls and puts of each class that may be held or written by an
investor or group of investors acting in concert. It is possible that the Fund
and other clients of Commonwealth may be considered such a group. These position
limits may restrict the Fund's ability to purchase or sell options on particular
securities.
Options which are not traded on national securities exchanges may be
closed out only with the other party to the option transaction. For that reason,
it may be more difficult to close out unlisted options than listed options.
Furthermore, unlisted options are not subject to the protection afforded
purchasers of listed options by The Options Clearing Corporation.
Government regulations, particularly the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code, may also
restrict the Fund's use of options.
FUTURES CONTRACTS
In order to hedge against the effects of adverse market changes the
Fund may buy and sell futures contracts. The Fund may also, to the extent
permitted by applicable law, buy and sell futures contracts and options on
futures contracts to increase the Fund's current return. All such futures and
related options will, as may be required by applicable law, be traded on
exchanges that are licensed and regulated by the Commodity Futures Trading
Commission (the "CFTC").
Index Futures Contracts and Options. The Fund may invest in debt index
futures contracts and stock index futures contracts, and in related options. A
debt index futures contract is a contract to buy or sell units of a specified
debt index at a specified future date at a price agreed upon when the contract
is made. A unit is the current value of the index. Debt index futures in which
the Fund is presently expected to invest are not now available, although such
futures contracts are expected to become available in the future. A stock index
futures
<PAGE>
contract is a contract to buy or sell units of a stock index at a specified
future date at a price agreed upon when the contract is made. A unit is the
current value of the stock index.
The following example illustrates generally the manner in which index
futures contracts operate. The Standard & Poor's 100 Stock Index is composed of
100 selected common stocks, most of which are listed on the New York Stock
Exchange. The S&P 100 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the market
values of those common stocks. In the case of the S&P 100 Index, contracts are
to buy or sell 100 units. Thus, if the value of the S&P 100 Index were $180, one
contract would be worth $18,000 (100 units x $180). The stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the contract.
For example, if the Fund enters into a futures contract to buy 100 units of the
S&P 100 Index at a specified future date at a contract price of $180 and the S&P
100 Index is at $184 on that future date, the Fund will gain $400 (100 units x
gain of $4). If the Fund enters into a futures contract to sell 100 units of the
stock index at a specified future date at a contract price of $180 and the S&P
100 Index is at $182 on that future date, the Fund will lose $200 (100 units x
loss of $2).
The Fund may purchase or sell futures contracts with respect to any
securities indexes. Positions in index futures may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
In order to hedge the Fund's investments successfully using futures
contracts and related options, the Fund must invest in futures contracts with
respect to indexes or subindexes the movements of which will, in its judgment,
have a significant correlation with movements in the prices of the Fund's
portfolio securities.
Options on index futures contracts are similar to options on securities
except that options on index futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the holder would assume the underlying futures
position and would receive a variation margin payment of cash or securities
approximating the increase in the value of the holder's option position. If an
option is exercised on the last trading day prior to the expiration date of the
option, the settlement will be made entirely in cash based on the difference
between the exercise price of the option and the closing level of the index on
which the futures contract is based on the expiration date. Purchasers of
options who fail to exercise their options prior to the exercise date suffer a
loss of the premium paid.
As an alternative to purchasing and selling call and put options on
index futures contracts, the Fund which may purchase and sell index futures
contracts may purchase and sell
<PAGE>
call and put options on the underlying indexes themselves to the extent that
such options are traded on national securities exchanges. Index options are
similar to options on individual securities in that the purchaser of an index
option acquires the right to buy (in the case of a call) or sell (in the case of
a put), and the writer undertakes the obligation to sell or buy (as the case may
be), units of an index at a stated exercise price during the term of the option.
Instead of giving the right to take or make actual delivery of securities, the
holder of an index option has the right to receive a cash "exercise settlement
amount". This amount is equal to the amount by which the fixed exercise price of
the option exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying index on the date of the exercise,
multiplied by a fixed "index multiplier".
The Fund may purchase or sell options on stock indices in order to
close out its outstanding positions in options on stock indices which it has
purchased. The Fund may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on an index involves less potential risk to the Fund because
the maximum amount at risk is the premium paid for the options plus transactions
costs. The writing of a put or call option on an index involves risks similar to
those risks relating to the purchase or sale of index futures contracts.
Margin Payments. When the Fund purchases or sells a futures contract,
it is required to deposit with its custodian an amount of cash, U.S. Treasury
bills, or other permissible collateral equal to a small percentage of the amount
of the futures contract. This amount is known as "initial margin". The nature of
initial margin is different from that of margin in security transactions in that
it does not involve borrowing money to finance transactions. Rather, initial
margin is similar to a performance bond or good faith deposit that is returned
to the Fund upon termination of the contract, assuming the Fund satisfies its
contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market". These payments are called "variation
margin" and are made as the value of the underlying futures contract fluctuates.
For example, when the Fund sells a futures contract and the value of the
underlying index rises above the delivery price, the Fund's position declines in
value. The Fund then pays the broker a variation margin payment equal to the
difference between the delivery price of the futures contract and the value of
the index underlying the futures contract. Conversely, if the price of the
underlying index falls below the delivery price of the contract, the Fund's
futures position increases in value. The broker then must make a variation
margin payment equal to the difference between the delivery price of the futures
contract and the value of the index underlying the futures contract.
<PAGE>
When the Fund terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Fund, and the Fund realizes a loss or a gain. Such closing transactions involve
additional commission costs.
SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS
Liquidity risks. Positions in futures contracts may be closed out only
on an exchange or board of trade which provides a secondary market for such
futures. Although the Fund intends to purchase or sell futures only on exchanges
or boards of trade where there appears to be an active secondary market, there
is no assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular contract or at any particular time. If there is
not a liquid secondary market at a particular time, it may not be possible to
close a futures position at such time and, in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin. However, in the event financial futures are used to hedge
portfolio securities, such securities will not generally be sold until the
financial futures can be terminated. In such circumstances, an increase in the
price of the portfolio securities, if any, may partially or completely offset
losses on the financial futures.
In addition to the risks that apply to all options transactions, there
are several special risks relating to options on futures contracts. The ability
to establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
such a market will develop. Although the Fund generally will purchase only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. In the event no such market exists
for particular options, it might not be possible to effect closing transactions
in such options with the result that the Fund would have to exercise the options
in order to realize any profit.
Hedging risks. There are several risks in connection with the use by
the Fund of futures contracts and related options as a hedging device. One risk
arises because of the imperfect correlation between movements in the prices of
the futures contracts and options and movements in the underlying index or
movements in the prices of the Fund's portfolio securities which are the subject
of a hedge. Commonwealth will, however, attempt to reduce this risk by
purchasing and selling, to the extent possible, futures contracts and related
options on securities and indexes the movements of which will, in its judgment,
correlate closely with movements in the value of the underlying index and the
Fund's portfolio securities sought to be hedged.
Successful use of futures contracts and options by the Fund for hedging
purposes is also subject to Commonwealth's ability to predict correctly
movements in the direction of the market. It is possible that, where the Fund
has purchased puts on futures contracts to hedge its portfolio against a decline
in the market, the index on which the puts are purchased may
<PAGE>
increase in value and the value of securities held in the portfolio may decline.
If this occurred, the Fund would lose money on the puts and also experience a
decline in value in its portfolio securities. In addition, the prices of
futures, for a number of reasons, may not correlate perfectly with movements in
the underlying index due to certain market distortions. First, all participants
in the futures market are subject to margin deposit requirements. Such
requirements may cause investors to close futures contracts through offsetting
transactions which could distort the normal relationship between the underlying
index and futures markets. Second, the margin requirements in the futures
markets are less onerous than margin requirements in the securities markets in
general, and as a result the futures markets may attract more speculators than
the securities markets do. Increased participation by speculators in the futures
markets may also cause temporary price distortions. Due to the possibility of
price distortion, even a correct forecast of general market trends by
Commonwealth may still not result in a successful hedging transaction over a
very short time period.
Other Risks. The Fund will incur brokerage fees in connection with its
futures and options transactions. In addition, while futures contracts and
options on futures will be purchased and sold to reduce certain risks, those
transactions themselves entail certain other risks. Thus, while the Fund may
benefit from the use of futures and related options, unanticipated changes in
interest rates or stock price movements may result in a poorer overall
performance for the Fund than if it had not entered into any futures contracts
or options transactions. Moreover, in the event of an imperfect correlation
between the futures position and the Fund position which is intended to be
protected, the desired protection may not be obtained and the Fund may be
exposed to risk of loss, which may be unlimited.
LOANS OF FUND SECURITIES
The Fund may lend its Fund securities, provided: (1) the loan is
secured continuously by collateral consisting of U.S. Government Securities,
cash, or cash equivalents adjusted daily to have market value at least equal to
the current market value of the securities loaned; (2) the Fund may at any time
call the loan and regain the securities loaned; (3) the Fund will receive any
interest or dividends paid on the loaned securities; and (4) the aggregate
market value of securities of the Fund loaned will not at any time exceed
one-third (or such other limit as the Board may establish) of the total assets
of the Fund. In addition, it is anticipated that the Fund may share with the
borrower some of the income received on the collateral for the loan or that it
will be paid a premium for the loan. Before the Fund enters into a loan,
Commonwealth considers all relevant facts and circumstances including the
creditworthiness of the borrower. The risks in lending portfolio securities, as
with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. Although voting rights or rights to consent with respect to the
loaned securities pass to the borrower, the Fund retains the right to call the
loans at any time on reasonable notice, and it will do so in order that the
securities may be voted by the Fund if the holders of such securities are asked
to vote upon or consent to matters materially
<PAGE>
affecting the investment. The Fund will not lend portfolio securities to
borrowers affiliated with the Fund.
FOREIGN SECURITIES
The Fund may invest in foreign securities and [in certificates of
deposit issued by United States branches of foreign banks and foreign branches
of United States banks.]
Investments in foreign securities may involve considerations different
from investments in domestic securities due to limited publicly available
information, non-uniform accounting standards, lower trading volume and possible
consequent illiquidity, greater volatility in price, the possible imposition of
withholding or confiscatory taxes, the possible adoption of foreign governmental
restrictions affecting the payment of principal and interest, expropriation of
assets, nationalization, or other adverse political or economic developments.
Foreign companies may not be subject to auditing and financial reporting
standards and requirements comparable to those which apply to U.S. companies.
Foreign brokerage commissions and other fees are generally higher than in the
United States. It may be more difficult to obtain and enforce a judgment against
a foreign issuer.
In addition, to the extent that the Fund's foreign investments are not
United States dollar-denominated, the Fund may be affected favorably or
unfavorably by changes in currency exchange rates or exchange control
regulations and may incur costs in connection with conversion between
currencies.
In determining whether to invest in securities of foreign issuers,
Commonwealth will consider the likely impact of foreign taxes on the net yield
available to the Fund and its shareholders. Income received by the Fund from
sources within foreign countries may be reduced by withholding and other taxes
imposed by such countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. It is impossible to determine
the effective rate of foreign tax in advance since the amount of the Fund's
assets to be invested in various countries is not known, and tax laws and their
interpretations may change from time to time and may change without advance
notice. Any such taxes paid by the Fund will reduce its net income available for
distribution to shareholders.
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to protect
against uncertainty in the level of future foreign currency exchange rates and
to increase current return. The Fund may engage in both "transaction hedging"
and "position hedging".
When it engages in transaction hedging, the Fund enters into foreign
currency transactions with respect to specific receivables or payables of the
Fund generally arising in connection with the purchase or sale of its portfolio
securities. The Fund will engage in
<PAGE>
transaction hedging when it desires to "lock in" the U.S. dollar price of a
security it has agreed to purchase or sell, or the U.S. dollar equivalent of a
dividend or interest payment in a foreign currency. By transaction hedging the
Fund will attempt to protect against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the applicable foreign
currency during the period between the date on which the security is purchased
or sold or on which the dividend or interest payment is declared, and the date
on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with transaction hedging. The
Fund may also enter into contracts to purchase or sell foreign currencies at a
future date ("forward contracts") and purchase and sell foreign currency futures
contracts.
For transaction hedging purposes the Fund may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives the Fund the right to assume a short position in the futures contract
until expiration of the option. A put option on currency gives the Fund the
right to sell a currency at an exercise price until the expiration of the
option. A call option on a futures contract gives the Fund the right to assume a
long position in the futures contract until the expiration of the option. A call
option on currency gives the Fund the right to purchase a currency at the
exercise price until the expiration of the option. The Fund will engage in
over-the-counter transactions only when appropriate exchange-traded transactions
are unavailable and when, in the opinion of Commonwealth, the pricing mechanism
and liquidity are satisfactory and the participants are responsible parties
likely to meet their contractual obligations.
When it engages in position hedging, the Fund enters into foreign
currency exchange transactions to protect against a decline in the values of the
foreign currencies in which securities held by the Fund are denominated or are
quoted in their principle trading markets or an increase in the value of
currency for securities which the Fund expects to purchase. In connection with
position hedging, the Fund may purchase put or call options on foreign currency
and foreign currency futures contracts and buy or sell forward contracts and
foreign currency futures contracts. The Fund may also purchase or sell foreign
currency on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the values of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is impossible to forecast with precision the market value of the
Fund's portfolio securities at the expiration or maturity of a forward or
futures contract. Accordingly, it may
<PAGE>
be necessary for the Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security or securities being hedged is less than the amount of foreign currency
the Fund is obligated to deliver and if a decision is made to sell the security
or securities and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security or securities of the Fund if the market value
of such security or securities exceeds the amount of foreign currency the Fund
is obligated to deliver.
To offset some of the costs to the Fund of hedging against fluctuations
in currency exchange rates, the Fund may write covered call options on those
currencies.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Fund owns or intends to purchase
or sell. They simply establish a rate of exchange which one can achieve at some
future point in time. Additionally, although these techniques tend to minimize
the risk of loss due to a decline in the value of the hedged currency, they tend
to limit any potential gain which might result from the increase in the value of
such currency.
The Fund may also seek to increase its current return by purchasing and
selling foreign currency on a spot basis, and by purchasing and selling options
on foreign currencies and on foreign currency futures contracts, and by
purchasing and selling foreign currency forward contracts.
Currency Forward and Futures Contracts. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract as agreed by the parties, at a price set at the time of the contract.
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a specified fee. The
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the maturity date
of a forward contract may be any fixed number of days from the date of the
contract agreed upon by the parties, rather than a predetermined date in a given
month. Forward contracts may be in any amounts agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
<PAGE>
At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in foreign currency futures contracts and related options may
be closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although the Fund will normally purchase or
sell foreign currency futures contracts and related options only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or option or at any particular time. In such event,
it may not be possible to close a futures or related option position and, in the
event of adverse price movements, the Fund would continue to be required to make
daily cash payments of variation margin on its futures positions.
Foreign Currency Options. Options on foreign currencies operate
similarly to options on securities, and are traded primarily in the
over-the-counter market, although options on foreign currencies have recently
been listed on several exchanges. Such options will be purchased or written only
when Commonwealth believes that a liquid secondary market exists for such
options. There can be no assurance that a liquid secondary market will exist for
a particular option at any specific time. Options on foreign currencies are
affected by all of those factors which influence exchange rates and investments
generally.
The value of a foreign currency option is dependent upon the value of
the foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the U.S. options
markets.
<PAGE>
Settlement Procedures. Settlement procedures relating to the Fund's
investments in foreign securities and to the Fund's foreign currency exchange
transactions may be more complex than settlements with respect to investments in
debt or equity securities of U.S. issuers, and may involve certain risks not
present in the Fund's domestic investments. For example, settlement of
transactions involving foreign securities or foreign currency may occur within a
foreign country, and the Fund may be required to accept or make delivery of the
underlying securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay any fees, taxes
or charges associated with such delivery. Such investments may also involve the
risk that an entity involved in the settlement may not meet its obligations.
Foreign Currency Conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
SEGREGATION OF ASSETS
The Fund may at times segregate assets in respect of certain
transactions in which the Fund enters into a commitment to pay money or
deliver securities at some future date. Any such segregated account will be
maintained by the Fund's custodian and may contain cash, U.S. government
securities, liquid high grade debt obligations, or other appropriate assets.
<PAGE>
MANAGEMENT
OFFICERS AND DIRECTORS
The directors and officers of the Fund are as follows. Unless otherwise
noted, the address of each officer and director is 901 East Byrd Street,
Richmond, Virginia 23219.
Position held Principal occupation(s)
Name and Address with the Fund during past five years
David L. Director, Chairman President and Chief
Heavenridge* of the Board and Executive Officer of
Chief Executive Dominion Capital,
Officer Inc., and Senior Vice
President of Dominion
Resources, Inc.
("DRI"), a public
utility holding
company, from March
1, 1994 to date;
Senior Vice President
and Controller of DRI
from April 1, 1992 to
March 1, 1994; Vice
President and
Controller of DRI
from May 1, 1989 to
April 1, 1992. He
has served as
Chairman of the Board
and Chief Executive
Officer of America's
Utility Fund, Inc.
and of America's
Utility Fund Service
Company from
September 30, 1994 to
date.
Arch T. Allen, III Director Attorney at Law, Raleigh,
1214 Cowper Drive North Carolina, January 1,
Raleigh, NC 27608 1996 to date; Vice
Chancellor for
Development and
University Relations
of the University of
North Carolina at
Chapel Hill from
September 15, 1991 to
January 1, 1996; prior to
September 15, 1991,
partner with
the law firm of Moore
& Van Allen.
* The director is deemed to be an "interested person" of the Fund under
the Investment Company Act of 1940, as amended.
Position held Principal occupation(s)
Name and Address with the Fund during past five years
Robert P. Black Director Retired, January 1,
10 Dahlgren Road 1993; prior to that
Richmond, VA 23233 date, President of
the Federal Reserve
Bank of Richmond,
Virginia. He is a
director of Media
General Corporation,
Rockingham Publishing
Company, Inc.,
Winchester Evening
Star, Inc., and of ___
of the T. Rowe Price
funds
Peter W. Brown Director Physician, Virginia
4603 Sulgrave Road Surgical Associates,
Richmond, VA 15260 P.C.
Clifford A. Director Senior Vice-
Cutchins, IV President, General
Counsel, and
Secretary, James
River Corporation;
formerly, Partner,
McGuire, Woods,
Battle & Boothe prior
to January 31, 1990.
Daniel J. Ludeman* Director Chairman and Chief
Executive Officer
since July 1991,
Mentor Investment
Group, Inc.; Board of
Directors, Wheat,
First Securities,
Inc. and Wheat First
Butcher Singer;
Director, Mentor
Income Fund, Inc.;
Chairman and Trustee,
The Mentor Funds, Cash
Resource Trust, and
Mentor Institutional
Trust.
Louis W. Director Vice President of
Moelchert, Jr. Business and Finance,
University of
Richmond; Chairman,
The Common Fund;
Trustee, The Mentor
Funds; Trustee, Cash
Resource Trust, and
Mentor Institutional
Trust.
* This director is deemed to be an "interested person" of the Fund under
the Investment Company Act of 1940, as amended.
Position held Principal occupation(s)
Name and Address with the Fund during past five years
Linwood R. Robertson President and Senior Vice President-
Chief Operating Finance Treasurer and
Officer Corporate Secretary of
DRI; from October 1, 1994
to January 1, 1995, Vice
President-Finance,
Treasurer and Corporate
Secretary of DRI; prior
to October 1, 1994, Vice
President-Finance and
Treasurer of DRI; from
January 28, 1992 to
May 17, 1994, Vice
President and Secretary
of the Fund; Vice
President, Treasurer
and Corporate Secretary of
AUF Service Company from
January 31, 1992 to
September 30, 1994.
Paul F. Costello Executive Vice Managing Director,
President, Chief Mentor Investment
Administrative Group, Inc. and Wheat
Officer First Butcher Singer;
Director, Mentor
Perpetual Advisors,
L.L.C. and Mentor
Trust Company;
President, Mentor
Income Fund, The
Mentor Funds, Mentor
Institutional Trust,
and Cash Resource
Trust; Executive Vice
President and Chief
Administrative
Officer, America's
Utility Fund, Inc.;
formerly, Director,
President and Chief
Executive Officer,
First Variable Life
Insurance Company;
President and Chief
Financial Officer,
Variable Investors
Series Trust;
President and
Treasurer, Atlantic
Capital & Research,
Inc.; Vice President
and Treasurer,
Variable Stock
Portfolio, Inc.,
Monarch Investment
Series Trust, and
GEICO Tax Advantage
Series Trust; Vice
President, Monarch
Life Insurance
Company, GEICO
Investment Services
Company, Inc.,
Monarch Investment
Services Company,
Inc., and Springfield
Life Insurance
Company.
James L. Trueheart, Vice President, Vice President and
Chief Financial Controller of DRI
Officer and since March 1, 1994;
Controller Senior Vice President
and Financial Officer of
DCI since March 1, 1996;
from March 1, 1994 to
March 1, 1996, Vice
President and Controller
of DCI; prior to March 1,
1994, Assistant
Controller of DRI;
Treasurer of the Fund
from September 30, 1994
to October 24, 1995.
Terry L. Perkins Treasurer Vice President,
Mentor Investment
Group, Inc.;
Treasurer, Cash
Resource Trust,
Mentor Income Fund,
Inc., The Mentor
Funds, and Mentor
Institutional Trust.;
formerly, Treasurer
and Comptroller,
Ryland Capital
Management, Inc.
Henry C. Riely Secretary Assistant Corporate
Secretary of DRI
prior to March 15,
1990 to date;
Corporate Secretary
of Dominion Capital,
Inc. from March 1,
1990 to date.
Secretary of
America's Utility
Fund, Inc. from May
17, 1994 to date;
Secretary of the
Service Company from
September 30, 1994 to
date; Corporate
Secretary of Project
America, Inc. from
October 1, 1994 to
date.
Glenna G. Bryant Vice President, President and Treasurer
Administration of Project America, Inc.;
President and Chief
Operating Officer of AUF
Service Company from
August 31, 1995 to date;
from August 10, 1992 to
August 31, 1995, Vice
President of Project
America, Inc.; from
March to August 1992,
self-employed; Vice
President of Mariner
Funds Services, Inc.
prior to March 1992;
from September 30, 1994
to August 31, 1995,
Senior Vice President
and Treasurer of AUF
Service Company.
Michael A. Wade Assistant Associate Vice
Treasurer President, Mentor
Investment Group,
Inc. since April
1994; Assistant
Treasurer, Cash
Resource Trust,
Mentor Income Fund,
Inc., Mentor
Institutional Trust,
and The Mentor
Funds; formerly,
Senior Accountant,
Wheat First Butcher
Singer, Inc., April
1993 through March
1994; Audit Senior,
BDO Seidman, July
1989 through March
1993
<PAGE>
DIRECTOR COMPENSATION
The table below shows the fees paid to each Director by the Fund for
the 1995 fiscal year.
Aggregate compensation
Director from the Fund
David L. Heavenridge $ 0
Arch T. Allen, III 13,250
Robert P. Black 13,250
Peter W. Brown 13,250
Clifford A. Cutchins, IV* --
Daniel J. Ludeman* --
Louis W. Moelchert, Jr.* --
William B. Moore** 9,750
* Elected to the Board of Directors in April, 1996
** No longer serving as a Director.
The Directors do not receive pension or retirement benefits from the
Fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS
The Directors and officers as a group owned less than 1% of the
outstanding shares of common stock of the Fund. To the knowledge of the Fund, as
of February 1, 1996 no person owned of record or beneficially more than 5% of
the outstanding shares of common stock of the Fund as of such date, except as
set forth below:
NUMBER OF PERCENTAGE
NAME AND ADDRESS SHARES OF OUTSTANDING
Signet Trust Company 744,357 11.34%
P.O. Box 85539
Richmond, Virginia
<PAGE>
INVESTMENT ADVISORY SERVICES
Commonwealth Investment Counsel, Inc. ("Commonwealth") acts as
investment adviser to the Fund pursuant to a Management Contract. Commonwealth
is a wholly-owned subsidiary of Mentor Investment Group, Inc., which in turn is
a wholly-owned subsidiary of Wheat First Butcher Singer, Inc. Subject to the
supervision and direction of the Board of Directors, Commonwealth manages the
Fund's portfolio in accordance with the stated policies of the Fund.
Commonwealth make investment decisions for the Fund and places the purchase and
sale orders for portfolio transactions.
Commonwealth provides the Fund with investment officers who are
authorized to execute purchases and sales of securities. Investment decisions
for the Fund and for the other investment advisory clients of Commonwealth and
its affiliates are made with a view to achieving their respective investment
objectives. Investment decisions are the product of many factors in addition to
basic suitability for the particular client involved. Thus, a particular
security may be bought or sold for certain clients even though it could have
been bought or sold for other clients at the same time. Likewise, a particular
security may be bought for one or more clients when one or more other clients
are selling the security. In some instances, one client may sell a particular
security to another client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each day's
transactions in such security are, insofar as possible, averaged as to price and
allocated between such clients in a manner which in Commonwealth's opinion is
equitable to each and in accordance with the amount being purchased or sold by
each. There may be circumstances when purchases or sales of portfolio securities
for one or more clients will have an adverse effect on other clients.
Commonwealth employs a professional staff of investment personnel who draw upon
a variety of resources for research information for the Fund.
The proceeds received by the Fund for each issue or sale of its shares,
and all income, earnings, profits, and proceeds thereof, subject only to the
rights of creditors, constitute the underlying assets of the Fund.
Expenses incurred in the operation of the Fund, including but not
limited to taxes, interest, brokerage fees and commissions, SEC fees and related
expenses, state Blue Sky qualification fees, charges of the custodian and
transfer and dividend disbursing agents, outside auditing, accounting, and legal
services, investor servicing fees and expenses, charges for the printing of
prospectuses and statements of additional information for regulatory purposes or
for distribution to shareholders, certain shareholder report charges, and
charges relating to corporate matters are borne by the Fund.
The Management Contract is subject to annual approval (commencing in
1997) by (i) the Board of Directors or (ii) vote of a majority (as defined in
the 1940 Act) of the outstanding voting securities of the Fund, provided that in
either event the continuance is also approved by a majority of the Board of
Directors who are not "interested persons" (as defined in the 1940 Act) of the
<PAGE>
Fund or Commonwealth by vote cast in person at a meeting called for the purpose
of voting on such approval. The Management Contract is terminable without
penalty, on not more than sixty days' notice by the Fund or Commonwealth.
Under the Management Contract, the Fund pays a monthly fee, calculated
daily, to Commonwealth at the following rates expressed as a percentage of the
Fund's average net assets: 0.75% of the first $5 million, 0.50% of the next $5
million, 0.25% of the next $90 million, 0.20% of the next $100 million, 0.15% of
the next $100 million, and 0.10% thereafter.
Prior to September 9, 1995, Lord, Abbett & Co. ("Lord, Abbett"), the
General Motors Building, 767 Fifth Avenue, New York, New York 10153 served as
investment adviser to the Fund under an Investment Advisory Agreement dated
February 14, 1992. For its services, Lord, Abbett received $100,000 through
February 13, 1993, $200,000 from February 14, 1993 through February 13, 1994,
and $300,000 from February 14, 1994 through February 13, 1995. After February
13, 1995, the Fund paid a quarterly fee to Lord, Abbett according to the same
schedule for fees under the Management Contract with Commonwealth.
MANAGEMENT FEES
The Fund paid management fees in the following amounts for the fiscal
years indicated below:
1993 1994 1995*
------------- ------------- ----------
$218,621 $292,099 $323,431
* Of the amount paid, $198,375 was paid to Lord, Abbett.
OTHER SERVICES
ADMINISTRATIVE SERVICES
Mentor Investment Group, Inc. ("Mentor") acts as administrator to the
Fund pursuant to an Administrative Services Agreement. Pursuant to the
Administrative Services Agreement, Mentor assists the Fund in preparation of
certain reports to shareholders of the Fund, tax returns, and filings with the
SEC and state Blue Sky authorities, prepares and furnishes reports to the Fund's
Board of Directors, and generally assists in the Fund's business operations.
<PAGE>
The Administrative Services Agreement is subject to annual approval
(commencing in 1997) by (i) the Board of Directors or (ii) vote of a majority
(as defined in the 1940 Act) of the outstanding voting securities of the Fund,
provided that in either event the continuance is also approved by a majority of
the Directors who are not "interested persons" (as defined in the 1940 Act) of
the Fund, or Mentor, by vote cast in person at a meeting called for the purpose
of voting on such approval. The Administration Agreement is terminable without
penalty, immediately upon notice, by the Board of Directors or by vote of the
holders of a majority of the Fund shares, and on not less than thirty days'
notice by Mentor. The Agreement will terminate automatically in the event of its
assignment.
The Fund pays Mentor for such services at an annual rate of 0.65% of
the Fund's average daily net assets, less the amount of any management fees paid
to Commonwealth pursuant to the Management Contract.
Prior to August 21, 1995, America's Utility Fund Service Company ("AUF
Service Company") provided administrative services and certain shareholder and
transfer and dividend payment agent services to the Fund pursuant to an
Administrative Services and Transfer Agency Agreement. For these combined
services, AUF Service Company received fees from the Fund at the annual rate of
1% of the Fund's average net assets. AUF Service Company also paid the
management fee for the Fund.
ADMINISTRATIVE FEES
The Fund paid the following fees for administrative services for the
fiscal years indicated below. Amounts prior to August 21, 1995 reflect the 1%
fee paid to AUF Service Company.
1993 1994 1995*
------------- ------------- ----------
$678,254 $952,198 $948,530
* Of this amount, $735,127 was paid to AUF Service Company.
SHAREHOLDER SERVICING
The Fund has entered into a Shareholder Service Agreement dated August
21, 1995 with Mentor, pursuant to which Mentor, by itself, through AUF Service
Company, or through other financial institutions, provides shareholder support
services to the Fund and its shareholders. These services may include, but are
not limited to, providing office space and various clerical, supervisory, and
computer personnel for the maintenance of shareholder accounts, processing
purchase and redemption transactions, and providing assistance to shareholders.
In return for providing these services, the Fund pays Mentor a fee, at the
annual rate of 0.25% of the Fund's average daily net assets. Pursuant to a
Sub-Shareholder Services Agreement between Mentor
<PAGE>
and AUF Service Company, Mentor agrees to pay fees to AUF Service Company at the
same annual rate of the Fund's net assets in respect of which AUF Service
Company provides specified shareholder services.
The Fund paid shareholder services fees to Mentor (which in turn paid
fees to AUF Service Company) of $140,179 during fiscal year 1995. As described
above, prior to August 21, 1995, certain of these services were provided by AUF
Service Company under a different agreement.
TRANSFER AGENT SERVICES
AUF Service Company receives fees from Boston Financial Data Services,
Inc. ("BFDS"), the Fund's transfer agent, for services performed under a
Sub-Transfer Agency Agreement dated August 21, 1995. Pursuant to that Agreement,
AUF Service Company provides certain transfer agent, dividend disbursing agent,
and other services to the Fund and its shareholders who purchase shares of the
Fund through facilities made available to Virginia Power and North Carolina
Power customers. BFDS pays AUF Service Company a fee at the annual rate of 0.10%
of the Fund's average net assets attributable to shares held such shareholders.
For the period August 21, 1995 to December 31, 1995, these fees amounted to
$56,040.
EXPENSE REIMBURSEMENT
AUF Service Company (prior to August 21, 1995) agreed, and Mentor
(after August 21, 1995) has agreed, to bear the expenses of the Fund to the
extent total Fund operating expenses exceed 1.21% of the Fund's average daily
net assets. Mentor has agreed to maintain the expense limitation in effect
until September 11, 1996. As a result of this expense limitation, AUF
Service Company and Mentor incurred expenses of $118,162 and $66,941
respectively, for the Fund during the 1995 fiscal year. The expense limitation
currently in effect does not cover extraordinary expenses of the Fund.
BROKERAGE
Transactions on U.S. stock exchanges, commodities markets, and futures
markets and other agency transactions involve the payment by the Fund of
negotiated brokerage commissions. Such commissions vary among different brokers.
A particular broker may charge different commissions according to such factors
as the difficulty and size of the transaction. Transactions in foreign
investments often involve the payment of fixed brokerage commissions, which may
be higher than those in the United States. There is generally no stated
commission in the case of securities traded in the over-the-counter markets, but
the price paid by the Fund usually includes an undisclosed dealer commission or
mark-up. In underwritten offerings, the price paid by the Fund includes a
disclosed, fixed commission or discount retained by the underwriter or dealer.
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It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive brokerage and research services (as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act")), from broker-dealers that
execute portfolio transactions for the clients of such advisers and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, Commonwealth receives brokerage and research services and other
similar services from many broker-dealers with which it places the Fund's
portfolio transactions and from third parties with which these broker-dealers
have arrangements. These services include such matters as general economic and
market reviews, industry and company reviews, evaluations of investments,
recommendations as to the purchase and sale of investments, newspapers,
magazines, pricing services, quotation services, news services and personal
computers utilized by Commonwealth's managers and analysts. Where the services
referred to above are not used exclusively by Commonwealth for research
purposes, Commonwealth, based upon its own allocations of expected use, bears
that portion of the cost of these services which directly relates to its
non-research use. Some of these services are of value to Commonwealth and its
affiliates 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.
Commonwealth place all orders for the purchase and sale of portfolio
investments for the Fund and buys and sells investments for the Fund through a
substantial number of brokers and dealers. Commonwealth seeks the best overall
terms available for the Fund, except to the extent it may be permitted to pay
higher brokerage commissions as described below. In doing so, Commonwealth,
having in mind the Fund's best interests, 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 or other investment, the amount of the
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.
As permitted by Section 28(e) of the 1934 Act, and by the Management
Contract, the Commonwealth may cause the Fund to pay a broker-dealer which
provides "brokerage and research services" (as defined in the 1934 Act) to
Commonwealth an amount of disclosed commission for effecting securities
transactions on stock exchanges and other transactions for the Fund on an agency
basis in excess of the commission which another broker-dealer would have charged
for effecting that transaction. Commonwealth's authority to cause the Fund to
pay any such greater commissions is also subject to such policies as the Board
of Directors may adopt from time to time. Commonwealth does not currently intend
to cause the Fund to make such payments. It is the position of the staff of the
Securities and Exchange Commission that Section 28(e) does not apply to the
payment of such greater commissions in "principal" transactions. Accordingly,
Commonwealth will use its best efforts to obtain the best overall terms
available with respect to such transactions, as described above.
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Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to such other policies as the Board of
Directors may determine, Commonwealth may consider sales of shares of the Fund
as a factor in the selection of broker-dealers to execute portfolio transactions
for the Fund.
The Board of Directors has determined that portfolio transactions for
the Fund may be effected through Wheat, First Securities, Inc. ("Wheat"), an
affiliate of Commonwealth. The Trustees have adopted certain policies
incorporating the standards of Rule 17e-l issued by the SEC under the 1940 Act
which requires, among other things, that the commissions paid to Wheat must be
reasonable and fair compared to the commissions, fees, or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time. Wheat will not
participate in brokerage commissions given by the Fund to other brokers or
dealers. Over-the-counter purchases and sales are transacted directly with
principal market makers except in those cases in which better prices and
executions may be obtained elsewhere. The Fund will in no event effect principal
transactions with Wheat in over-the-counter securities in which Wheat makes a
market.
Under rules adopted by the SEC, Wheat may not execute transactions for
the Fund on the floor of any national securities exchange, but may effect
transactions for the Fund by transmitting orders for execution and arranging for
the performance of this function by members of the exchange not associated with
Wheat. Wheat will be required to pay fees charged to those persons performing
the floor brokerage elements out of the brokerage compensation it receives from
the Fund. The Fund has been advised by Wheat that on most transactions, the
floor brokerage generally constitutes from 5% and 10% of the total commissions
paid.
BROKERAGE COMMISSIONS
The Fund paid brokerage commissions in the following amounts during the
periods set forth below:
FISCAL YEAR FISCAL YEAR FISCAL YEAR
1993 1994 1995
------------ ------------ -----------
$226,666 $145,900 $162,737
For fiscal year 1995, the Fund paid brokerage commissions to Wheat of
$29,539, or 18.15% of the aggregate commissions paid by the Fund, on total
brokerage transactions of $13,395,012, or 19.70% of the total amount of
brokerage transactions entered into by the Fund.
DETERMINATION OF NET ASSET VALUE
The Fund determines its net asset value per share each day the New York
Stock Exchange (the "Exchange") is open. Currently, the Exchange is closed
Saturdays, Sundays, and the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, the Fourth of July, Labor Day, Thanksgiving, and
Christmas.
Securities for which market quotations are readily available are valued
at prices which, in the opinion of the Board of Directors or Commonwealth, most
nearly represent the market values of such securities. Currently, such prices
are determined using the last reported sale price or, if no sales are reported
(as in the case of some securities traded over-the-counter), the last reported
bid price, except that certain U.S. Government securities are stated at the mean
between the last reported bid and asked prices. Short-term investments having
remaining maturities of 60 days or less are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value following procedures approved by the Board of Directors. Liabilities
are deducted from the total, and the resulting amount is divided by the number
of shares of the Fund outstanding.
Reliable market quotations are not considered to be readily available
for long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities, or certain foreign securities. These investments are stated at fair
value on the basis of valuations furnished by pricing services approved by the
Board of Directors, which determine valuations for normal, institutional-size
trading units of such securities using methods based on market transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders.
If any securities held by the Fund are restricted as to resale,
Commonwealth determines their fair values. 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, specific factors are also
generally considered, such 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.
<PAGE>
Generally, trading in certain securities (such as foreign securities)
is substantially completed each day at various times prior to the close of the
Exchange. The values of these securities used in determining the net asset value
of the Fund's shares are computed as of such times. Also, because of the amount
of time required to collect and process trading information as to large numbers
of securities issues, the values of certain securities (such as convertible
bonds, U.S. Government securities, and tax-exempt securities) are determined
based on market quotations collected earlier in the day at the latest
practicable time prior to the close of the Exchange. 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 such
securities occur during such period, then these securities will be valued at
their fair value following procedures approved by the Board of Directors.
TAX STATUS
The Fund intends to qualify each year and elect to be taxed as a
regulated investment company under Subchapter M of the United States Internal
Revenue Code of 1986, as amended (the "Code").
As a regulated investment company qualifying to have its tax liability
determined under Subchapter M, the Fund will not be subject to federal income
tax on any of its net investment income or net realized capital gains that are
distributed to shareholders.
In order to qualify as a "regulated investment company," the Fund must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other dispositions of stock, securities, or foreign currencies, and other income
(including gains from options, futures, or forward contracts) derived with
respect to its business of investing in such stock, securities, or currencies;
(b) derive less than 30% of its gross income from the sale or other disposition
of certain assets (including stock and securities) held less than three months;
(c) diversify its holdings so that, at the close of each quarter of its taxable
year, (i) at least 50% of the value of its total assets consists of cash, cash
items, U.S. Government Securities, and other securities limited generally with
respect to any one issuer to not more than 5% of the total assets of the Fund
and not more than 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
of any issuer (other than U.S. Government Securities). In order to receive the
favorable tax treatment accorded regulated investment companies and their
shareholders, moreover, the Fund must in general distribute at least 90% of its
interest, dividends, net short-term capital gain, and certain other income each
year.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of the Fund's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus
<PAGE>
98% of its capital gain net income recognized during the one-year period
ending on October 31 (or December 31, if the Fund so elects) plus undistributed
amounts from prior years. Each Portfolio intends to make distributions
sufficient to avoid imposition of the excise tax. Distributions declared by the
Fund during October, November, or December to shareholders of record on a
date in any such month and paid by the Fund during the following January
will be treated for federal tax purposes as paid by the Fund and received by
shareholders on December 31 of the year in which declared.
The Fund is required to withhold 31% of all income dividends and
capital gain distributions, and 31% of the gross proceeds of all redemptions of
Fund shares, in the case of any shareholder who does not provide a correct
taxpayer identification number, about whom the Fund is notified that the
shareholder has under reported income in the past, or who fails to certify to
the Fund that the shareholder is not subject to such withholding. Tax-exempt
shareholders are not subject to these back-up withholding rules so long as
they furnish the Fund with a proper certification.
Foreign currency-denominated securities and related hedging
transactions. The Fund's transactions in foreign currencies, foreign
currency-denominated debt securities, and certain foreign currency options,
futures contracts, and forward contracts (and similar instruments) may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned.
If more than 50% of the Fund's assets at year end consists of the debt
and equity securities of foreign corporations, the Fund may elect to permit
shareholders to claim a credit or deduction on their income tax returns for
their pro rata portion of qualified taxes paid by the Fund to foreign countries.
In such a case, shareholders will include in gross income from foreign sources
their pro rata shares of such taxes. A shareholder's ability to claim a foreign
tax credit or deduction in respect of foreign taxes paid by the Fund may be
subject to certain limitations imposed by the Code, as a result of which a
shareholder may not get a full credit or deduction for the amount of such taxes.
Shareholders who do not itemize on their federal income tax returns may claim a
credit (but no deduction) for such foreign taxes.
Investment by the Fund in certain "passive foreign investment
companies" could subject the Fund to a U.S. federal income tax or other charge
on the proceeds from the sale of its investment in such a company; however, this
tax can be avoided by making an election to mark such investments to market
annually or to treat the passive foreign investment company as a "qualified
electing fund."
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and related regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative actions. Dividends and distributions
<PAGE>
also may be subject to state and federal taxes. Shareholders are urged to
consult their tax advisers regarding specific questions as to federal, state
or local taxes. The foregoing discussion relates solely to U.S. federal income
tax law. Non-U.S. investors should consult their tax advisers concerning the
tax consequences of ownership of shares of the Fund, including the
possibility that distributions may be subject to a 30% United States
withholding tax (or a reduced rate of withholding provided by treaty).
DISTRIBUTION
Project America, Inc. serves as principal distributor of the Fund under
a Distribution Agreement dated February 13, 1992. Pursuant to the Distribution
Agreement, Project America agrees to bear the expenses of printing any
promotional or sales literature used by Project America or furnished by Project
America to dealers in connection with the public offering of the Fund's shares,
including expenses of advertising in connection with such public offerings.
Project America has not undertaken to sell any specified number of shares of the
Fund. Project America receives no compensation from the Fund for the services it
provides under the Distribution Agreement.
The Fund or Project America may terminate the Distribution Agreement on
sixty days' written notice without penalty. The Distribution Agreement will
terminate automatically in the event of its assignment.
PERFORMANCE INFORMATION
Total return is determined by calculating the actual investment return
on a $1,000 investment in the Fund over the one-year period and the life of the
Fund. Total return may also be presented for other periods. Total return
calculations assume reinvestment of all Fund distributions at net asset value on
their respective reinvestment dates. The total return for the one-year period
ending December 31, 1995 and for the life of the Fund was 32.30% and
10.85%, respectively.
The Fund's yield is presented for a specified thirty-day period (the
"base period"). Yield is based on the amount determined by (i) calculating the
aggregate amount of dividends and interest earned by the Fund during the base
period less expenses accrued for that period, and (ii) dividing that amount by
the product of (A) the average daily number of shares of the Fund outstanding
during the base period and entitled to receive dividends and (B) the net asset
value per share on the last day of the base period. The result is annualized on
a compounding basis to determine the yield. For this calculation, interest
earned on debt obligations held by the Fund is generally calculated using the
yield to maturity (or first expected call date) of such obligations based on
their market values (or, in the case of receivables-backed securities such as
GNMA's, based on cost). Dividends on
<PAGE>
equity securities are accrued daily at their stated dividend rates. The
yield for the Fund for the thirty-day period ended December 31, 1995 was 3.86%.
ALL DATA FOR THE FUND ARE BASED ON PAST PERFORMANCE AND DO NOT PREDICT
FUTURE RESULTS.
Independent statistical agencies measure the Fund's investment
performance and publish comparative information showing how the Fund, and other
investment companies, performed in
<PAGE>
specified time periods. Agencies whose reports are commonly used for such
comparisons are set forth below. From time to time, the Fund may distribute
these comparisons to its shareholders or to potential investors. THE AGENCIES
LISTED BELOW MEASURE PERFORMANCE BASED ON THE BASIS OF THEIR OWN CRITERIA RATHER
THAN ON THE BASIS OF THE STANDARDIZED PERFORMANCE MEASURES DESCRIBED ABOVE.
LIPPER ANALYTICAL SERVICES, INC. distributes mutual fund rankings
monthly. The rankings are based on total return performance calculated
by Lipper, reflecting generally changes in net asset value adjusted for
reinvestment of capital gains and income dividends. They do not reflect
deduction of any sales charges. Lipper rankings cover a variety of
performance periods, for example year-to-date, 1-year, 5-year, and
10-year performance. Lipper classifies mutual funds by investment
objective and asset category.
MORNINGSTAR, INC. distributes mutual fund ratings twice a month. the
ratings are divided into five groups: highest, above average, neutral,
below average and lowest. They represent a fund's historical
risk/reward ratio relative to other funds with similar objectives. The
performance factor is a weighted-average assessment of the Portfolio's
3-year, 5-year, and 10-year total return performance (if available)
reflecting deduction of expenses and sales charges. Performance is
adjusted using quantitative techniques to reflect the risk profile of
the fund. The ratings are derived from a purely quantitative system
that does not utilize the subjective criteria customarily employed by
rating agencies such as Standard & Poor's Corporation and Moody's
Investor Service, Inc.
WEISENBERGER'S MANAGEMENT RESULTS publishes mutual fund rankings and is
distributed monthly. The rankings are based entirely on total return
calculated by Weisenberger for periods such as year-to-date, 1-year,
3-year, 5-year and 10-year performance. Mutual funds are ranked in
general categories (e.g., international bond, international equity,
municipal bond, and maximum capital gain). Weisenberger rankings do not
reflect deduction of sales charges or fees.
Independent publications may also evaluate the Fund's performance.
Certain of those publications are listed below. The Fund may distribute
evaluations by or excerpts from these publications to its shareholders or to
potential investors. The following illustrates the types of information provided
by these publications.
BUSINESS WEEK publishes mutual fund rankings in its Investment Figures
of the Week column. The rankings are based on 4-week and 52-week total
return reflecting changes in net asset value and the reinvestment of
all distributions. They do not reflect deduction of any sales charges.
Portfolios are not categorized; they compete in a large universe of
over 2,000 funds. The source for rankings is data generated by
Morningstar, Inc.
INVESTOR'S BUSINESS DAILY publishes mutual fund rankings on a daily
basis. The rankings are depicted as the top 25 funds in a given
category. The categories are based loosely on
<PAGE>
the type of fund, e.g., growth funds, balanced funds, U.S. government
funds, GNMA funds, growth and income funds, corporate bond funds, etc.
Performance periods for sector equity funds can vary from 4 weeks to 39
weeks; performance periods for other fund groups vary from 1 year to 3
years. Total return performance reflects changes in net asset value and
reinvestment of dividends and capital gains. The rankings are based
strictly on total return. They do not reflect deduction of any sales
charges Performance grades are conferred from A+ to E. An A+ rating
means that the fund has performed within the top 5% of a general
universe of over 2000 funds; an A rating denotes the top 10%; an A- is
given to the top 15%, etc.
BARRON'S periodically publishes mutual fund rankings. The rankings are
based on total return performance provided by Lipper Analytical
Services. The Lipper total return data reflects changes in net asset
value and reinvestment of distributions, but does not reflect deduction
of any sales charges. The performance periods vary from short-term
intervals (current quarter or year-to-date, for example) to long-term
periods (five-year or ten-year performance, for example). Barron's
classifies the funds using the Lipper mutual fund categories, such as
Capital Appreciation Portfolios, Growth Portfolios, U.S. Government
Portfolios, Equity Income Portfolios, Global Portfolios, etc.
Occasionally, Barron's modifies the Lipper information by ranking the
funds in asset classes. "Large funds" may be those with assets in
excess of $25 million; "small funds" may be those with less than $25
million in assets.
THE WALL STREET JOURNAL publishes its Mutual Portfolio Scorecard on a
daily basis. Each Scorecard is a ranking of the top-15 funds in a given
Lipper Analytical Services category. Lipper provides the rankings based
on its total return data reflecting changes in net asset value and
reinvestment of distributions and not reflecting any sales charges. The
Scorecard portrays 4-week, year-to-date, one-year and 5-year
performance; however, the ranking is based on the one-year results. The
rankings for any given category appear approximately once per month.
FORTUNE magazine periodically publishes mutual fund rankings that have
been compiled for the magazine by Morningstar, Inc. Portfolios are
placed in stock or bond fund categories (for example, aggressive growth
stock funds, growth stock funds, small company stock funds, junk bond
funds, Treasury bond funds etc.), with the top-10 stock funds and the
top-5 bond funds appearing in the rankings. The rankings are based on
3- year annualized total return reflecting changes in net asset value
and reinvestment of distributions and not reflecting sales charges.
Performance is adjusted using quantitative techniques to reflect the
risk profile of the fund.
MONEY magazine periodically publishes mutual fund rankings on a
database of funds tracked for performance by Lipper Analytical
Services. The funds are placed in 23 stock or bond fund categories and
analyzed for five-year risk adjusted return. Total return reflects
changes in net asset value and reinvestment of all dividends and
capital gains
<PAGE>
distributions and does not reflect deduction of any sales charges.
Grades are conferred (from A to E): the top 20% in each category
receive an A, the next 20% a B, etc. To be ranked, a fund must be at
least one year old, accept a minimum investment of $25,000 or less and
have had assets of at least $25 million as of a given date.
FINANCIAL WORLD publishes its monthly Independent Appraisals of Mutual
Portfolios, a survey of approximately 1000 mutual funds. Portfolios are
categorized as to type, e.g., balanced funds, corporate bond funds,
global bond funds, growth and income funds, U.S. government bond funds,
etc. To compete, funds must be over one year old, have over $1 million
in assets, require a maximum of $10,000 initial investment, and should
be available in at least 10 states in the United States. The funds
receive a composite past performance rating, which weighs the
intermediate - and long-term past performance of each fund versus its
category, as well as taking into account its risk, reward to risk, and
fees. An A+ rated fund is one of the best, while a D- rated fund is one
of the worst. The source for Financial World rating is Schabacker
investment management in Rockville, Maryland.
FORBES magazine periodically publishes mutual fund ratings based on
performance over at least two bull and bear market cycles. The funds
are categorized by type, including stock and balanced funds, taxable
bond funds, municipal bond funds, etc. Data sources include Lipper
Analytical Services and CDA Investment Technologies. The ratings are
based strictly on performance at net asset value over the given cycles.
Portfolios performing in the top 5% receive an A+ rating; the top 15%
receive an A rating; and so on until the bottom 5% receive an F rating.
Each fund exhibits two ratings, one for performance in "up" markets and
another for performance in "down" markets.
KIPLINGER'S PERSONAL FINANCE MAGAZINE (formerly Changing Times),
periodically publishes rankings of mutual funds based on one-, three-
and five-year total return performance reflecting changes in net asset
value and reinvestment of dividends and capital gains and not
reflecting deduction of any sales charges. Portfolios are ranked by
tenths: a rank of 1 means that a fund was among the highest 10% in
total return for the period; a rank of 10 denotes the bottom 10%.
Portfolios compete in categories of similar funds -- aggressive growth
funds, growth and income funds, sector funds, corporate bond funds,
global governmental bond funds, mortgage-backed securities funds, etc.
Kiplinger's also provides a risk-adjusted grade in both rising and
falling markets. Portfolios are graded against others with the same
objective. The average weekly total return over two years is
calculated. Performance is adjusted using quantitative techniques to
reflect the risk profile of the fund.
U.S. NEWS AND WORLD REPORT periodically publishes mutual fund rankings
based on an overall performance index (OPI) devised by Kanon Bloch
Carre & Co., a Boston research firm. Over 2000 funds are tracked and
divided into 10 equity, taxable bond and tax-free bond categories.
Portfolios compete within the 10 groups and three broad categories.
The
<PAGE>
OPI is a number from 0-100 that measures the relative performance of
funds at least three years old over the last 1, 3, 5 and 10 years and
the last six bear markets. Total return reflects changes in net asset
value and the reinvestment of any dividends and capital gains
distributions and does not reflect deduction of any sales charges.
Results for the longer periods receive the most weight.
THE 100 BEST MUTUAL PORTFOLIOS YOU CAN BUY (1992), authored by Gordon
K. Williamson. The author's list of funds is divided into 12 equity and
bond fund categories, and the 100 funds are determined by applying four
criteria. First, equity funds whose current management teams have been
in place for less than five years are eliminated. (The standard for
bond funds is three years.) Second, the author excludes any fund that
ranks in the bottom 20 percent of its category's risk level. Risk is
determined by analyzing how many months over the past three years the
fund has underperformed a bank CD or a U.S. Treasury bill. Third, a
fund must have demonstrated strong results for current three-year and
five-year performance. Fourth, the fund must either possess, in Mr.
Williamson's judgment, "excellent" risk-adjusted return or "superior"
return with low levels of risk. Each of the 100 funds is ranked in five
categories: total return, risk/volatility, management, current income
and expenses. The rankings follow a five-point system: zero designates
"poor"; one point means "fair"; two points denote "good"; three points
qualify as a "very good"; four points rank as "superior"; and five
points mean "excellent."
OFFICERS OF COMMONWEALTH
W. HANCE WEST, JR., CFA MANAGING DIRECTOR, TOTAL RETURN PORTFOLIO MANAGER
Mr. West has eight years of investment management experience. Mr. West serves
as co- manager for the Mentor Income Fund (formerly RAC Income Fund), a $130
million closed-end bond fund. He holds his undergraduate degree in accounting
from Virginia Polytechnic Institute and his graduate degree in business from
University of Rochester.
P. MICHAEL JONES, CFA MANAGING DIRECTOR, INCOME PORTFOLIO MANAGER
Mr. Jones has ten years of investment management experience. Mr. Jones is
responsible for the design and implementation of the fixed-income group's
proprietary analytical system. He earned his undergraduate degree from the
College of William and Mary.
STEVEN C. HENDERSON ASSOCIATE VICE PRESIDENT, INCOME PORTFOLIO MANAGER
Mr. Henderson has six years of investment management experience. He has an
undergraduate degree from the University of Richmond and a masters in business
administration from George Washington University.
STEPHEN R. MCCLELLAND VICE PRESIDENT, TOTAL RETURN PORTFOLIO MANAGER Mr.
McClelland has five years of investment management experience, all of which have
been at Commonwealth. He is a Certified Public Accountant and received his
undergraduate degree in
<PAGE>
accounting from Iowa State University and his graduate business degree from
Virginia Commonwealth University.
KEITH WANTLING ASSOCIATE VICE PRESIDENT, SENIOR RESEARCH ANALYST Mr. Wantling
has four years of experience. Mr. Wantling performs analysis and screening for
credit sensitive private label mortgage-backed securities and directs the firm's
portfolio analysis effort. He holds his undergraduate degree in accounting
information systems from Virginia Polytechnic Institute.
R. PRESTON NUTTALL, CFA MANAGING DIRECTOR, DIRECTOR OF CASH MANAGEMENT AND
PORTFOLIO MANAGER
Mr. Nuttall has more than thirty years of investment management experience.
Prior to Commonwealth, he led short-term fixed-income management for fifteen
years at Capitoline Investment Services, Inc. He has his undergraduate degree in
economics from the University of Richmond and his graduate degree in finance
from the Wharton School at the University of Pennsylvania.
HUBERT R. WHITE III VICE PRESIDENT, PORTFOLIO MANAGER
Mr. White has eleven years of investment management experience. Prior to
joining Commonwealth, he served for five years as portfolio manager with
Capitoline Investment Services. He has his undergraduate degree in business
from the University of Richmond.
KATHRYN T. ALLEN VICE PRESIDENT, PORTFOLIO MANAGER
Ms. Allen has fourteen years of investment management experience and specializes
in tax-free trades. Prior to joining Commonwealth, Ms. Allen was portfolio
group manager at PNC Institutional Management Corporation. She has her
undergraduate degree in commerce and business administration from the University
of Alabama.
JOHN G. DAVENPORT, CFA MANAGING DIRECTOR COMMONWEALTH ADVISORS
CHIEF EQUITY OFFICER AND PORTFOLIO MANAGER
Mr. Davenport has eleven years of investment management experience. He joined
Commonwealth after heading equity research for Lowe, Brockenbrough, Tierney, &
Tattersall. He earned his undergraduate business degree from the University of
Richmond and his graduate degree in business from the University of Virginia.
RICHARD L. RICE, CFA RESEARCH ANALYST
Mr. Rice has twenty-five years' experience in the securities industry. Prior to
joining Commonwealth, he was a partner in the equity management software firm,
Parata Analytics Research, which was acquired by Commonwealth. He has his
undergraduate degree from the University of Florida and has completed graduate
work at Georgia State University.
<PAGE>
CUSTODIAN
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, acts as the custodian for the Fund's portfolio securities and
cash. In this capacity, it maintains certain financial and accounting books
and records pursuant to agreements with the Fund.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 707 East Main Street, Richmond, Virginia 23219,
serves as the Fund's independent accountants and in that capacity audits the
Fund's annual financial statements.
RATINGS
The rating services' descriptions of corporate bonds are:
MOODY'S INVESTORS SERVICE, INC.:
AAA -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
<PAGE>
STANDARD & POOR'S:
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
A-1 AND PRIME-1 COMMERCIAL PAPER RATINGS
The rating A-1 (including A-1+) is the highest commercial paper rating assigned
by S&P. Commercial paper rated A-1 by S&P has the following characteristics:
o liquidity ratios are adequate to meet cash requirements;
o long-term senior debt is rated "A" or better;
o the issuer has access to at least two additional channels of
borrowing;
o basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances;
o typically, the issuer's industry is well established and the
issuer has a strong position within the industry; and
o the reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2 or A-3. Issues rated A-1 that are
determined by S&P to have overwhelming safety characteristics are designated
A-1+.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
<PAGE>
o evaluation of the management of the issuer;
o economic evaluation of the issuer's industry or industries
and an appraisal of speculative-type risks which may be
inherent in certain areas;
o evaluation of the issuer's products in relation to
competition and customer acceptance;
o liquidity;
o amount and quality of long-term debt;
o trend of earnings over a period of ten years;
o financial strength of parent company and the relationships
which exist with the issuer; and
o recognition by the management of obligations which may be
present or may arise as a result of public interest questions
and preparations to meet such obligations.
NOTE RATINGS:
MIG1/VMIG1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing.
MIG2/VMIG2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
A-1 - This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
<PAGE>
AMERICA'S UTILITY FUND, INC.
PORTFOLIO OF INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
Shares or Market Value
Face Amount Common Stocks (Note 2)
<S> <C> <C>
PUBLIC UTILITY - ELECTRIC -
57.93%
212,000 Allegheny Power Systems, Inc. $ 6,068,500
188,000 Baltimore Gas & Electric Company 5,358,000
182,000 Central and Southwest
Corporation 5,073,250
94,950 Cinergy Corporation 2,907,844
145,000 Detroit Edison Company 5,002,500
191,000 DPL, Inc. 4,727,250
139,950 DQE, Inc. 4,303,462
65,000 Duke Power Company 3,079,375
125,000 Eastern Utilities Associates
Company 2,953,125
95,500 General Public Utilities
Corporation 3,247,000
114,000 IPALCO Enterprises, Inc. 4,346,250
122,250 LG&E Energy Corporation 5,165,062
33,800 NIPSCO Industries, Inc. 1,292,850
88,200 Northern States Power Company 4,332,825
185,000 Ohio Edison Company 4,347,500
209,000 Potomac Electric Power Company 5,486,250
143,000 Public Service Company of
Colorado 5,058,625
110,000 Public Service Enterprise Group,
Inc. 3,368,750
194,000 SCANA Corporation 5,553,250
203,000 Southern Company 4,998,875
109,500 TECO Energy Company 2,805,938
145,500 Western Resources, Inc. 4,856,063
94,332,544
PUBLIC UTILITY - NATURAL GAS -
7.66%
114,000 Brooklyn Union Gas Company 3,334,500
35,000 Indiana Energy 835,625
118,000 Nicor, Inc. 3,245,000
90,000 Pacific Enterprise Company 2,542,500
75,000 Questar Corporation 2,512,500
12,470,125
</TABLE>
<TABLE>
<CAPTION>
Shares or Market Value
Face Amount Common Stocks (Note 2)
<S> <C> <C>
TELECOMMUNICATIONS - 20.61%
58,000 AT&T Corporation $ 3,755,500
80,000 Ameritech 4,720,000
135,000 GTE Corporation 5,940,000
193,000 MCI Communications Corporation 5,042,125
65,000 NYNEX Corporation 3,510,000
41,000 SBC Communications Corporation 2,357,500
132,000 Sprint Corporation 5,263,500
83,000 U.S. West, Inc. 2,967,250
33,555,875
Total Common Stocks - 86.20%
(cost $122,459,120) 140,358,544
CORPORATE BONDS - 4.67%
$1,250,000 Duke Power Company, 8.00%,
11/1/99 1,345,312
2,000,000 Pacific Gas & Electric Company,
5.88%, 10/1/05 1,940,000
2,000,000 Texas Utilities Electric
Company, 8.25%, 4/1/04 2,252,500
2,000,000 Washington Water Power, 6.75%,
4/15/99 2,059,960
Total Corporate Bonds
(cost $7,309,435) 7,597,772
TEMPORARY INVESTMENTS - 8.74%
13,930,000 Federal Home Loan Bank, Discount
Note, 5.60%, due 1/2/96 13,927,833
305,668 Mellon Bank Deposit Instruments
at 5.45%, dated 12/29/95, due
1/2/96 305,668
Total Temporary Investments
(cost $14,233,551) 14,233,501
TOTAL INVESTMENTS - 99.61%
(COST $144,002,106) 162,189,817
OTHER ASSETS LESS LIABILITIES -
0.39% 640,541
NET ASSETS - 100.00% $162,830,358
</TABLE>
See notes to financial statements.
<PAGE>
AMERICA'S UTILITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments, at market value --
identified cost $144,002,106 (Note 2) $162,189,817
Receivables
Dividends and interest receivable 784,807
Capital shares sold 147,335
Total assets 163,121,959
LIABILITIES
Dividends payable 107,708
Capital shares redeemed 35,059
Accrued expenses 148,834
Total liabilities 291,601
NET ASSETS $162,830,358
Net Assets represented by:
Additional paid-in capital $149,272,638
Undistributed net investment income 46,671
Accumulated net realized loss on investment
transactions (4,676,662)
Net unrealized appreciation of investments 18,187,711
Net Assets $162,830,358
Shares outstanding 6,586,756
Net Asset Value Per Share $ 24.72
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<S> <C>
INVESTMENT INCOME
Dividends $ 6,918,646
Interest 1,150,636
Total investment income (Note 2) 8,069,282
EXPENSES
Administrative service fees (Note 5) 948,530
Investment advisor fees (Note 5) 323,431
Shareholder reports 168,544
Shareholder services fees (Note 5) 140,179
Printing and postage expenses 69,745
Directors' fees 58,508
Transfer agent fees (Note 5) 56,072
Legal fees 46,254
Custody fees 35,000
Audit fees 22,000
Registration fees 21,625
Insurance and other 35,088
Total expenses 1,924,976
Deduct
Expenses assumed by administrative services
company (Note 5) (185,103)
Net expenses 1,739,873
Net investment income 6,329,409
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 1,297,943
Change in unrealized appreciation or
depreciation of investments for the year 33,092,284
Net realized and unrealized gain on
investments 34,390,227
Net increase in net assets resulting from
operations $40,719,636
</TABLE>
See notes to financial statements.
<PAGE>
AMERICA'S UTILITY FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
NET INCREASE IN NET ASSETS FROM:
OPERATIONS
Net investment income $ 6,329,409 $ 5,793,402
Net realized gain (loss)
on investments 1,297,943 (6,104,101)
Change in unrealized
appreciation (depreciation) of
investments 33,092,284 (17,180,151)
Increase (decrease) in net assets
resulting from operations 40,719,636 (17,490,850)
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (6,298,780) (5,804,002)
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 18,986,502 31,649,629
Reinvested distributions 5,908,003 5,558,294
Cost of shares redeemed (21,494,033) (22,429,458)
Change in net assets from
capital share transactions 3,400,472 14,778,465
Increase (decrease) in net assets 37,821,328 (8,516,387)
Net assets
Beginning of year 125,009,030 133,525,417
End of year $162,830,358 $125,009,030
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1995 1994 1993 1992(a)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.50 $ 23.54 $ 21.95 $ 20.54
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.96 0.96 0.91 0.63
Net realized and unrealized gain (loss) on investments 5.22 (4.04) 2.00 1.80
Total from investment operations 6.18 (3.08) 2.91 2.43
LESS DISTRIBUTIONS
Dividends from net investment income 0.96 0.96 0.92 0.67
Distributions from net realized capital gains 0.00 0.00 0.40 0.35
Total distributions 0.96 0.96 1.32 1.02
NET ASSET VALUE, END OF PERIOD $ 24.72 $ 19.50 $ 23.54 $ 21.95
Total Return 32.30% (13.10%) 13.26% 18.76%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in millions) $162.83 $125.01 $133.53 $ 43.67
Ratio of expenses to average net assets 1.21% 1.21% 1.21% 1.21%
Ratio of expenses to average net assets before expense reductions 1.34% 1.33% 1.41% 1.41%
Ratio of net investment income to average net assets 4.40% 4.66% 4.19% 4.99%
Portfolio turnover rate 27.77% 28.85% 21.20% 24.16%
</TABLE>
(a) Dividends from net investment income include investment income earned prior
to commencement of sales to the public. The total return and the ratios to
average net assets are annualized.
See notes to financial statements.
<PAGE>
AMERICA'S UTILITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE 1: ORGANIZATION
America's Utility Fund, Inc. (the Fund) is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Fund was organized as a Maryland corporation on January 28, 1992. On
February 14, 1992 (initial investment date), the Fund sold 500,000 shares of
common stock to Dominion Resources, Inc., the ultimate parent of America's
Utility Fund Service Company, for $10,000,000. The Fund commenced sales to the
public on May 5, 1992. The following summarizes the significant accounting
policies of the Fund.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION. Investments in securities traded on a national securities
exchange and over-the-counter securities quoted on the NASDAQ National Market
System are valued at the last reported sales price or, lacking any sales, at the
last available bid price. Securities traded in the over-the-counter market,
other than those quoted on the NASDAQ National Market System, are valued at the
last available bid price. Short-term investments with remaining maturities of 60
days or less are carried at amortized cost, which approximates market value.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith under procedures approved by the Board of
Directors.
REPURCHASE AGREEMENTS. It is the policy of the Fund to require that repurchase
agreement investments be fully collateralized at all times. Procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's underlying securities to ensure the existence of a proper
level of collateral.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed by the
Fund's adviser to be creditworthy pursuant to guidelines established by the
Fund's Board of Directors. Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly, the
Fund could receive less than the repurchase price on the sale of collateral
securities.
FEDERAL INCOME TAXES. The Fund intends to qualify as a regulated investment
company by complying with the requirements of the Internal Revenue Code and to
distribute all its taxable income to its shareholders. Therefore, no federal
income tax provision is required. Effective January 1, 1994, the Fund began
accounting and reporting for distributions to shareholders in accordance with
Statement of Position 93-2, Determination, Disclosure and Financial Statement
Presentation of Income, Capital Gain and Return of Capital Distributions by
Investment Companies. As a result, the Fund changed the classification of
certain distributions to shareholders for financial reporting purposes. The
cumulative effect of adopting the statement was to reclassify $967,486 to
accumulated net realized gains from undistributed net investment income, due to
the tax treatment of net short-term capital gains for tax purposes. At December
31, 1995, the Fund, for federal tax purposes, had a capital loss carryover of
approximately $4,806,158. Pursuant to the Internal Revenue Code, such capital
loss carryover will expire in 2002.
DISTRIBUTION TO SHAREHOLDERS. Dividends to shareholders are recorded on the
ex-dividend date. Dividends from net investment income are declared and paid
quarterly. Distributions of capital gains, if any, are made annually.
SECURITY TRANSACTIONS. The Fund records security transactions on the trade date.
Gains and losses on securities sold are determined on the first-in, first-out
(FIFO) method. Discounts and premiums on securities purchased are amortized over
the life of the respective securities.
INVESTMENT INCOME. Dividend income is recognized on the ex-dividend date, and
interest income is recognized daily on an accrual basis.
NOTE 3: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities)
were $39,125,520 and $35,317,878, respectively. Net unrealized appreciation at
December 31, 1995, based on the cost of securities for federal income tax
purposes of $144,002,106 is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $19,133,976
Gross unrealized depreciation (946,265)
Net unrealized appreciation $18,187,711
</TABLE>
NOTE 4: CAPITAL SHARE TRANSACTIONS
As of December 31, 1995 there were 500,000,000 shares of $0.0001 par value
capital stock authorized. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year
Ended Year Ended
12/31/95 12/31/94
<S> <C> <C>
Shares sold 874,570 1,529,357
Shares issued upon reinvestment
of dividends 264,072 278,823
Shares redeemed (962,767) (1,069,298)
175,875 738,882
</TABLE>
NOTE 5: ADMINISTRATIVE SERVICES FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Commonwealth Investment Counsel, Inc. ("Commonwealth"), serves as investment
manager to the Fund under a Management Contract dated September 9, 1995.
Commonwealth is a wholly owned subsidiary of Mentor Investment Group, Inc.,
which in turn is a wholly owned subsidiary of Wheat First Butcher Singer Inc.
Commonwealth receives for its services an annual investment management fee
expressed as a percentage of average daily net assets as follows: 0.75% of the
first $5 million of average daily net assets, 0.50% of the next $5 million,
0.25% of the next $90 million, 0.20% of the next $100 million, 0.15% of the next
$100 million and 0.10% of the average daily net assets in excess of $300
million.
Mentor Investment Group, Inc. ("Mentor") provides administrative personnel and
services to the Fund under an Administration Agreement dated August 21, 1995.
Pursuant to the Agreement, the Fund pays Mentor a fee at the annual rate of
0.65% of the Fund's average daily net assets, less the amount of any management
fees paid to Commonwealth pursuant to the Management Contract.
<PAGE>
Prior to August 21, 1995, the Fund paid fees to America's Utility Fund Service
Company ("AUFSC") under an Administrative Services and Transfer Agency
Agreement, pursuant to which AUFSC provided administrative, transfer agency and
dividend disbursing agency services. The Fund paid fees under that Agreement at
an annual rate of 1.00% of the Fund's average daily net assets less the amount
of any fees payable to the Fund's investment adviser.
The Fund has entered into a Shareholder Services Agreement with Mentor dated
August 21, 1995, pursuant to which Mentor, itself, through AUFSC, or through
other financial institutions, provides shareholder support services to the Fund
and its shareholders. The Fund pays fees to Mentor under that Agreement at an
annual rate of 0.25% of the Funds average daily net assets. Pursuant to a
Sub-Shareholder Services Agreement between Mentor and AUFSC, Mentor in turn pays
fees to AUFSC at the same annual rate of the Fund's assets in respect of which
AUFSC provides specified shareholder services.
AUFSC also receives fees from the Fund's transfer agent for services performed
under a Sub-Transfer Agency Agreement dated August 21, 1995. Pursuant to that
Agreement, the transfer agent pays AUFSC a fee at the annual rate of 0.10% of
the Fund's average daily net assets attributable to shares held by the
shareholders to whom AUFSC provides such sub-transfer agency services.
AUFSC (prior to August 21, 1995) agreed, and Mentor (after August 21, 1995) has
agreed, to bear the expenses of the Fund to the extent total Fund operating
expenses exceed 1.21% of the Fund's average daily net assets. Mentor has agreed
to maintain the expense limitation in effect until September 11, 1996. As a
result of this expense limitation, AUFSC and Mentor incurred expenses of
$118,162 and $66,941 respectively, for the Fund during the 1995 fiscal year.
As of December 31, 1995 Dominion Resources, Inc. and subsidiaries owned 168,016
shares of capital stock, representing 2.6% of the total shares (market value
$4,153,345).
Income Tax Information
Of the ordinary income distributions paid during the period ended December 31,
1995, the Fund is designating 100% as eligible for the dividends-received
exclusion for corporations.
This material must be preceded or accompanied by a current Prospectus for
America's Utility Fund. It contains complete information regarding fees and
expenses. Please read it carefully before investing or sending money.
REPORT OF INDEPENDENT AUDITORS
The Shareholders and Board of Directors
America's Utility Fund, Inc.
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of America's Utility Fund, Inc. as of
December 31, 1995, and the related statement of operations for the year then
ended and the statements of changes in net assets for each of the two years in
the period then ended and the financial highlights for the years ended December
31, 1995, 1994 and 1993, and for the period May 5, 1992 (commencement of sales
to the public) through December 31, 1992. 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 audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of 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 as of
December 31, 1995 by correspondence with the custodian and brokers. 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, the financial statements and financial highlights present
fairly, in all material respects, the financial position of America's Utility
Fund, Inc. as of December 31, 1995 and the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Richmond, Virginia
January 26, 1996
<PAGE>
AMERICA'S UTILITY FUND, INC.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements (Included in Parts A and B)
(1) Report of Independent Auditors (b)
(2) Statement of Assets and Liabilities -- December 31,
1995 (b)
(3) Statement of Operations -- Year Ended December 31, 1995 (b)
(4) Statement of Changes in Net Assets -- Years Ended
December 31, 1995 and 1994 (b)
(5) Financial Highlights (a)
(6) Notes to Financial Statements (b)
(7) Schedule of Investments -- December 31, 1995 (b)
(a) Included in Part A.
(b) Included in Part B.
b. Exhibits
(1) Articles of Incorporation.*
(2) By-laws.*
(3) Inapplicable.
(4) Form of Enrollment Application.*
(5)
(A) Form of Management Contract.
(B) Form of Administrative Services Agreement.
(6) Distribution Agreement, dated as of March 20, 1992,
between the Registrant and Project America, Inc.*
(7) Inapplicable.
(8)
(A) Custodian Agreement, dated as of September 1,
1994, between the Registrant and Mellon Bank,
N.A.*
(B) Form of Shareholder Service Agreement.
(C) Form of Sub-Shareholder Service Agreement.
(D) Form of Transfer Agency Agreement.
(E) Form of Sub-Transfer Agency Agreement.
(9) Inapplicable.
(10) Opinion of Counsel, including consent.*
(11) Consent of Independent Accountants.
(12) Inapplicable.
(13) Purchase Agreement, dated as of February 14, 1992,
between the Registrant and Dominion Resources, Inc.*
(14) Form of Registrant's IRA Documents.*
(15) Inapplicable.
(11) Consent of Independent Accountants
(16) Schedule of Computation of Performance.*
(27) Financial Data Schedule
* Previously filed.
Filed herewith.
Item 25: Persons Controlled by or Under Common Control with Registrant
None
Item 26: Number of Holders of Securities (as of February 1, 1996)
(1) (2)
Title of Class Number of Record Shareholders
Common Stock, par 41,986
value $.001 per share
Item 27: Indemnification
The information required by this item is incorporated herein by
reference from Post-Effective Amendment No. 4 to the
Registrant's Statement on Form N-1A (Reg. No. 33-45437) under
the Securities Act of 1933, filed on February 16, 1995.
Item 28. Business or Other Connections of Investment Adviser
(a) Commonwealth Investment Counsel, Inc., the investment
adviser of the Fund, serves as investment adviser to the Cash Resource
Money Market Fund, Cash Resource U.S. Government Money Market Fund, Cash
Resource Tax-Exempt Money Market Fund, Mentor Balanced Portfolio, Mentor
Quality Income Portfolio, Mentor Short-Duration Income Portfolio, Mentor
Cash Management Portfolio, Mentor Fixed-Income Portfolio, Mentor
Intermediate Duration Portfolio, and SNAP Fund, each of which is an open-
end investment company, and Mentor Income Fund, Inc., a closed-end
investment company.
(b) The following is additional information with respect to the
directors and officers of Commonwealth Investment Counsel, Inc.:
Other Substantial
Business,
Profession,
Vocation or
Employment
during the past
Position with the two
Name Investment Adviser fiscal years
John G. Davenport President; None
Director
William F. Senior Vice None
Johnston, III President
P. Michael Jones Managing Director None
R. Preston Nuttall Managing Director Formerly, Senior
Vice President,
Capitoline
Investment
Services, 919 East
Main Street,
Richmond, VA 23219
John J. Kelly Vice President None
William H. West, Jr. Managing Director Vice President,
Mentor Income
Fund, Inc.;
formerly, Vice
President of
Ryland Capital
Management, Inc.,
11000 Broken Land
Parkway, Columbia,
MD 21044;
formerly, Vice
President, RAC
Income Fund, Inc.,
11000 Broken Land
Parkway, Columbia,
MD 21044
Steven C. Henderson Vice President None
Stephen R. McClelland Associate Vice Formerly, Associate
President Vice President,
Mentor Investment
Group, Inc.
Thomas Lee Souders Treasurer Managing Director
and Chief
Financial Officer,
Wheat, First
Securities, Inc.;
formerly, Manager
of Internal Audit,
Heilig-Myers;
formerly, Manager,
Peat Marwick &
Mitchell & Company
John Michael Ivan Secretary Managing Director,
Senior Vice
President and
Assistant General
Counsel, Wheat,
First Securities,
Inc.; Managing
Director and
Assistant
Secretary, Wheat
First Butcher
Singer, Inc.;
Clerk, Cash
Resource Trust and
Mentor
Institutional
Trust; Secretary,
The Mentor Funds.
The address of Wheat, First Securities, Inc., Wheat First
Butcher Singer, Inc., Cash Resource Trust, The Mentor Funds, Mentor
Institutional Trust, Mentor Income Fund, Inc. and Mentor Investment Group,
Inc. is 901 East Bryd Street, Richmond, VA 23219.
Item 29. Principal Underwriters
(a) Project America, Inc., the Registrant's only current
principal underwriter, does not act as principal underwriter
to any other investment companies.
(b) The following is additional information with respect to the
directors and officers of Project America:
(1) (2) (3)
Name and Principal Position and Position and
Business Address Offices with Underwriters Offices with Registrant
Glenna G. Bryant Principal & Vice Vice President -
901 East Byrd President Administration
Street
Richmond, VA 23219
(c) Not applicable.
Item 30. Location of Accounts and Records
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the rules
promulgated thereunder are maintained by the Fund or AUF Service
Company, the Registrant's sub-transfer agent, at 901 East Byrd
Street, Richmond, Virginia 23219 or Boston Financial Data
Services, Inc., the Registrant's transfer agent, at 2 Heritage
Drive, North Quincy, Massachusetts 02171. Records relating to
the duties of the Registrant's custodian are maintained by Mellon
Bank, N.A. at One Mellon Bank Center, Pittsburgh, Pennsylvania
15258.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Richmond, and Commonwealth of Virginia, on the 1st day of March, 1996:
AMERICA'S UTILITY FUND, INC.
By: /s/ DAVID L. HEAVENRIDGE
David L. Heavenridge
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities indicated on the 1st day of
March, 1996:
Director, Chairman of the
/s/ DAVID L. HEAVENRIDGE Board & Chief
(David L. Heavenridge) Executive Officer (Principal Executive Officer)
* Director
(Arch T. Allen, III)
* Director
(Robert P. Black)
* Director
(Peter W. Brown)
/s/ JAMES L. TRUEHEART Vice President, Controller
(James L. Trueheart) & Chief Financial Officer
(Principal Financial and
Accounting Officer)
*By: /s/ DAVID L. HEAVENRIDGE Attorney-in-fact
(David L. Heavenridge)
POWER OF ATTORNEY
We, the undersigned Directors of America's Utility Fund, Inc. (the
"Fund"), hereby severally constitute and appoint David L. Heavenridge and James
L. Trueheart, and each of them singly, our true and lawful attorneys, with full
power to them and each of them, to sign for us, and in our names and in the
capacities indicated below, the Registration Statement on Form N-1A of the Fund
and any and all amendments (including post-effective amendments) to said
Registration Statement and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto our said attorneys, and each of them acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in the premises, as fully to all intents and purposes as he or she
might or could do in person, and hereby ratify and confirm all that said
attorneys or any of them may lawfully do or cause to be done by virtue thereof.
WITNESS our hands and common seal on the date set forth below.
Signature Title Date
/s/ ARCH T. ALLEN, III Director March 1, 1996
Arch T. Allen, III
/s PETER W. BROWN Director March 1, 1996
Peter W. Brown
<PAGE>
INDEX TO EXHIBITS
(5)(A) Form of Management Contract
(5)(B) Form of Administrative Services Agreement
(8)(B) Form of Shareholder Service Agreement
(8)(C) Form of Sub-Shareholder Service Agreement
(8)(D) Form of Transfer Agency Agreement
(8)(E) Form of Sub-Transfer Agency Agreement
(11) Consent of Independent Auditors
(16) Schedule of Computation of Performance
(27) Financial Data Schedule
AMERICA'S UTILITY FUND, INC.
MANAGEMENT CONTRACT
This Management Contract dated as of September 9, 1995 between
AMERICA'S UTILITY FUND, INC., a Maryland corporation (the "Fund"), and
COMMONWEALTH INVESTMENT COUNSEL, INC., a Virginia corporation (the "Manager")
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY THE MANAGER TO THE FUND.
(a) The Manager, at its expense, will furnish continuously an
investment program for the Fund, will determine what investments shall be
purchased, held, sold, or exchanged by the Fund and what portion, if any, of the
assets of the Fund shall be held uninvested and shall, on behalf of the Fund,
make changes in the Fund's investments. In the performance of its duties, the
Manager will comply with the provisions of the Articles of Incorporation and
By-Laws of the Fund and the Fund's stated investment objectives, policies, and
restrictions, and will use its best efforts to safeguard and promote the welfare
of the Fund and to comply with other policies which the Board of Directors may
from time to time determine.
(b) The Manager, at its expense, will furnish (i) all necessary
investment and related management facilities, including, salaries of personnel,
required for it to execute its duties faithfully, (ii) suitable office space for
the Fund, and (iii) such facilities, including bookkeeping, clerical personnel,
and equipment as may be necessary for the efficient performance by the Manager
of its obligations. The Manager will pay the compensation of such of its
directors, officers, and employees as may duly be elected Directors or officers
of the Fund.
(c) The Manager, at its expense, shall place all orders for the
purchase and sale of portfolio investments for the Fund's account with brokers
or dealers selected by the Manager. In the selection of such brokers or dealers
and the placing of such orders, the Manager shall give primary consideration to
securing for the Fund the most favorable price and execution available, except
to the extent it may be permitted to pay higher brokerage commissions for
brokerage and research services as described below. In doing so, the Manager,
bearing in mind the Fund's best interests at all times, shall consider 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 the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience, and financial stability of the broker or
<PAGE>
dealer involved, and the quality of service rendered by the broker or dealer in
other transactions. Subject to such policies as the Board of Directors of the
Fund may determine, the Manager shall not be deemed to have acted unlawfully or
to have breached any duty created by this Contract or otherwise solely by reason
of its having caused the Fund to pay a broker or dealer that provides brokerage
and research services to the Manager an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission that
another broker or dealer would have charged for effecting that transaction, if
the Manager determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of either that particular
transaction or the Manager's overall responsibilities with respect to the Fund
and to other clients of the Manager as to which the Manager exercises investment
discretion.
(d) The Fund hereby authorizes any entity or person associated with the
Manager which is a member of a national securities exchange to effect any
transaction on the exchange for the account of the Fund which is permitted by
Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T)
thereunder, and the Fund hereby consents to the retention of compensation for
such transactions in accordance with Rule 11a2-2(T)(2)(iv).
(e) The Manager shall not be obligated to pay any expenses of or for
the Fund not expressly assumed by the Manager pursuant to this Section 1.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Directors, officers, and
employees of the Fund may be a shareholder, director, officer, or employee of,
or be otherwise interested in, the Manager, and in any person controlled by or
under common control with the Manager, and that the Manager and any person
controlled by or under common control with the Manager may have an interest in
the Fund. It is also understood that the Manager and any person controlled by or
under common control with the Manager have and may have advisory, management,
service, or other contracts with other organizations and persons, and may have
other interests and business.
3. COMPENSATION TO BE PAID BY THE FUND TO THE MANAGER.
As compensation for the services performed and the facilities furnished
and expenses assumed by the Manager, including the services of any consultants
retained by the Manager, the Fund shall pay the Manager, promptly (but in any
event within three business days) after the last day of each calendar month, a
fee, calculated daily, at an annual rate as follows: for the first $5 million of
assets under management, 0.75% of the average daily net assets in the Fund; for
the next $5 million under management, .50% of the average daily net assets in
the Fund; for the next $90 million under management, .25% of the average daily
net assets in the Fund; for the next $100 million under management, .20% of the
average daily net assets in the
<PAGE>
Fund; for the next $100 million under management, .15% of the average daily net
assets in the Fund; and for any amounts over $300 million under management, .10%
of the average daily net assets in the Fund.
If this Agreement is terminated as of any date not the last day of a
calendar month, the fee payable to the Manager shall be paid promptly (but in
any event within three business days) after such date of termination.
The average daily net assets of the Fund shall in all cases be based
only on business days and be computed as of the time of the regular close of
business of the New York Stock Exchange, or such other time as may be determined
by the Board of Directors. Each such payment shall be accompanied by a report of
the Fund prepared either by the Fund or by a reputable firm of independent
accountants which shall show the amount properly payable to the Manager under
this Agreement and the detailed computation thereof.
3. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS
CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Contract shall not be amended
unless such amendment be approved at a meeting by the affirmative vote of a
majority of the outstanding shares of the Fund, and by the vote, cast in person
at a meeting called for the purpose of voting on such approval, of a majority of
the Directors of the Fund who are not interested persons of the Fund or of the
Manager.
4. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution and shall
remain in full force and effect for two years from the date hereof, and is
renewable annually thereafter by specific approval of the Board of Directors or
by vote of a majority of the outstanding voting securities of the Fund. Any such
renewal shall be approved by the vote of a majority of the Directors who are not
interested persons under the Investment Company Act of 1940, as amended, cast in
person at a meeting called for the purpose of voting on such renewal. This
Contract may be terminated without penalty at any time by the Fund or the
Manager upon 60 days written notice. The termination of this Contract shall not
affect any obligation or liability on the Fund's part for any transaction
entered into or obligation incurred on the Fund's behalf prior to such
termination.
Termination of this Contract pursuant to this Section 4 will be without
the payment of any penalty.
<PAGE>
5. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "vote of a majority of the
outstanding shares" of the Fund means the affirmative vote, at a duly called and
held meeting of such shareholders, (a) of the holders of 67% or more of the
shares of the Fund present (in person or by proxy) and entitled to vote at such
meeting, if the holders of more than 50% of the outstanding shares of the Fund
entitled to vote at such meeting are present in person or by proxy, or (b) of
the holders of more than 50% of the outstanding shares of the Fund entitled to
vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "interested person" and
"assignment" shall have their respective meanings defined in the Investment
Company Act of 1940, as amended, and the Rules and Regulations thereunder,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act; the term "approval by a majority of the
outstanding voting securities of the Fund" shall be construed in a manner
consistent with the Investment Company Act of 1940, as amended, and the Rules
and Regulations thereunder; and the term "brokerage and research services" shall
have the meaning given in the Securities Exchange Act of 1934, as amended, and
the Rules and Regulations thereunder.
6. NON-LIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith, or gross negligence
on the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Fund or to
any shareholder of the Fund for any act or omission in the course of, or
connected with, rendering services hereunder.
IN WITNESS WHEREOF, AMERICA'S UTILITY FUND, INC. and COMMONWEALTH
INVESTMENT COUNSEL, INC., have each caused this instrument to be signed in
duplicate in its behalf by its President or Vice President thereunto duly
authorized, all as of the day and year first above written. This document is
executed by each of the parties hereto under seal. This Agreement shall be
governed and construed in accordance with the laws (other than conflict of laws
rules) of The Commonwealth of Virginia.
AMERICA'S UTILITY FUND, INC.
By: /s/ PAUL F. COSTELLO
COMMONWEALTH INVESTMENT COUNSEL, INC.
By: /s/ JOHN G. DAVENPORT
AMERICA'S UTILITY FUND, INC.
901 East Byrd Street
Richmond, Virginia 23219
August 21, 1995
Mentor Investment Group, Inc.
901 East Byrd Street
Richmond, Virginia 23219
Re: Administrative Services Agreement
Dear Gentlemen:
America's Utility Fund, Inc., a Maryland corporation (the "Fund"), is
engaged in the business of a registered investment company. The Fund desires
that you act as administrator of the Fund, and you are willing to act as such
administrator and to perform such services under the terms and conditions
hereinafter set forth. Accordingly, the Fund agrees with you as follows:
1. Delivery of Fund Documents. The Fund has furnished you with
copies properly certified or authenticated of each of the following:
(a) Articles of Incorporation of the Fund.
(b) By-Laws of the Fund as in effect on the date hereof.
(c) Resolutions of the Board of Directors of the Fund selecting
you as administrator and approving the form of this Agreement.
The Fund will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing, if any.
2. Administrative Services. You will continuously provide
business management services to the Fund and will generally, subject to the
general oversight of the Board of Directors of the Fund and, except as provided
in the next following paragraph, manage all of the business and affairs of the
Fund, subject always to the provisions of the Fund's Articles of Incorporation
and By-Laws and of the Investment Company Act of 1940, as amended (the "1940
Act"), and subject, further, to such policies and instructions as the Board of
Directors of the Fund may from time to time establish. You shall, except as
provided in the next
<PAGE>
following paragraph, advise and assist the officers of the Fund in taking such
steps as are necessary or appropriate to carry out the decisions of the Board of
Directors of the Fund and the appropriate committees of such Board of Directors
regarding the conduct of the business of the Fund. Without limiting the
generality of the foregoing, and subject in each case to the provisions of the
following paragraph, you will take all reasonable steps to coordinate and
oversee the preparation and filing of all amendments to the registration
statement of the Fund on Form N-1A as are required by the Securities Act of 1933
or the 1940 Act, and the preparation and mailing of all financial reports to
shareholders required by the 1940 Act; to coordinate and oversee the Fund's
compliance with the registration requirements of applicable state securities or
"Blue Sky" laws; to prepare and furnish all reports to the Board of Directors of
the Fund in respect of the Fund, including materials relating to any meeting of
the Board of Directors of the Fund, as may reasonably be requested by the Board
of Directors or the officers of the Fund; to oversee and perform certain agreed
tax-related functions for the Fund (including, without limitation, performance
of excise tax and income tax calculations for year-end dividend distributions to
shareholders, preparation of the income tax information footnote in year-end
financial statements, and preparation and filing of federal tax returns for the
Fund and Virginia and Maryland tax return forms); and otherwise to assist the
officers of the Fund in the performance of their duties. You will be fully
protected in complying with or relying on the instructions of the President or
any other officer of the Fund, or the advice of counsel for the Fund, in the
performance of your duties hereunder,.
Notwithstanding any provision of this Agreement, you will not at any
time provide, or be required to provide, to the Fund or to any person with
respect to the Fund, investment research, advice, or supervision, or in any way
advise the Fund or any person acting on behalf of the Fund as to the value of
securities or other investments or as to the advisability of investing in,
purchasing, or selling securities or other investments, nor shall you be
responsible for monitoring, determining, or advising as to the compliance of any
investment in or purchase or sale of securities or other investments with any
applicable law.
3. Allocation of Charges and Expenses. You will make available, without
expense to the Fund, the services of such of your directors, officers, and
employees as may duly be elected Directors or officers of the Fund, subject to
their individual consent to serve and to any limitations imposed by law. You
will provide, at your expense, all clerical services relating to the business of
the Fund. You will pay the compensation of such of your directors, officers, and
employees as may duly be elected Directors or officers of the Fund. You will not
be required to pay any expenses of the Fund other than those specifically
allocated to you in this paragraph 3. In particular, but without limiting the
generality of the foregoing, you will not be required to pay: clerical salaries
not relating to the services described in paragraph 2 above; fees and expenses
incurred by the Fund in connection with membership in investment company
organizations; brokers' commissions; payment for portfolio pricing services to a
pricing agent, if any; legal, auditing, or accounting expenses; taxes or
governmental fees; the fees and expenses of the transfer agent of the Fund; the
cost of preparing share certificates or any other expenses, including clerical
expenses, incurred in
<PAGE>
connection with the issue, sale, underwriting, redemption, or repurchase of
shares of the Fund; the expenses of and fees for registering or qualifying
securities for sale; the fees and expenses of Directors of the Fund who are not
affiliated with you; the cost of preparing and distributing reports and notices
to shareholders; public and investor relations expenses; or the fees or
disbursements of custodians of the Fund's assets, including expenses incurred in
the performance of any obligations enumerated by the Articles of Incorporation
or By-Laws of the Fund insofar as they govern agreements with any such
custodian.
4. Compensation. As compensation for the services performed and the
facilities furnished and expenses assumed by you, including the services of any
consultants retained by you, the Fund shall pay you, promptly (but in any event
within three business days) after the last day of each calendar month, a fee,
calculated daily, of 0.65 of 1% annually of the Fund's average daily net assets,
less the amount of any fees paid to Commonwealth Investment Counsel, Inc. for
such month under its Management Contract with the Fund dated as of August 21,
1995.
If this Agreement is terminated as of any date not the last day of a
calendar month, the fee payable to you shall be paid promptly (but in any event
within three business days) after such date of termination.
The average daily net assets of the Fund shall in all cases be based
only on business days and be computed as of the time of the regular close of
business of the New York Stock Exchange, or such other time as may be determined
by the Board of Directors. Each such payment shall be accompanied by a report of
the Fund prepared either by the Fund or by a reputable firm of independent
accountants which shall show the amount properly payable to you under this
Agreement and the detailed computation thereof.
5. Limitation of Liability. You shall not be liable for any error of
judgement or mistake of law or for any loss suffered by the Fund in connection
with the matters to which this Agreement relates except a loss resulting from
willful misfeasance, bad faith, or gross negligence on your part in the
performance of your duties, or from reckless disregard by you of your
obligations and duties under this Agreement. Any person, even though also
employed by you, who may be or become an employee of and paid by the Fund shall
be deemed, when acting within the scope of his or her employment by the Fund, to
be acting in such employment solely for the Fund and not as your employee or
agent.
6. Duration and Termination of this Agreement. This Agreement shall
remain in force until August 21, 1997 and continue from year to year thereafter,
but only so long as such continuance is specifically approved at least annually
by the vote of a majority of the Directors who are not interested persons of you
or of the Fund, cast in person at a meeting called for the purpose of voting on
such approval and by a vote of the Board of Directors. This Agreement may, on 30
days notice, be terminated at any time without the payment of any penalty by
you, and, immediately upon notice, by the Board of Directors or by vote of a
majority of the outstanding voting securities of the Fund. In interpreting the
provisions of this Agreement, the definitions contained in Section 2(a) of the
1940 Act, as modified by rule 18f-2 under the Act (particularly the definitions
of "interested person" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission by any
rule, regulation, or order.
<PAGE>
7. Amendment of this Agreement. No provisions of this Agreement may be
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge, or termination is sought, and no amendment of this Agreement shall be
effective as to the Fund until approved by the Board of Directors, including a
majority of the Directors who are not interested persons of you or of the Fund,
cast in person at a meeting called for the purpose of voting on such approval.
8. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Fund, whereupon this letter shall become a binding contract.
Yours very truly,
AMERICA'S UTILITY FUND, INC.
By: /s/ LINWOOD R. ROBERTSON
The foregoing Agreement is hereby accepted as of the date thereof.
MENTOR INVESTMENT GROUP, INC.
By: /s/ PAUL F. COSTELLO
SHAREHOLDER SERVICE AGREEMENT
This SHAREHOLDER SERVICE AGREEMENT is made as of the 21st day of
August, 1995, between America's Utility Fund, Inc., a Maryland corporation (the
"Fund"), and Mentor Investment Group, Inc., a Virginia corporation (the "Service
Agent"). In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Service Agent, itself, or through other financial institutions,
shall provide shareholder support services to the Fund and its shareholders.
These administrative services may include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities and various
personnel, including clerical, supervisory and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions; answering routine shareholder
inquiries regarding the Fund; assisting shareholders in changing dividend
options, account designations, and addresses; and providing such other
shareholder services as the Fund reasonably requests.
2. To compensate the Service Agent for the services it provides and the
expenses it bears hereunder, the Fund will pay the Service Agent a service fee
(the "Service Fee") accrued daily and paid promptly (but in any event within
three business days) after the last day of each calendar month at the annual
rate of 0.25 of one percent (0.25%) of the Fund's average daily net assets
(determined as provided from time to time in the prospectus of the Fund or as
otherwise specified from time to time by the Board of Directors). The Service
Fee paid under this Agreement is intended to qualify as a "service fee" as
defined in Section 26 of the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. (or any successor provision) as in effect from time
to time.
If this Agreement is terminated as of any date not the last day of a
calendar month, then the fee payable to you shall be paid promptly (but in any
event within three business days) after such date of termination.
3. Quarterly in each year that the Service Agreement remains in effect,
the Service Agent shall provide the Fund for review by the Directors, and the
Directors shall review, a written report of the amounts expended under the
Service Agreement and the purposes for which such expenditures were made.
4. This Agreement shall continue in effect for one year from the date
of its execution, and thereafter for successive periods of one year if this
Agreement is approved at least annually by the Directors, including a majority
of the Directors who are not interested persons of the Fund and have no direct
or indirect financial interest in the operation of this Agreement (the
"Disinterested Directors").
<PAGE>
5. Notwithstanding paragraph 4, this Agreement may be terminated as
follows:
(a) at any time, without the payment of any penalty, by the
Service Agent, on the one hand, or by the vote of a majority of the
Disinterested Directors or by a vote of a majority of the outstanding
voting securities of the Fund as defined in the Investment Company Act
of 1940, as amended, on the other, on not more than sixty (60) days
written notice; and
(b) automatically in the event of the Agreement's assignment
as defined in the Investment Company Act of 1940.
6. This Agreement may be amended by an instrument in writing signed by
both of the parties hereto.
7. This Agreement shall be construed in accordance with the Laws of
The Commonwealth of Virginia.
IN WITNESS WHEREOF, the parties hereto have caused this Shareholder
Service Agreement to be executed by their officers thereunto duly authorized.
AMERICA'S UTILITY FUND, INC.
By: /s/ LINWOOD R. ROBERTSON
Its PRESIDENT
MENTOR INVESTMENT GROUP, INC.
By: /s/ PAUL F. COSTELLO
Its MANAGING DIRECTOR
MENTOR INVESTMENT GROUP, INC.
901 East Byrd Street
Richmond, Virginia 23219
August 21, 1995
America's Utility Fund Service Company
901 East Byrd Street
Richmond, Virginia 23219
Re: Sub-Shareholder Service Agreement
Gentlemen:
Reference is made to the Shareholder Service Agreement dated as of
August 21, 1995 (the "Shareholder Service Agreement") between America's Utility
Fund, Inc., a Maryland corporation (the "Fund"), and the undersigned Mentor
Investment Group, Inc., a Virginia corporation, pursuant to which the
undersigned has agreed to provide, either through itself or through financial
institutions as it may from time to time determine, certain administrative
support services to the Fund and its shareholders. Pursuant to a Sub-Transfer
Agency Agreement dated August 21, 1995 (the "Sub-Transfer Agreement") between
you and State Street Bank and Trust Company, you are to provide certain transfer
agent and related services to the Fund. The undersigned desires to have you
provide certain administrative support services to the Fund and its
shareholders, in addition to the services you provide under the Sub-Transfer
Agreement, as the undersigned may from time to time instruct, it being the
intention of the parties that the services to be provided and the facilities
made available by you pursuant to the Sub-Transfer Agency Agreement and this
Agreement shall be in the aggregate at least as extensive as the services you
performed and the facilities you made available in respect of investors in the
Fund prior to this date. Such services and facilities shall include all services
the Fund may reasonably request in this regard, including without limitation,
your use for the benefit of the Fund of such software programs, processes, and
other systems as you utilized in providing shareholder services in respect of
the Fund prior to the date hereof in the same manner as that in which you used
them.
To compensate you for providing such services and facilities and the
expenses you incur in providing such services, the undersigned will pay to you a
fee accrued daily and paid monthly at the annual rate of 0.25 of one percent
(0.25%) of the Fund's average daily net assets in respect of which you provide
such services hereunder. The fee paid under this
<PAGE>
America's Utility Fund Services Company August 21, 1995 Agreement is
intended to qualify as a "service fee" as defined in Section 26 of the Rules of
Fair Practice of the National Association of Securities Dealers, Inc. (or any
successor provision) as in effect from time to time.
This Agreement will terminate at such time as the Shareholder Service
Agreement expires or terminates.
This Agreement may be amended by written agreement of the parties.
This Agreement shall be construed in accordance with the Laws of the
Commonwealth of Virginia.
Very truly yours,
MENTOR INVESTMENT GROUP, INC.
By:_____________________
Title:
Accepted and agreed to by:
AMERICA'S UTILITY FUND
SERVICE COMPANY
By:_________________________
Title:
TRANSFER AGENCY AND SERVICE AGREEMENT
BETWEEN
AMERICA'S UTILITY FUND, INC.
AND
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Terms of Appointment: Duties of the Bank...............3
2. Fees and Expenses.......................................5
3. Representations and Warranties..........................6
4. Representations and Warranties of the Fund..............6
5. Data Access and Proprietary Information.................7
6. Indemnification ........................................8
7. Standard of Care.......................................10
8. Covenants of the Fund and the Bank.....................10
9. Termination of Agreement...............................11
10. Assignment.............................................11
11. Amendment..............................................11
12. Virginia Law to Apply..................................11
13. Force Majeure..........................................11
14. Consequential Damages..................................12
15. Merger of Agreement....................................12
16. Counterparts...........................................12
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the day of , 1995, by and between America's Utility fund,
Inc. a Maryland corporation, having its principal office and place of business
at 901 East Byrd Street, P.O. Box 26501, Richmond, Virginia 23261-6501 (the
"Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company
having its principal office and place of business at 225 Franklin Street,
Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund desires to appoint the Bank as its transfer agent, dividend
disbursing agent, custodian of certain retirement plans and agent in connection
with certain other activities, and the Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. Terms of Appointment: Duties of the Bank
1.1. Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints the Bank to act as, and the Bank
agrees to act as its transfer agent for the Fund's authorized and
issued shares of its common stock, $ .001 par value ("Shares"),
dividend disbursing agent, custodian of certain retirement plans and
agent in connection with any accumulation, open-account or similar
plans provided to the shareholders of the Fund ("Shareholders") and set
out in the currently effective prospectus and statement of additional
information ("prospectus") of the Fund, including without limitation
and periodic investment plan or periodic withdrawal program.
1.2. The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and appropriate
documentation thereof to the custodian of the Fund's
portfolio securities and cash (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate
number of Shares and hold such Shares in the
appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and
redemption directions and deliver the appropriate
documentation thereof to the Custodian;
<PAGE>
(iv) In respect to the transactions in items (i), (ii) and
(iii) above, the Bank shall execute transactions
directly with broker-dealers authorized by the Fund
who shall thereby be deemed to be acting on behalf of
the Fund;
(v) At the appropriate time as and when it receives
monies paid to it by the Custodian with respect to
any redemption, pay over or cause to be paid over in
the appropriate manner such monies as instructed by
the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and
distributions declared by the Fund;
(viii) Issue replacement certificates for those
certificates alleged to have been lost, stolen
or destroyed upon receipt by the Bank of
indemnification satisfactory to the Bank and
protecting the Bank and the Fund, the Bank, at its
option and with the consent of the Fund, may issue
replacement certificates in place of mutilated
stock certificates upon presentation thereof and
without such indemnity;
(ix) Maintain records of account for and advise the Fund
and its Shareholders as to the foregoing; and
(x) Record the issuance of Shares of the Fund and
maintain pursuant to SEC Rule 17Ad-10(e) a record of
the total number of Shares of the Fund which are
authorized, based upon data provided bo it by the
Fund, and issued and outstanding. The Bank shall
also provide the Fund on a regular basis with the
total number of Shares which are authorized and
issued and outstanding and shall have no obligation,
when recording the issuance of Shares, to monitor the
issuance of such Shares or to take cognizance of any
laws relating to the issue or sale of such Shares,
which functions shall be the sole responsibility of
the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall:
(i) perform the customary services of a transfer agent,
dividend disbursing agent, custodian of certain retirement
plans and, as relevant, agent in connection with accumulation,
open-account or similar plans (including without limitation
any periodic investment plan or periodic withdrawal program),
including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing
proxies, mailing Shareholder reports and prospectuses to
current Shareholders,
-4-
<PAGE>
withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing U.S. Treasury Department Forms
1099 and other appropriate forms required with respect to
dividends and distributions by federal authorities for all
Shareholders, preparing and mailing confirmation forms and
statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in
Shareholder accounts, preparing and mailing activity
statements for Shareholders, and providing Shareholder account
information and (ii) provide a system which will enable the
Fund to monitor the total number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in
writing those transactions and assets to be treated as exempt
from blue sky reporting for each State and (ii) verify the
establishment of transactions for each State on the system
prior to activation and thereafter monitor the daily activity
for each State. The responsibility of the Bank for the Fund's
blue sky State registration status is solely limited to the
initial establishment of transactions subject to blue sky
compliance by the Fund and the reporting of such transactions
to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services
in Section 1 may be established from time to time by agreement
between the Fund and the Bank per the attached service
responsibility schedule. The Bank may at times perform only a
portion of these services and the Fund or its agent may
perform these services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the
Fund (i.e., escheatment services) which may be agreed upon in
writing between the Fund and the Bank.
2. Fees and Expenses
2.1. For the performance by the Bank pursuant to this Agreement, the Fund
agrees to pay the Bank an annual maintenance fee for each Shareholder
account as set out in the initial fee schedule attached hereto. Such
fees and out-of-pocket expenses and advances identified under Section
2.2 below may be changed from time to time subject to mutual written
agreement between the Fund and the Bank.
2.2. In addition to the fee paid under Section 2.1 above, the Fund agrees to
reimburse the Bank for out-of-pocket expenses, including but not
limited to confirmation production, postage, forms, telephone,
microfilm, microfiche, tabulating proxies, records storage, or advances
incurred by the Bank for the items set out in the fee schedule attached
hereto. In addition, any other expenses reasonably incurred by the Bank
at the request or with the consent of the Fund, will be reimbursed by
the Fund.
<PAGE>
2.3. The Fund agrees to pay all fees and reimbursable expenses within five
days following the receipt of the respective billing notice. Postage
for mailing of dividends, proxies, Fund reports and other mailings to
all shareholder accounts shall be advanced to the Bank by the Fund at
least seven (7) days prior to the mailing date of such materials.
3. Representations and Warranties
The Bank represents and warrants to the Fund that:
3.1. It is a trust company duly organized and existing in good standing
under the laws of the Commonwealth of Massachusetts.
3.2. It is duly qualified to carry on its business in the Commonwealth of
Massachusetts.
3.3. It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
3.4. All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5. It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement.
4. Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.1. It is a corporation duly organized and existing and in good standing
under the laws of Maryland.
4.2. It is empowered under applicable laws and by its Articles of
Incorporation and By- Laws to enter into and perform this Agreement.
4.3. All corporate proceedings required by said Articles of Incorporation
and By-Laws have been taken to authorize it to enter into and perform
this Agreement.
4.4. It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.5. A registration statement under the Securities act of 1933, as amended
is currently effective and will remain effective, and appropriate state
securities law filings have
<PAGE>
been made and will continue to be made, with respect to all Shares of
the Fund being offered for sale.
5. Data Access and Proprietary Information
5.1. The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and
documentation manuals furnished to the Fund by the Bank as part of the
Fund's ability to access certain Fund-related data ("Customer Data")
maintained by the Bank on data bases under the control and ownership of
the Bank or other third part ("Data Access Services") constitute
copyrighted, trade secret, or other proprietary information
(collectively, "Proprietary Information") of substantial value to the
Bank or other such third party. In no event shall Proprietary
Information be deemed Customer Data. The Fund agrees to treat all
Proprietary Information as proprietary to the Bank and further agrees
that it shall not divulge any Proprietary Information to any person or
organization except as may be provided hereunder. Without limiting the
foregoing, the Fund agrees for itself and its employees and agents:
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance
with the Bank's applicable user documentation;
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any portion
of the Proprietary Information, and if such access is
inadvertently obtained, to inform in a timely manner of such
fact and dispose of such information in accordance with the
Bank's instructions;
(d) to refrain from causing or allowing Proprietary Information
acquired hereunder from being retransmitted to any other
computer facility or other location, except with the prior
written consent to the Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in
Proprietary Information at common law, under federal copyright
law and under other federal or state law.
Notwithstanding the above, nothing in the agreement shall restrict the ability
of the Fund to obtain access to or make copies of, or otherwise use freely, all
Customer Data in the Bank's possession or control, or shall be read to derogate
from the Fund's sole legal ownership
<PAGE>
thereof. Each party shall take reasonable efforts to advise its employees of
their obligations pursuant to this Section 5. The obligations of this Section
shall survive any earlier termination of this Agreement.
5.2. If the Fund notifies the Bank that any of the Data Access Services do
not operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely
manner to correct such failure. Organizations from which the Bank may
obtain certain data included in the Data Access Services are solely
responsible for the contents of such data and the Fund agrees to make
no claim against the Bank arising out of the contents of such
third-party data, including, but not limited to, the accuracy thereof.
DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE
SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS,
AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT
THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
5.3. If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect
the transfer or movement of cash or Shares or (ii) transmit Shareholder
information or other information, then in such event the Bank shall be
entitled to rely on the validity and authenticity of such instruction
without undertaking any further inquiry as long as such instruction is
undertaken in conformity with security procedures established by the
Bank from time to time and agreed to in advance by the Fund.
6. Indemnification
6.1. The Bank shall not be responsible for, and the Fund shall indemnify and
hold the Bank harmless from and against, any and all losses, damages,
costs, charges, reasonable counsel fees, payments, expenses and
liability to the extent arising out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors
required to be taken pursuant to this Agreement, provided that
such actions are taken in good faith and without negligence or
willful misconduct.
(b) The Fund's bad faith, negligence or willful misconduct in
connection with the material breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services
which (i) are received by the Bank or its agents or
subcontractors, and (ii) have been prepared, maintained or
<PAGE>
performed by the Fund or any other person or firm on behalf of
the Fund (other than the Bank in any respect) including but
not limited to any previous transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents
or subcontractors of any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the
securities laws or regulations of any state that such Shares
be registered in such state or in violation of any stop order
or other determination or ruling by any federal agency or any
state with respect to the offer or sale of such Shares in such
state.
6.2. At any time the Bank may apply to any officer of the Fund for
instructions, and may, through a request to an officer of the Fund,
consult with the Fund's legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank
under this Agreement, and the Bank and its agents or subcontractors
shall not be liable and shall be indemnified by the Fund for any action
taken reasonably or omitted by it in reliance upon such instructions or
upon the opinion of such counsel. The Bank, its agents and
subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Fund, reasonably
believed to be genuine and to have been signed by the proper person or
persons, or upon any instruction, information, data, records or
documents provided the Bank or its agents or subcontractors by machine
readable input, telex, CRT data entry or other similar means authorized
by the Fund, and reasonably believed to be genuine and to have been
originated by the proper person or persons, and shall not be held to
have notice of any change of authority of any person, until receipt of
written notice thereof from the Fund. The Bank, its agents and
subcontractors shall also be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of the Fund, and the
proper countersignature of any former transfer agent or former
registrar, or of a co-transfer agent or co-registrar.
6.3. In order that the indemnification provisions contained in this Section
6 shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund
of such assertion, and shall keep the Fund advised with respect to all
developments concerning such claim. The Fund shall have the option to
participate with the Bank in the defense of such claim or to defend
against said claim in its own name or in the name of the Bank in which
event the Fund shall have no further obligation to indemnify the Bank
for any expenses thereafter incurred by the Bank in connection with
such defense. The Bank shall in no case confess any claim or make any
compromise in any case in which the Fund may be required to indemnify
the Bank except with the Fund's prior written consent.
<PAGE>
7. Standard of Care
The Bank shall at all times act in good faith and agrees to use its
best efforts to insure the accuracy of all services performed under this
Agreement, but assumes no responsibility and shall not be liable for loss or
damage due to errors unless said errors are caused by its negligence, bad faith,
or willful misconduct or that of its employees.
8. Covenants of the Fund and the Bank
8.1. The Fund shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Board of Directors
of the Fund authorizing the appointment of the Bank and the
execution and delivery of this Agreement.
(b) A copy of the Articles of Incorporation and By-Laws of the
Fund and all amendments thereto.
8.2. The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices,
if any; and for the preparation or use, and for keeping account of,
such certificates, forms and devices.
8.3. The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable unless
otherwise agreed to by the Bank and the Fund. To the extent required
by Section 31 of the Investment Company Act of 1940, as amended, and
the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the
Bank hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section and
Rules, and will be surrendered promptly to the Fund on and in
accordance with its request.
8.4. The Bank and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged
or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
8.5. In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the
Fund and to secure instructions from an authorized officer of the Fund
as to such inspection. The Bank reserves the right, however, to exhibit
the Shareholder records to any person whenever it is advised by its
counsel that it may beheld liable for the failure to exhibit the
Shareholder records to such person.
<PAGE>
9. Termination of Agreement
9.1. This Agreement may be terminated by either party upon ninety (90) days
written notice to the other.
9.2. Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund.
10. Assignment
10.1. Except as provided in Section 10.3 below, neither this
Agreement nor any rights or obligations hereunder may be assigned
by either party without the written consent of the other party.
10.2. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
10.3. The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly
registered as a transfer agent pursuant to Section 17A(c)(1) of the
Securities Exchange Act of 1934, as amended ("Section 17A(c)(1)"), (ii)
a BFDS subsidiary duly registered as a transfer agent pursuant to
Section 17A(c)(1) or (iii) a BFDS affiliate duly registered as a
transfer agent pursuant to Section 17A(c)(1); provided, however, that
the Bank shall be fully responsible to the Fund for the acts and
omissions of any subcontractor.
11. Amendment
This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of
the Board of Directors of the Fund.
12. Virginia Law to Apply
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth
of Virginia.
13. Force Majeure
In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment
or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control,
<PAGE>
such party shall not be liable for damages to the other for any damages
resulting from such failure to perform or otherwise from such causes.
14. Consequential Damages
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act
hereunder.
15. Merger of Agreement
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
16. Counterparts
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
AMERICA'S UTILITY FUND, INC.
BY:_______________________
ATTEST:
- --------------------------
STATE STREET BANK AND TRUST
COMPANY
BY:_______________________
ATTEST:
- --------------------------
SUB-TRANSFER AGENCY AGREEMENT
This AGREEMENT is made as of this 21st day of August, 1995, by and
between State Street Bank and Trust Company, a Massachusetts trust company
("State Street"), and AMERICA'S UTILITY FUND SERVICE COMPANY, a Virginia
corporation (the "SubAgent");
WHEREAS, State Street and America's Utility Fund, Inc. (the "Fund"), a
Maryland corporation, have entered into a Transfer Agency and Service Agreement
dated as of August 21, 1995 (the "Fund Agreement"), pursuant to which State
Street has agreed to provide certain transfer agent, dividend disbursing agent
and other services to the Fund; and
WHEREAS, State Street desires to appoint the Sub-Agent to perform
certain transfer agent, dividend disbursing agent and other services to the Fund
and its current shareholders and additional investors who purchase shares of the
Fund through facilities made available to Virginia Power and North Carolina
Power customers (such shareholders and additional investors who purchase such
shares through such facilities are referred to herein as "Shareholders" and
shares held by such Shareholders are referred to herein as "Shares");
NOW THEREFORE, in consideration of the mutual covenants contained
herein, and for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. Sub-Agent Services. The Sub-Agent agrees to provide such services as State
Street may reasonably request to assist State Street in performing its
obligations under the Fund Agreement, which may include the following:
1.1. Purchase of Shares. Upon receipt by the Sub-Agent of any order for
the purchase of Shares from or on behalf of a Shareholder, the Sub-Agent shall
stamp such order with the date of receipt, promptly deposit all funds received
to the account of the Fund maintained with the entity then acting as custodian
for the portfolio securities and cash of the Fund (the "Custodian"), compute (to
the nearest three decimal places) the number of Shares to be purchased according
to the public offering price in effect for purchases made on the date of such
receipt as set forth in the Fund's current prospectus and/or statement of
additional information, notify the Fund and State Street daily of the deposit of
such funds to the Fund's account with the Custodian and the number of Shares
subscribed for, and prepare and mail quarterly statements reflecting such
purchases to the addresses specified by the persons making them. All such
actions are subject to any instructions which State Street, the Fund, or Project
America, Inc. (the "Distributor") may give to the Sub-Agent with respect to
acceptance of orders for Shares so received by it.
All Shares purchased shall be credited to a book share account
maintained for the purchasing Shareholder by the Sub-Agent. No share
certificates for Shares shall be issued by
<PAGE>
the Fund.
1.2. Unpaid Checks. In the event that any check or other order for
payment of money with respect to any purchase of Shares is returned unpaid for
any reason, the Sub-Agent shall promptly notify State Street and the purchasing
Shareholder of such nonpayment, and take such other steps as State Street may
instruct.
1.3. Redemption of Shares. Upon receipt of any request for the
redemption of Shares from or on behalf of a Shareholder, the Sub-Agent shall
stamp such request with the date of receipt, determine whether such request
complies with all requirements for redemption set forth in the Fund's current
prospectus and/or statement of additional information, and if so, compute the
redemption price in the manner set forth therein. If such request does not
comply with such requirements for redemption, the Sub-Agent shall notify the
redeeming Shareholder of the respects in which compliance is lacking and effect
redemption at such time as all requirements for redemption are met.
The Sub-Agent shall notify State Street and the Fund daily of the
amount of funds required for payment upon redemption of Shares and the number of
Shares redeemed. Upon the receipt of such funds from State Street or the
Custodian, the Sub-Agent shall pay over or cause to be paid over the redemption
proceeds to redeeming Shareholders as instructed by them in the manner described
in the Fund's current prospectus and/or statement of additional information, and
prepare and mail notices of such redemptions.
1.4. Transfer of Shares. Upon receipt by the Sub-Agent of documentation
in proper form to effect a transfer of Shares, pursuant to instructions
contained in such documentation, the Sub-Agent shall register such transfer on
the Fund's shareholder records maintained by the Sub-Agent.
1.5. Administration of Plans. The Sub-Agent shall administer such plans
for the periodic purchase of Shares as are described in the prospectus and/or
statement of additional information of the Fund corresponding to the date of
this Agreement in accordance with the terms of such plans, or as the Sub-Agent
and the Fund may mutually agree from time to time.
1.6. Dividends and Distributions. Upon the declaration of any cash
dividend or distribution upon the Shares, State Street shall notify the
Sub-Agent of the date of payment of such dividend or distribution, the record
date as of which Shareholders entitled to payment thereof shall be determined,
and the amount payable per Share to Shareholders of record as of such record
date. The Sub-Agent shall notify the Fund and the Custodian of the amount of
cash required to pay the dividend or distribution so that the Fund may instruct
its Custodian to make sufficient funds available to the Sub-Agent for such
purpose on or before the payment date.
<PAGE>
Upon receipt of such funds from the Custodian, the Sub-Agent shall
prepare and mail to Shareholders, at their addresses as they appear on the
records maintained by the Sub-Agent or pursuant to any written order of a
shareholder on file with the Sub-Agent, checks representing any dividends and
distributions to which they are entitled. If a Shareholder is entitled to
receive additional Shares by reason of his decision to reinvest all or a portion
of a dividend or distribution, appropriate credits shall be made to his book
share account. The Sub-Agent shall notify such Shareholders of such dividends
and distributions by quarterly statements.
1.7. Tax Returns and Reports. The Sub-Agent shall prepare, file with
the Internal Revenue Service and with appropriate state or local agencies, and
mail to Shareholders such returns for reporting dividends, distributions and
redemptions as are required to be so prepared, filed and/or mailed, and withhold
from the accounts of shareholders such sums as are required to be withheld,
under applicable federal, state and local tax laws, rules and regulations in
effect from time to time.
1.8. Other Reports and Information. The Sub-Agent shall furnish to
State Street and the Fund such information, including shareholder lists, sales
information on a state by state basis and other statistical information, in such
form and at such intervals, which may be daily, as may be reasonably requested
by the Fund and supported by the Sub-Agent's system.
1.9. Record Keeping. The Sub-Agent shall keep records relating to the
services to be performed hereunder, in such form and manner as it may deem
advisable or State Street may reasonably require. The Sub-Agent agrees that all
such records prepared or maintained by the Sub-Agent relating to the services to
be performed by the Sub-Agent hereunder are the property of the Fund and will be
preserved, for the periods prescribed under Rule 31a-2 of said rules as
specifically noted below, maintained at the expense of the Fund, and made
available to State Street and the Fund upon the request of either of them. The
Sub-Agent shall forthwith upon State Street's or the Fund's demand surrender
promptly to State Street or the Fund and cease to retain in its files, records
and documents created and maintained by the SubAgent pursuant to this Agreement.
If not so turned over to State Street or the Fund, such records and documents
will be retained by the Sub-Agent for six years from the year of creation,
during the first two of which such documents will be in readily accessible form.
At the end of the six-year period, such records and documents will either be
turned over to State Street or the Fund or destroyed in accordance with the
Fund's authorization.
In the case of any requests or demands for the inspection of the
shareholder records of the Fund, the Sub-Agent shall endeavor to notify State
Street and the Fund and to secure instructions from an officer of the Fund as to
such inspection. The Sub-Agent reserves the right, however, to exhibit
shareholder records to any person whenever it is advised in writing by its
counsel, with a copy to the Fund, that it may be held liable for the failure to
do so.
<PAGE>
The Sub-Agent undertakes to maintain and preserve, as instructed by the
Fund, on behalf of the Distributor, the books and records required to be
maintained and preserved by the Distributor in respect of the Shares pursuant to
Securities and Exchange Commission Rules 17a-3 and 17a-4 under the Securities
Exchange Act of 1934, as amended. With respect to any books and records
maintained or preserved on behalf of the Distributor the Sub-Agent hereby
undertakes to permit examination of such books and records at any time or from
time to time during business hours by representatives or designees of the
Securities and Exchange Commission, and to promptly furnish to said Commission
or its designee true, correct, complete and current hard copy of any or all or
any part of such books and records.
2. Compensation. For the services to be performed by the Sub-Agent pursuant to
this Agreement, State Street agrees to pay the Sub-Agent a fee at the annual
rate of .10% of the average daily net assets attributable to Shares held by the
Shareholders. Such fee shall be payable in arrears on the 15th day of each
month.
3. Indemnification.
3.1. The Sub-Agent shall indemnify and hold State Street and the Fund
harmless from and against any and all losses, damages, costs, charges,
reasonable attorney's fees, payments, expenses and liabilities arising out of or
attributable to the Sub-Agent's bad faith, negligence or willful misconduct in
the performance of its duties hereunder. For purposes of this Section 3.1, any
acts or omissions by any agent or subcontractor of the Sub-Agent shall be
considered those of the Sub-Agent.
3.2. State Street shall indemnify and hold harmless the Sub-Agent from
and against any and all losses, damages, costs, charges, reasonable attorney's
fees, payments, expenses and liabilities incurred by the Sub-Agent in connection
with its performance hereunder to the extent such losses, damages, costs,
charges, reasonable attorney's fees, payments, expenses and liabilities do not
arise out of or are attributable to the Sub-Agent's bad faith, negligence or
willful misconduct in the performance of its duties hereunder; provided however,
that State Street shall only be required to indemnify and hold harmless the
Sub-Agent under this Section 3.2 in respect of any losses, damages, costs,
charges, reasonable attorney's fees, payments, expenses and liabilities to the
extent State Street previously has been indemnified and held harmless by the
Fund pursuant to the Fund Agreement for such losses, damages, costs, charges,
reasonable attorney's fees, payments, expenses or liabilities.
3.3. At any time the Sub-Agent may apply to any officer of the Fund for
instructions, and may request, through an officer of the Fund, the opinion of
the Fund's legal counsel, with respect to any matter arising in connection with
the services to be performed by the Sub-Agent under this agreement, and the
Sub-Agent and its agents and subcontractors shall not be liable and shall be
indemnified as provided in Section 3.2 by State Street for any action taken or
omitted by it in reliance upon such instructions or upon the opinion of such
counsel. The SubAgent, its agents and subcontractors shall be protected and
indemnified in acting in a
<PAGE>
reasonable manner upon any papers or documents furnished by or on behalf of the
Fund, any shareholder of the Fund or any representative of a shareholder,
reasonably believed to be genuine and to have been signed by the proper person
or persons, or upon any instructions, information, data, records or documents
provided the Sub-Agent or its agents or subcontractors by telephone, in person,
or by machine readable input, telex, CRT data entry or similar means authorized
by the Fund, and the Sub-Agent, its agents and subcontractors shall not be held
to have notice absent actual notice of any change of authority of any person
until receipt of written notice thereof from the Fund. The Sub-Agent, its agents
and subcontractors shall also be protected under Section 3.2 by State Street in
recognizing stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of the Fund, and the proper
countersignature of any former transfer agent or former registrar, or of a
co-transfer agent or co-registrar.
3.4. In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, interruption
of electrical power or other utilities, equipment or transmission failure or
damage reasonably beyond its control, or other causes reasonably beyond its
control, such party shall not be liable to the other for any damages resulting
from such failure to perform or otherwise from such causes.
3.5. Neither party to this Agreement shall be liable to the other party
for consequential, special or incidental damages under any provision of this
Agreement or for any act or failure to act hereunder.
3.6. In order that the indemnification provisions contained in this
Section 3 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion and shall keep the other party
advised with respect to all developments concerning such claim. The party who
may be required to indemnify shall have the option to participate with the party
seeking indemnification in the defense of such claim and, at its option, to
assume the defense thereof (in which case, the indemnifying party shall have no
further obligation to indemnify the party seeking indemnification for any
expenses thereafter incurred by such party in connection with the defense). The
party seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it,
except with the other party's prior written consent.
4. Term and Termination.
4.1. This Agreement shall terminate immediately upon the termination
of the Fund Agreement.
4.2. This Agreement may be terminated by either party hereof upon 60
days prior written notice.
<PAGE>
5. Assignment. Except as hereinafter provided, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without the
written consent of the other party. This Agreement shall inure to the benefit of
and be binding upon the parties and their respective permitted successors and
assigns. The Sub-Agent may, without further consent on the part of State Street
or the Fund, subcontract for the performance hereof with third parties, or
subsidiaries or other affiliates of the Sub-Agent; provided, however, that the
Sub-Agent shall be as fully responsible to State Street and the Fund for the
acts and omissions of any subcontractor as it is for its own acts and omissions
and shall be responsible for its choice of subcontractor.
6. Amendment. This Agreement may not be amended or modified in any manner
except by a written instrument executed by both parties.
7. Miscellaneous. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute the entire Agreement between the parties hereto and
supersede any prior oral or written Agreement with respect to the subject matter
hereof.
8. Notices. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed given if delivered or mailed by registered mail,
postage prepaid, (a) to the Sub-Agent at 901 East Byrd Street, Richmond,
Virginia 23219 , (b) to State Street at 225 Franklin Street, Boston,
Massachusetts 02110, and (c) to the Fund at 901 East Byrd Street, Richmond,
Virginia 23219.
9. Beneficiaries. Each of the Fund and the Distributor shall be third-party
beneficiaries of this Agreement and the Sub-Agent hereby acknowledges that each
of the Fund and the Distributor is relying thereupon in respect of State
Street's entering into this Agreement. Each of the Fund and the Distributor
shall be entitled to enforce against the Sub-Agent any obligations of the
Sub-Agent in respect of it as if the Fund or the Distributor, as the case may
be, were a party hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their officers thereunto duly authorized as of the date
first above written.
STATE STREET BANK AND
AND TRUST COMPANY
By:____________________
Title:
AMERICA'S UTILITY FUND
SERVICE COMPANY
By:____________________
Title:
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Post-Effective Amendment No. 5 to Registration
Statement No. 33-45437 of America's Utility Fund, Inc. of our report dated
January 26, 1996, appearing in the Statement of Additional Information,
which is a part of such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Richmond, Virginia
Februrary 29, 1996
EXHIBIT 16
AMERICA'S UTILITY FUND, INC.
SCHEDULE OF COMPUTATION OF PERFORMANCE
(1) Average Annual Total Returns Pursuant to SEC Standardized Formula
SEC Formula
P(1 + T)n = ERV
where:
P = initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of 1, 5 or 10 year periods at the end
of such periods
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD
1/1/95 THROUGH 12/31/95:
P(1 + T)(n) = ERV
P = $1,000
n = 1
ERV = $1,323
T = 32.30%
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD
5/5/92 THROUGH 12/31/95:
P(1 + T)(n) = ERV
P = $1,000
n = 1,336/365
ERV = $1,457.96
T = 10.85%
<PAGE>
(2) Cumulative Total Return Pursuant to Non-Standardized Formula
Formula: CTR = ERV-P
-----
P
where:
P = $1,000 (initial investment)
ERV = ending redeemable value of a hypothetical investment made at the
beginning of a specified period at the end of such period
CTR = aggregate total return of the investment over the specified period
CUMULATIVE TOTAL RETURN FOR THE PERIOD 5/5/92 THROUGH 12/31/95:
CTR = ERV-P
-----
P
P = $1,000
ERV = $1,457.96
CTR = 45.80%
<PAGE>
(3) Yield Pursuant to SEC Standardized Formula
SEC Formula:
YIELD = 2[(a-b/cd + 1)(6) - 1]
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period)
YIELD FOR THE 30-DAY PERIOD ENDED DECEMBER 31, 1995:
YIELD = 2[(a-b/cd + 1)(6) - 1]
a = 923,062.99
b = 151,428.25
c = 6,577,637.59566
d = 24.72
YIELD = 5.76%
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 144,002,106
<INVESTMENTS-AT-VALUE> 162,189,817
<RECEIVABLES> 932,142
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 163,121,959
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 291,601
<TOTAL-LIABILITIES> 291,601
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 149,272,638
<SHARES-COMMON-STOCK> 6,586,756
<SHARES-COMMON-PRIOR> 6,410,881
<ACCUMULATED-NII-CURRENT> 30,629
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,676,662)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18,187,711
<NET-ASSETS> 162,830,358
<DIVIDEND-INCOME> 6,918,646
<INTEREST-INCOME> 1,150,636
<OTHER-INCOME> 0
<EXPENSES-NET> (1,739,873)
<NET-INVESTMENT-INCOME> 6,329,409
<REALIZED-GAINS-CURRENT> 1,297,943
<APPREC-INCREASE-CURRENT> 33,092,284
<NET-CHANGE-FROM-OPS> 40,719,636
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,298,780
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 874,570
<NUMBER-OF-SHARES-REDEEMED> (962,767)
<SHARES-REINVESTED> 264,072
<NET-CHANGE-IN-ASSETS> 37,821,328
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 10,600
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 323,431
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,924,976
<AVERAGE-NET-ASSETS> 143,983,418
<PER-SHARE-NAV-BEGIN> 19.50
<PER-SHARE-NII> 0.96
<PER-SHARE-GAIN-APPREC> 5.22
<PER-SHARE-DIVIDEND> 0.96
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 24.72
<EXPENSE-RATIO> 1.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
