As filed with the Securities and Exchange Commission on November 30, 2000
Registration No. 3348013
_____________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 10 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 11 [X]
(Check appropriate box or boxes)
BHIRUD FUNDS INC.
(Exact Name of Registrant as Specified in Charter)
c/o Bhirud Associates, Inc.
1266 E. Main Street, Stamford, Connecticut 06902
(Address of Principal Executive Offices) (Zip code)
Registrant's Telephone Number, including Area Code: (203) 977 - 1521
SURESH BHIRUD
Bhirud Associates, Inc.
1266 E. Main Street, Stamford, Connecticut 06902
(Name and Address of Agent for Service)
Copy to: Sarah A. Bessin
Sherman & Sterling
801 Pennsylvania Ave., NW
Washington, DC 20004
Approximate Date of Proposed Public Offering: As soon as practicable
after this Registration Statement becomes effective.
It is proposed that this filing will become effective: (check
appropriate box)
[ ] Immediately upon filing pursuant to paragraph
(b)
[X] on November 30, 2000 pursuant to paragraph
(b) of Rule 485
[ ] 60 days after filing pursuant to paragraph
(a) (1)
[ ] on (Date) pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph
(a) (2)
[ ] on (Date) pursuant to paragraph (a) (2)
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 of securities under the
Securities Act of 1933 pursuant to Section 24(f) under the Investment Company
Act of 1940, as amended, and Rule 24f-2 thereunder, and the Registrant filed a
Rule 24f-2 Notice for its fiscal year ended July 31, 2000 on September 21, 2000.
BHIRUD FUNDS INC.
Registration Statement on Form N -1A
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CROSS REFERENCE SHEET -
Pursuant to Rule 404 (c)
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Part A Prospectus Heading
Item
No.
1 Cover Page Cover Page
2 Synopsis Risk/ Return Summary; Fees
and Expenses
3 Condensed Financial Investments, Risk and
Information Performance
4 General Description of Investment Objectives,
Registrant Principal Investment
Strategies and Related Risks; Investment
Restrictions
5 Management of the Fund Management, Organization and
Capital Structure; Shareholder Information
Distribution and
Arrangements
5a. Management's Discussion Not Applicable
of Fund Performance
6 Capital Stock and Other Purchase of Shares;
Securities Redemption of
7 Purchase of Securities Purchase of Shares;
Being Offered Distribution Arrangements.
8 Redemption or Repurchase Redemption of Shares
9 Legal Proceedings Not Applicable
- i -
Part B Caption in Statement of
Additional
Item Information
No.
10 Cover Page Cover Page
11 Table of Contents Table of Contents
12 General Information and Fund History
History
13 Investment Objectives and Description of the Fund and its
Policies Investments and Risks
14 Management of the Fund Management of the Fund
15 Control Persons and Control Person and Principal
Principal Holders of Holders of Securities
Securities
16 Investment Advisory and Investment Advisory and Other
Other Services Services
17 Brokerage Allocation Brokerage Allocation and Other
Practices
18 Capital Stock and other Capital Stock and Other
Securities Securities
19 Purchase, Redemption and Purchase, Redemption and
Pricing of Securities Pricing of Shares
Being Offered
20 Tax Status Taxation of the Fund
21 Underwriters Distribution and Service Plan
22 Calculation and Calculation of Performance Data
Performance Data
23 Financial Statements Independent Auditors' Report;
Financial
Apex Mid Cap Growth Fund
c/o Bhirud Funds Inc.
1266 EAST MAIN STREET STAMFORD, CONNECTICUT 06902
TELEPHONE: (877) 593-8637
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PROSPECTUS
NOVEMBER 30, 2000
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A mutual fund whose investment objective is to seek growth of capital.
Investments will be made based upon their potential for capital appreciation.
Current income is a secondary objective.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
TABLE OF CONTENTS
Page Page
5 Risk/Return Summary: 10 Distribution
Investments, Risks and Arrangements
Performance
8 Investment Objectives, 11 Shareholder Information
Principal Investment
Strategies and Related Risks
9 Management Organization and
Capital Structure
I. RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE
Investment Objectives
The Fund seeks growth of capital. Investments will be made based upon their
potential for capital appreciation. Current income is a secondary objective.
There is no assurance that the Fund will achieve its investment objectives.
Principal Investment Strategies
The Fund's investment philosophy is to invest at least 65% of its assets, in the
equity securities of companies which management believes, based on fundamental
research, have growth potential for revenues and earnings as well as multiple
expansion. Our fundamental research includes analysis of recent earnings reports
along with various news releases by the company.
The Fund intends to achieve its investment objectives by investing primarily in
a diversified portfolio of domestic common stock.
Under normal circumstances, the fund will invest at least 65% of total assets in
common stocks of companies with medium market capitalizations (companies with
market capitalization ranging from $150 million to $50 billion and those with
market capitalizations similar to companies in the S&P MidCap 400).
Principal Risks
As with all equity investments, it is possible to lose money by investing in the
Fund.
Since the Fund primarily contains common stocks of domestic issuers, an
investment in the Fund should be made with an understanding of the risks
inherent in an investment in common stocks, including a susceptibility to
general stock market movements and volatile changes in value.
Investing in medium capitalization stocks may involve greater risk than
investing in large capitalization stocks, because they can be subject to more
abrupt or erratic movements.
The value of the Fund's shares and the securities held by the Fund can each
decline in value.
This Fund is intended for investors who seek long-term capital growth and are
willing to tolerate short-term fluctuations in price in order to achieve this
objective.
Risk / Return Bar Chart
The following bar chart and table may assist you in your decision to invest in
the Fund. The bar chart shows the change in the average annual returns of the
Fund over the last six calendar years. The table shows how the average annual
returns for the last one and five years and since inception compare with that of
the S&P 500 Index and S&P MidCap 400 Index. While analyzing this information,
please note that the Fund's past performance is not an indicator of how the Fund
will perform in the future.
[GRAPH]
(1) As of September 30,2000, the Fund had a year to date return of (45.26)%
(2) The Fund's highest quarterly return was 26.07 for the quarter ended March
31,1999; the lowest quarterly return was (29.74)% for the quarter ended
June 30, 2000.
(3) Participating Organizations may charge a fee to investors for
purchasing and redeeming shares. Therefore, the net return to such investors may
be less than if they had invested in the Fund directly.
Sales loads are not reflected in the above chart. If sales loads were reflected,
the fund's returns would be less then those shown.
Average Annual Total Returns - For the periods ended July 31,2000
Apex Mid S&P 500 S&P
Cap Growth Index MidCap
Fund 400
Index
One Year -37.21% 7.68% 20.00%
Five Year - 8.55% 20.55% 18.72%
Average Annual Total Returns - 4.68% 16.80% 16.13%
since Inception (December
23, 1992)
FEES AND EXPENSES
Shareholder Fees (Fees paid directly from your investment)
Maximum Sales Charge (Load) imposed on purchases (as percentage of offering
price) 5.75%*
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
Management Fees 1.00%**
Distribution and Service (12b-1) 0.25%
Fees
Other Expenses 2.62%
Administration Fees 0.20%***
------
Total Annual Fund Operating 3.87%
Expenses
Fee Table
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other equity funds.
Assume that you invest $10,000 in the Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. Also assume that
your investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 Year 3 Year 5 Year 10 Year
$440 $1,265 $2,174 $4,875
______________________
* The sales load is one-time charge paid at the time of purchase of
shares, and is varies depending on the amount you invest at a time. For detail
refer sales load table shown under section Purchase of Shares.
** The advisor has voluntarily waived the management fee for the most recent
fiscal year.
*** The administrator has voluntarily waived the administration fee for the
most recent fiscal year.
II INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
Investment Objectives
The Fund is a diversified management investment company whose investment
objective is to seek growth of capital. Investments will be made based upon
their potential for capital appreciation. Current income is a secondary
objective.
The Fund's investment objective of growth of capital is fundamental and may only
be changed upon the approval of those holders with a majority of the outstanding
shares of the Fund that would be affected by such a change.
Principal Investment Strategies
The Fund seeks long-term growth of capital by investing primarily in common
stocks of companies with medium market capitalizations. The
fund normally invests at least 65% of the fund's total assets in these
securities.
Medium market capitalization companies are those whose market capitalization is
similar to the market capitalization of companies in the S&P MidCap 400 at the
time of the fund's investment. The Fund also uses a broader definition of
medium-
capitalization companies, which includes companies with market capitalization
ranging from $150 million to $50 billion. However, under normal circumstances
the Fund does not invest in companies with capitalization of $10 billion or
more. Companies whose capitalization no longer meets this definition after
purchase continue to be considered medium-capitalized for pur poses of the 65%
policy. As of July 30, 1999, the S&P MidCap 400 included companies with
capitalizations between $272 million and $10.3 billion. The size of the
companies in the S&P MidCap 400 changes with market conditions and the
composition of the index.
Defensive Position
The Fund may temporarily take a defensive position and invest in securities that
are inconsistent with its principal investment strategies when the Manager
determines that adverse market, economic, political, or various other conditions
warrant such a position. Pursuant to this policy, the Fund may invest
temporarily without limit in investment grade debt securities, preferred stocks
or money market instruments. As a result of taking such a temporary defensive
position, the Fund may not achieve its investment objectives.
The Fund will not necessarily dispose of a security that falls below investment
grade unless the Manager determines that the security is inconsistent with the
Fund's investment objectives.
Money market instruments purchased for this purpose include U.S. Government
obligations, high quality commercial paper and certificates of deposit and
bankers' acceptances issued by domestic banks having more than $1 billion in
total assets.
Buy/Sell Decisions
Critical factors which will be considered in the selection of securities include
(i) the potential for future growth in revenues and earnings as well as the
values of individual securities relative to the other investment alternatives,
(ii) the potential of new product, as well as, the potential for the company to
be taken over, and management capability and practices, and (iii) the economic
and political outlook.
Disposal of a security will be based upon many factors, they include (i)
increases in the price level of the security or of securities which the Fund
believes reflect earnings growth too far in advance, (ii) changes in the
relative opportunities offered by various securities and (iii) actual or
potential deterioration of the issuer's earning power which the Fund believes
may adversely affect the price of its securities. The Advisor will also rely
upon computer models developed by himself for stock selection.
Portfolio Turnover
Purchases and sales are made for the Portfolio whenever necessary, in the
Advisor's opinion, to meet the Portfolio's objectives. Portfolio turnover may
involve the payment by the Portfolio of dealer spreads or underwriting
commissions, and other transaction costs, on the sale of securities, as well as
on the reinvestment of the proceeds in other securities. The greater the
portfolio turnover the greater the transaction costs to the Portfolio, which
will increase the Portfolio's total operating expenses. Also, a higher turnover
rate may be more likely to generate capital gains that must be distributed to
shareholders as income subjected to taxes. The Portfolio turnover rate for the
fiscal year ended July 31, 2000 was 356%.
Risks
Equity Risk: Risks inherent in an investment in common stocks include those
associated with the right to receive payments from the issuer of the common
stock. Holders of common stocks have a right to receive dividends only when
declared by the issuer's board of directors. Moreover, common stocks do not
represent an obligation of the issuer. Therefore, common stocks do not offer any
assurance of income or provide the degree of protection of debt securities. The
issuance of debt securities or even preferred stock by an issuer will create
prior claims for payment of principal, interest and dividends which can
adversely affect the ability of the issuer to pay dividends on its common stock
or the economic interest of holders of common stock with respect to assets of
the issuer upon liquidation or bankruptcy.
Common stocks are also especially susceptible to general stock market movements
and to volatile changes in value as market confidence, and perceptions of the
issuers change. These perceptions are based on unpredictable factors including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction, and global or
regional political, economic or banking crises. The value of the Fund's shares
and the securities held by the Fund can each decline in value and the loss of
money is a risk of investing in the Fund.
Mid - Cap Stock Risk: Investing in medium capitalization stocks may involve
greater risk than investing in large capitalization stocks, because they can be
subject to more abrupt or erratic movements. However they tend to involve less
risk than stocks of small capitalization companies.
Additional Investment Strategies and Risks
Futures and Options Risk: The Funds may invest a percentage of their assets in
futures and options contracts. The Funds may use futures contracts and related
options for bona fide hedging purposes to offset changes in the value of
securities held or expected to be acquired. The Funds will only enter into
futures contracts traded on a national futures exchange or board of trade.
Futures and options contracts are described in more detail below.
Futures Contracts: Futures contracts and options on futures contracts provide
for the future sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a specified
price. An option on a futures contract gives the purchaser the right, in
exchange for a premium, to assume a position in a futures contract at a
specified exercise price during the term of the option. Index futures are
futures contracts for various indices that are traded on registered securities
exchanges.
Options: The buyer of an option acquires the right to buy (a call option) or
sell (a put option) a certain quantity of a security (the underlying security),
or instrument, at a certain price up to a specified point in time. The seller or
writer of an option is obligated to sell (a call option) or buy (a put option)
the underlying security. When writing (selling) call options on securities, a
Fund may cover its position by owning the underlying security on which the
option is written or by owning a call option on the underlying security.
Alternatively, the Fund may cover its position by maintaining in a segregated
account cash or liquid securities equal in value to the exercise price of the
call option written by the Fund.
The risks associated with the Funds' use of futures and options contracts
include:
The Fund experiencing losses over certain ranges in the market that exceed
losses experienced by a Fund that does not use futures and options contracts.
There may be an imperfect correlation between the changes in
market value of the securities held by a Fund and the prices of futures and
options on futures.
Although the Fund will only purchase exchange-traded futures and options,
due to market conditions there may not be a liquid secondary market for a
futures contract or option. As a result, the Fund may be unable to close out
their futures or options contracts at a time which is advantageous.
Trading restrictions or limitations may be imposed by an exchange, and
government regulations may restrict trading in futures contracts and options.
Because option premiums paid or received by the Fund are small in relation
to the market value of the investments underlying the options, buying and
selling put and call options can be more speculative than investing directly in
securities.
III. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
The Fund's investment advisor is Bhirud Associates, Inc. (the "Manager"). The
Manager's principal business office is located at 1266 East Main Street,
Stamford, CT 06902. As of July 31,2000, the Manager was the investment manager,
advisor or supervisor with respect to assets aggregating in excess of $15
Million. The Manager has been an investment adviser since 1991.
Suresh L. Bhirud is responsible for the day-to-day investment management of the
Fund. Mr. Bhirud has been President of the Advisor since 1991. He was Senior
Vice President, Chief Investment Strategist and Chairman of the Investment
Policy Committee of Dean Witter Reynolds, Inc., from 1990 to 1991. Mr. Bhirud
was the Managing Director, Chief Investment Strategist and Chairman of the
Investment Policy Committee of Oppenheimer & Co. from 1987 to 1990. Mr. Bhirud
was also the Chief Investment Strategist (1982 to 1987), and held other various
positions involving quantitative market analysis (1972 to 1981), for The First
Boston Corporation. The Fund's Annual Report contains additional information
regarding the Portfolio's performance and will be provided without charge, upon
request.
Investors are advised that the Fund was organized in 1992 and is the first and
only mutual fund managed by the Advisor. In addition, the Advisor's computer
models, used in connection with the management of the Fund's portfolio, were
developed in 1991 and are, therefore, unseasoned. Furthermore, the S&P MidCap
400 Index, which was introduced by Standard & Poor's in 1991, is also relatively
new.
The Advisor, a New York Corporation, was formed on June 20, 1991.
The Advisor is a registered investment advisor under the Investment Advisers Act
of 1940. In addition to serving the Portfolio, as of July 31, 2000, the Advisor
serves as an advisor to high net worth individuals with total assets aggregating
approximately $15 million under management as of July 31, 2000. The Portfolio
is the only investment company advisory client of the Advisor. Mr. Bhirud may
be deemed a "controlling person" of the Advisor on the basis of his ownership of
stock of the Advisor. The Advisor relies to a considerable extent on the
expertise of Mr. Bhirud who may be difficult to replace in the event of his
death, disability or resignation. The Advisor's address is the same as the Fund
as shown on the cover of this Prospectus.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund. Pursuant to the Investment management Contract, the Fund pays the
manager a fee equal to 1.0% per annum of the Portfolio's average net assets up
to $250 million; .75% of the average net assets between $250 million and $500
million; and .65% of the average net assets over $500 million for managing the
Fund's investment portfolio and performing related services. For the fiscal year
ended July 31, 2000 the Manager has waived the management fee.
Pursuant to the Administrative Services Contract, the Manager performs clerical,
accounting supervision and office service functions for the Fund. The Manager
provides the Fund with the personnel to perform all other clerical and
accounting type functions not performed by the manager. For its services under
the Administrative Services Contract, the Fund pays the Manager a fee equal to
.20% per annum of the Fund's average daily net assets. For the fiscal year ended
July 31, 2000 the Manager has waived Administrative Service fee.
The Manager, at its discretion, may voluntarily waive any or all of the
Investment Management Fee and the Administrative Services Fee. Any portion of
the total fees received by the Manager may be used to provide shareholder
services and for distribution of Fund shares.
IV. DISTRIBUTION ARRANGEMENTS
Rule 12b-1 Fees
The Fund pays fees in connection with the distribution of shares and for
services provided to its shareholders. The Fund pays these fees from its assets
on an ongoing basis and therefore, over time, the payment of these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
Pursuant to Rule 12b-1 under the 1940 Act, the SEC requires that an investment
company which bears any direct or indirect expense of distributing its shares
must do so only in accordance with a plan permitted by Rule 12b-1. The Fund's
Board of Directors has adopted a distribution and service plan (the "Plan") and,
pursuant to the Plan, the Fund and Bhirud Associates, Inc. (the "Distributor")
have entered into a Distribution Agreement and the Fund and the Distributor have
entered into the Shareholder Servicing Agreement. For its services under the
Shareholder Servicing Agreement, the Distributor receives from the Portfolio a
fee equal to .25% per annum of the Portfolio's average daily net assets (the
"Shareholder Servicing Fee").
The Investment Management Contract includes provisions allowing the Manager to
defray the cost of, or compensate other persons, including banks, broker-dealers
and other organizations whose customers or clients are Fund stockholders
("Intermediaries"), for performing stockholder, administrative and accounting
services to the Fund. Under the Investment Management Contract, the Manager may
also compensate the foregoing persons and organizations for providing assistance
in distributing the Fund's shares. The Manager is not subject to any percentage
limitation with respect to the amounts it may expend for the activities
described in this paragraph.
Under the Plan, the Fund may pay the costs of printing and distributing the
Fund's prospectus to prospective investors and to defray the cost of the
preparation and printing of brochures and other promotional materials, mailings
to prospective stockholders, advertising, and other promotional activities,
including the salaries and/or commissions of sales personnel in connection with
the distribution of the Fund's shares. The payments made by the Fund for the
expenses referred to in this paragraph will not exceed in any year .05% of the
Fund's average daily net assets for the year.
V. SHAREHOLDER INFORMATION
On a continuing basis the Fund sells shares at net asset value plus a sales
load, and redeems its shares at their net asset value. All transactions in Fund
shares are effected through the Fund's transfer agent who accepts orders for
purchases and redemption's from Participating Organizations and from investors
directly.
Pricing of Shares
The Fund determines the net asset value of the shares as of 4:00 p.m., New York
City time, on each Fund Business Day. Fund Business Day means weekdays (Monday
through Friday) except days on which the New York Stock Exchange is closed for
trading (e.g. national holidays). The net asset value is computed by dividing
the value of the Fund's net assets (i.e., the value of its securities and other
assets less its liabilities, including expenses payable or accrued, but
excluding capital stock and surplus) by the total number of shares outstanding.
Portfolio securities for which market quotations are readily available are
valued at market value. U.S. Government obligations and other debt instruments
having sixty days or less remaining until maturity are stated at amortized cost.
All other investment assets of the Fund are valued in such a manner as the Board
of Directors of the Fund in good faith deems appropriate to reflect their fair
value.
Shares are issued as of the first determination of the Fund's net asset value
per share made after receipt of the investor's purchase order. In order to
maximize earnings on its portfolio, the Fund normally has its assets as fully
invested as is practicable. Many securities in which the Fund invests require
the immediate settlement in funds of Federal Reserve member banks on deposit at
a Federal Reserve Bank (commonly known as "Federal Funds"). The Fund reserves
the right to reject any purchase order for its shares. Certificates for Fund
shares will not be issued to an investor.
Shares are issued as of 4:00 p.m., New York City time, on any Fund Business Day
on which an order for the shares and accompanying Federal Funds are received by
the Fund's transfer agent before 4:00 p.m., New York City time. Fund shares
begin accruing income on the day after the shares are issued to an investor.
Purchase of Shares
Investors who have accounts with Participating Organizations may invest in the
Fund through their Participating Organizations in accordance with the procedures
established by the Participating Organization. "Participating Organizations" are
securities brokers, banks and financial institutions or other industry
professionals or organizations which have entered into shareholder servicing
agreements with the Distributor with respect to investment of their customer
accounts in the Fund. All other investors, and investors who have accounts with
Participating Organizations but do not wish to invest in the Fund through them,
may invest in the Fund directly.
The minimum initial investment in the Fund is (i) $1,000 for purchases through
Participating Organizations - this may be satisfied by initial investments
aggregating $1,000 by a Participating Organization on behalf of their customers
whose initial investments are less than $1,000; (ii) $1,000 for securities
brokers, financial institutions and other industry professionals that are not
Participating Organizations and (iii) $1,000 for all other investors. Initial
investments may be made in any amount in excess of the
applicable minimums. The minimum amount for subsequent investments is $100
unless the investor is a client of a Participating Organization whose clients
have made aggregate subsequent investments of $100; except that the minimum
initial investment for an Individual Retirement Account is $250.
Each shareholder, except certain shareholders who invest through accounts at
Participating Organizations ("Participant Investors"), will receive from the
Fund a personalized quarterly statement listing (i) the total number of Fund
shares owned as of the statement closing date, (ii) purchases and redemptions of
Fund shares and (iii) the dividends paid on Fund shares (including dividends
paid in cash or reinvested in additional Fund shares).
The price paid for shares of the Portfolio is the public offering price, that
is, the next determined net asset value of the shares plus a sales load. The
sales load is a one-time charge paid at the time of purchase of shares, most of
which ordinarily goes to the investor's broker-dealer to compensate him for the
services provided the investor.
Sales loads are determined in accordance with the following sales load schedule:
AMOUNT OF PURCHASE DEALER SALES CHARGE DISCOUNT
SALES LOAD AS % OF NET AS % OF
AMOUNT OFFERING
INVESTED PRICE
Less than $50,000 5.75% 6.10% 5.25%
$50,000 up to $99,999 5.25% 5.54% 4.75%
$100,000 up to $249,999 4.50% 4.71% 4.00%
$250,000 up to $499,999 3.00% 3.09% 2.50%
$500,000 up to $999,999 2.00% 2.04% 1.50%
$1,000,000 or more 0.00% 0.00% 0.00%
The Distributor reserves the right to change the dealer's concession from time
to time.
Investments Through Participating Organizations
Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations with which they have accounts. When instructed by
its customer to purchase or redeem Fund shares, the Participating Organization,
on behalf of the customer, transmits to the Fund's transfer agent a purchase or
redemption order, and in the case of a purchase order, payment for the shares
being purchased.
Participating Organizations may confirm to their customers who are shareholders
in the Fund each purchase and redemption of Fund shares for the customers'
accounts. Also, Participating Organizations may send their customers periodic
account statements showing the total number of Fund shares owned by each
customer as of the statement closing date, purchases and redemptions of Fund
shares by each customer during the period covered by the statement and the
income earned by Fund shares of each customer during the statement period
(including dividends paid in cash or reinvested in additional Fund
shares). Participant Investors whose Participating Organizations have not
undertaken to provide such statements will receive them directly from the Fund.
Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures. In addition,
Participating Organizations offering purchase and redemption procedures similar
to those offered to shareholders who invest in the Fund directly, may impose
charges, limitations, minimums and restrictions in addition to or different
from those applicable to shareholders who invest in the Fund directly.
Accordingly, the net yield to investors who invest through Participating
Organizations may be less than by investing in the Fund directly. A Participant
Investor should read this Prospectus in conjunction with the materials provided
by the Participating Organization describing the procedures under which Fund
shares may be purchased and redeemed through the Participating Organization.
In the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 4:00 p.m., New York City time, on a Fund Business
Day, without accompanying Federal Funds will result in the issuance of shares on
that day only if the Federal Funds required in connection with the orders are
received by the Fund's transfer agent before 4:00 p.m., New York City time, on
that day. Orders for which Federal Funds are received after 4:00 p.m., New York
City time, will result in share issuance the following Fund Business Day.
Participating Organizations are responsible for instituting procedures to insure
that purchase orders by their respective clients are processed expeditiously.
Initial Direct Purchases of Shares
Investors who wish to invest in the Fund directly may obtain a current
prospectus and the subscription order form necessary to open an account by
telephoning the Fund at (877) 593-8637
Mail
Investors may send a check made payable to "Apex Mid Cap Growth Fund" along with
a completed subscription order form to:
"The Apex Mid Cap Growth Fund",
c/o Mutual Shareholders Services Inc.
1301 E. 9th Street, Suite 1005
Cleveland, OH 44114-1800
Checks are accepted subject to collection at full value in United States
currency.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of money
among banks, investors should first obtain a new account number by telephoning
the Fund at (877) 593-8637 and then instruct a member commercial bank to wire
money immediately to:
FIRSTAR BANK, N.A. Cinti/Trust
ABA: 0420-0001-3
Attn: The Apex Mid Cap Growth Fund
DDA # 485812697
Share Holder Account Number: ___________________
Share Holder Account Name: ___________________
SS# / Tax ID#: _________________
The investor should then promptly complete and mail the subscription order form.
Investors planning to wire funds should instruct their bank early in the day so
the wire transfer can be accomplished the same day. There may be a charge by the
investor's bank for transmitting the money by bank wire, and there also may be a
charge for use of Federal Funds.
The Fund does charge investors in the Fund for its receipt of wire transfers.
Payment in the form of a "bank wire" received prior to 4:00 p.m., New York City
time, on a Fund Business Day, will be treated as a Federal Funds payment
received on that day.
Personal Delivery
Deliver a check made payable to "Apex Mid Cap Growth Fund" along with
a completed subscription order form to:
"The Apex Mid Cap Growth Fund",
c/o Mutual Shareholders Services Inc.
1301 E. 9th Street, Suite 1005
Cleveland, OH 44114-1800
Electronic Funds Transfers (EFI), Preauthorized Credit and Direct Deposit
Privilege
You may purchase shares of the Fund (minimum of $100) by having salary, dividend
payments, interest payments or any other payments designated by you, Federal
salary, social security, or certain veteran's, military or other payments from
the Federal government, automatically deposited into your Fund account. You can
also have money debited from your checking account. To enroll in any one of
these programs, you must file with the Fund a completed EFT Application, Pre-
authorized Credit Application, or a Direct Deposit Sign-Up Form for each type of
payment that you desire to include in the Privilege. The appropriate form may be
obtained from your broker or the Fund. You may elect at any time to terminate
your participation by notifying in writing the appropriate depositing entity
and/or Federal agency. Death or legal incapacity will automatically terminate
your participation in the Privilege. Further, the Fund may terminate your
participation upon 30 days' notice to you.
Subsequent Purchases of Shares
Subsequent purchases can be made by personal delivery or by bank wire, as
indicated above, or by mailing a check to:
"The Apex Mid Cap Growth Fund",
c/o Mutual Shareholders Services Inc.
1301 E. 9th Street, Suite 1005
Cleveland, OH 44114-1800
All payments should clearly indicate the shareholder's account number.
Provided that the information on the subscription form on file with the Fund is
still applicable, a shareholder may reopen an account without filing a new
subscription order form at any time during the year the shareholder's account is
closed or during the following calendar year.
Reduction or Elimination of Sales Load
Volume Discounts. Volume discounts are provided if the total amount being
invested in shares of the Portfolio reaches the levels indicated in the sales
load schedule set forth under "Purchase of Shares" herein. Volume discounts are
also available to investors making sufficient additional purchases of Portfolio
shares. The applicable sales charge may be determined by adding to the total
current value of shares already owned in the Portfolio the value of new
purchases computed at the offering price on the day the additional purchase is
made. For example, if an investor previously purchased, and still holds, shares
of the Portfolio worth $95,000 at the current net asset value and purchases an
additional $5,000 worth of shares of the Portfolio, the sales charge applicable
to the new purchase would be that applicable to the $100,000 to $249,999 bracket
in the sales load schedule set forth under "Purchase of Shares" herein.
Reinvestment of Dividends and Distributions. There is no sales load on
purchases of Portfolio shares made by reinvestment of dividends and
distributions paid by the Portfolio. Reinvestment will be made at net asset
value (i.e., without the imposition of a sales load) on the day on which the
dividend or distribution is payable.
Letter of Intent. Any investor may sign a Letter of Intent, available from the
Distributor, stating an intention to make purchases of shares totaling a
specified amount within a period of thirteen months. Purchases within the
thirteen-month period can be made at the reduced sales load applicable to the
total amount of the intended purchase noted in the Letter of Intent. If a
larger purchase is actually made during the period, then a downward adjustment
will be made to the sales charge based on the actual purchase size. Any shares
purchased within 90 days preceding the actual signing of the Letter of Intent
are eligible for the reduced sales charge and the appropriate price adjustment
will be made on those share purchases. A number of shares equal to 5.75% of the
dollar amount of intended purchases specified in the Letter of Intent is held in
escrow by the Distributor until the purchases are completed. Dividends and
distributions on the escrowed shares are paid to the investor. If the intended
purchases are not completed during the Letter of Intent period, the investor is
required to pay the Distributor an amount equal to the difference between the
regular sales load applicable to a single purchase of the number of shares
actually purchased and the sales load actually paid. If such payment is not
made within 20 days after written request by the Distributor, then the
Distributor has the right to redeem a sufficient number of escrowed shares to
effect payment of the amount due. Any remaining escrowed shares are released to
the investor's account. Agreeing to a Letter of Intent does not obligate you to
buy, or the Portfolio to sell, the indicated amount of shares. You should read
the Letter of Intent carefully before signing.
Open-End Management Investment Company Shareholders. Shareholders of any open-
end management investment company may utilize the net redemption or sales
proceeds from the redemption or sale of such shares to purchase shares of the
Portfolio at no sales load. Investment of the net redemption or sales proceeds
into shares of the Portfolio must occur within 60 calendar days from the
settlement date of such redemption or sale and must be supported by the
documentation requested by the Distributor to provide evidence of said sale or
redemption.
Employees of the Advisor and Distributor. Employees (and their immediate
families) of Bhirud Associates, Inc. may purchase shares of the Portfolio at no
sales load. The absence of a sales load reflects the reduced sales effort
required to sell shares to this group of investors.
Purchases may be made at net asset value (without the imposition of a sales
load) provided that such purchases are placed through a broker that maintains an
account with the Fund and such purchases are made by the following:
Investment advisors or financial planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services, and clients of such investments
advisors or financial planners who place trades for their own accounts if the
accounts are linked to the master accounts of such investment advisor or
financial planner on the books and records of the broker or agent;
Retirement and deferred compensation plans, as well as trusts used to fund those
plans, including, but not limited to, those defined in section 401(a), 403(b) or
457 of the Internal Revenue Code and "rabbi trusts".
Investors may be charged a fee by their advisor or financial planner if they
effect transaction in Fund shares through a broker or agent.
In addition to the above, a registered investment advisor may also purchase
shares at net asset value directly from the Fund, provided they have on file
with Bhirud Associates Inc., their SEC registration number and part II of their
ADV form.
Redemption of Shares
A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net asset value per share upon
receipt by the Fund's transfer agent of the redemption order (and any supporting
documentation which it may require). Normally, payment for redeemed shares is
made on the same Fund Business Day the redemption is effected, provided the
redemption request is received prior to 4:00 p.m., New York City time. However,
redemption payments will not be effected unless the check (including a certified
or cashier's check) used for investment has been cleared for payment by the
investor's bank, which could take up to 15 days after investment.
A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee.
When a signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature. It should be signed and guaranteed by
an eligible guarantor institution which includes a domestic bank, a domestic
savings and loan institution, a domestic credit union, a member bank of the
Federal Reserve system or a member firm of a national securities exchange,
pursuant to the Fund's transfer agent's standards and procedures.
Written Requests
Shareholders may make a redemption in any amount by sending a written request to
the Fund addressed to:
"The Apex Mid Cap Growth Fund",
c/o Mutual Shareholders Services Inc.
1301 E. 9th Street, Suite 1005
Cleveland, OH 44114-1800
All previously issued certificates submitted for redemption must be endorsed by
the shareholder and all written requests for redemption must be signed by the
shareholder, in each case with signature guaranteed. Normally the redemption
proceeds are paid by check and mailed to the shareholder of record.
Telephone
The Fund accepts telephone requests for redemption from shareholders who elect
this option on their subscription order form. Telephone requests for redemptions
may not exceed $25,000 per request per day. The proceeds of a telephone
redemption may be sent to the shareholders at their addresses or to their bank
accounts, both as set forth in the subscription order form or in a subsequent
written authorization. The Fund may accept telephone redemption instructions
from any person with respect to accounts of shareholders who elect this service
and thus such shareholders risk possible loss of principal and interest in the
event of a telephone redemption not authorized by them. The Fund will employ
reasonable procedures to confirm that telephone redemption instructions are
genuine, and will require that shareholders electing such option provide a form
of personal identification. Failure by the Fund to employ such reasonable
procedures may cause the Fund to be liable for the losses incurred by investors
due to unauthorized or fraudulent telephone
redemptions.
A shareholder making a telephone withdrawal should call the Fund at (877) 593-
8637, and state: (i) the name of the shareholder appearing on the Fund's
records; (ii) the shareholder's account number with the Fund; (iii) the amount
to be withdrawn; (iv) whether such amount is to be forwarded to the
shareholder's designated bank account or address; and (v) the name of the person
requesting the redemption. Usually the proceeds are sent to the designated bank
account or address on the same Fund Business Day the redemption is effected,
provided the redemption request is received before 4:00 p.m., New York City
time. If the redemption request is received after such time, proceeds are sent
the next Fund Business Day. The Fund reserves the right to terminate or modify
the telephone redemption service in whole or in part at any time and will notify
shareholders accordingly.
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
Proceeds of redemptions are paid by check. Unless other instructions are given
in proper form to the Fund's transfer agent, a check for the proceeds of a
redemption will be sent to the shareholders' address of record. If a shareholder
elects to redeem all the shares of the Fund he owns, all dividends accrued to
the date of such redemption will be paid to the shareholder along with the
proceeds of the redemption.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than customary weekend and holiday closings) or during which
the SEC determines that trading thereon is restricted. Additional exceptions
include any period during which an emergency (as determined by the SEC) exists
as a result of which disposal by the Fund of its portfolio securities is not
reasonably practicable or as a result of which it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or for such other
period as the SEC may by order permit for the protection of the shareholders of
the Fund.
The Fund has reserved the right to redeem the shares of any shareholder (other
than those in an IRA) if the net asset value of all the remaining shares in the
shareholder's or his Participating Organization's account after a withdrawal is
less than $500. Written notice of a proposed mandatory redemption will be given
at least 30 days in advance to any shareholder whose account is to be redeemed
or the Fund may impose a monthly service charge of $10 on such accounts. For
Participant Investor accounts, notice of a proposed mandatory redemption will be
given only to the appropriate Participating Organization. The Participating
Organization will be responsible for notifying the Participant Investor of the
proposed mandatory redemption. During the notice period, a shareholder or
Participating Organization who receives such a notice may avoid mandatory
redemption by purchasing sufficient additional shares to increase his total net
asset value to the minimum amount.
Dividends and Distributions
Each dividend and capital gains distribution, if any, declared by the Fund on
its outstanding shares will, at the election of each stockholder, be paid in
cash or in additional shares of common stock of the Fund having an aggregate net
asset value as of the payment date of such dividend or distribution equal to the
cash amount of such dividend or distribution. Election to receive dividends and
distributions in cash or shares is made at the time shares are subscribed for
and may be changed by notifying the Fund in writing at any time prior to the
record date for a particular dividend or
distribution. If the stockholder makes no election the Fund will make the
distribution in shares. There is no sales or other charge in connection with the
reinvestment of dividends and capital gains distributions.
While it is the intention of the Fund to distribute to its stockholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and time of any such dividend or distribution must
necessarily depend upon the realization by the Fund of income and capital gains
from investments. Dividends will normally be paid annually. Capital gains
distributions, if any, will be made at least annually and usually at the end of
the Fund's fiscal year. There is no fixed dividend rate, and there can be no
assurance that the Fund will pay any dividends or realize any capital gains.
Retirement Plans
The Fund has available a form of individual retirement account ("IRA") for
investment in the Fund's shares. In general, an individual can make an annual
contribution to an IRA in an amount equal to the lesser of $2000 or 100% of the
individual's earned income. In addition, in the case of a married couple filing
a joint return, annual IRA contributions of up to $2000 can generally be made
for each spouse, as long as the combined compensation of both spouses is at
least equal to the contributed amounts. IRA contributions can, in general, be
made to either traditional deductible IRAs, traditional non-deductible IRAs or
nondeductible Roth IRAs, a new type of IRA established by the Taxpayer Relief
Act of 1997. Contributions to a Roth IRA are not deductible, but qualified
distributions from a Roth IRA are not includable in income or subject to the
additional ten-percent tax on early withdrawals, if deemed a qualified
distribution. A "qualified distribution" is a distribution that is made after
the end of the five taxable year period beginning with the first day of the
individual's taxable year in which the individual made a contribution to a Roth
IRA, and which is made on or after the date in which the individual attains an
age of 59 1/2, on or after the death of the individual or is attributable to the
disability of the individual, or is a distribution for specified first-time home
buyer expenses or certain education expenses.
Contributions to traditional deductible IRAs and Roth IRAs may be limited based
on adjusted gross income levels. The ability of a person who is an active
participant in an employer sponsored retirement plan to make deductible
contributions to a regular IRA is phased out based on the individual's adjusted
gross incomes. For 1999, the phase out occurs over a range of adjusted gross
incomes from $51,000 to $61,000 on a joint return and $31,000 to $41,000 on a
single return. The phase out range for a married individual who is not an active
participant but whose spouse is an active participant is between $150,000 and
$160,000.
The maximum annual contribution that can be made to a Roth IRA is also subject
to phase out rules that apply to married individuals filing joint returns when
adjusted gross income is between $150,000 and $160,000 and to single individuals
when adjusted gross income is between $95,000 and $110,000.
For both traditional deductible IRAs and Roth IRAs, the phase out range for
married individuals filing separate returns is from $0 to $10,000. Generally,
there are penalties for premature distributions from an IRA before the
attainment of age 59 1/2, except in the case of the participant's death or
disability and certain other circumstances including first-time home buyer
expenses and certain education expenses.
Fund shares may also be a suitable investment for assets of other
types of qualified pension or profit-sharing plans, including cash or deferred
or salary reduction "Section 401(k) plans" which give participants the right to
defer portions of their compensation for investment on a tax-deferred basis
until distributions are made from the plans.
Persons desiring information concerning investments by IRAs and other retirement
plans should write or telephone the Fund. The minimum investment required to
open an IRA is $250.
Tax Consequences
The Fund qualified for the fiscal year ended July 31,2000 and intends for each
year thereafter to qualify for tax treatment as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended. Qualification as a
regulated investment company relieves the Fund of Federal income tax on
investment company taxable income and net capital gains paid out to its
stockholders. Distributions of investment company taxable income and net short-
term capital gains are taxable to stockholders as ordinary income. Some
corporate stockholders will be entitled to the dividends-received deduction to
the extent that the Fund's income is derived from qualifying dividends from
domestic corporations. A corporation's dividendsreceived deduction will be
disallowed unless the corporation holds shares in the Fund at least 46 days.
Furthermore, a corporation's dividends-received deduction will be disallowed to
the extent a corporation's investment in shares of the Fund is financed with
indebtedness.
The excess of net long-term capital gains over net short-term capital losses
realized and distributed by the Fund as capital gains distributions is taxable
to stockholders as long-term capital gains, irrespective of the length of time a
stockholder may have held its stock. Long-term capital gains distributions are
not eligible for the dividends-received deduction referred to above. If a
stockholder that sells shares held for six months or less received a
distribution taxable as long-term capital gain, any loss realized on the sale of
the shares would be a long-term capital loss to the extent of the distribution.
Any dividend or distribution received by a stockholder shortly after the
purchase of shares of the Fund will reduce the net asset value of the shares by
the amount of the dividend or distribution. Furthermore, the dividend or
distribution is subject to tax even though they are, in effect, a return of
capital.
The Fund is required by Federal law to withhold 31% of distributions and the
proceeds of redemptions payable to stockholders who have failed to furnish the
Fund with and certify the shareholder's correct social security or tax
identification number and that the stockholder is not subject to 31% backup
withholding for previous underreporting to the IRS.
The redemption of shares may result in the investor's receipt of more or less
than the investor paid for its shares and, thus, in a taxable gain or loss to
the investor.
An exchange pursuant to the exchange privilege is treated for Federal income tax
purposes as a sale on which a shareholder may realize a taxable gain or loss.
The Apex Mid Cap Growth Fund
PROSPECTUS
For More Information:
For more information about the Fund, the following documents are available free
upon request:
Annual/Semiannual Reports:
The Fund's semi-annual and audited annual reports to shareholders contain
detailed information on the Fund's investments. In the annual report, you will
find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
Statement of Additional Information (SAI):
The SAI provides more detailed information about the Fund, including their
operations and investment policies. It is incorporated by reference, and is
legally considered a part of this prospectus.
You can get free copies of Reports and SAI, prospectuses of Apex Mid Cap Growth
Fund, or
request other information and discuss your questions about the Fund
by contacting:
Bhirud Associates, Inc.
Soundview Plaza 1266 East Main Street
Stamford, CT 06902
Telephone: 203 977 1521 Fax: 203 977 1525
You can review and obtain the Fund's reports and SAI at the Public Reference
Room of the Securities and Exchange Commission. You may call 1-202-942-8090 for
information on the operation of the Public Reference Room. You can get text-only
copies:
For a fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-0102.
For a fee, by electronic request at [email protected].
Free from the Commission's Website at http://www.sec.gov.
(Investment Company Act file no. 811-6680)
Apex Mid Cap Growth Fund
Bhirud Funds Inc., 1266 E. Main Street
Stamford, CT 06902
STATEMENT OF ADDITIONAL INFORMATION
November 30, 2000
RELATING TO THE APEX MID CAP GROWTH FUND
PROSPECTUS DATED November 30, 2000
This Statement of Additional Information (SAI) is not a Prospectus. The SAI
expands upon and supplements the information contained in the current Prospectus
of Apex Mid Cap Growth Fund. (the "Fund"), dated November 30,2000 and should be
read in conjunction with the Fund's Prospectus.
A Prospectus may be obtained from Bhirud Funds Inc. or by writing or calling the
Fund toll-free at (877) 593-8637. The Financial Statements of the Fund have been
incorporated by reference to the Fund's Annual Report. The Annual Report is
available, without charge,
upon request by calling the toll-free number provided above.
This Statement of Additional Information is incorporated by reference into the
Fund's Prospectus in its entirety.
Table of Contents
Fund History 20 Brokerage Allocation and 30
Other Practices
Description of the Fund and 20 Capital Stock and Other 31
its Investments and Risks Securities
Management of the Fund 25 Purchase, Redemption and 31
Pricing Shares
Control Persons and 26 Taxation of the Fund 32
Principal Holders of
Securities
Investment Advisory and 27 Underwriters 33
Other Services
Distribution and Service 28 Calculation of Performance 34
Plan Data
Expense Limitation 29 Financial Statements 34
Custodian and Transfer Agent 30
Counsel and Auditors 30
I. FUND HISTORY
The Fund was incorporated on May 27, 1992 in the state of Maryland. II.
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
The Fund is an open-end, diversified management investment company. The fund's
investment objective is to seek long- term growth of capital. Current income is
a secondary objective. No assurance can be given that these objectives will be
achieved. Although not principal strategies, the manager may enter into the
following types of transactions or invest in the following types of instruments
as part of its investment strategies.
Warrants and Rights
The Portfolio may invest in warrants or rights of securities of midsized
companies (other than those acquired in units or attached to other securities)
which entitle the holder to buy equity securities at a specific price for a
specific period of time but will do so only if such equity securities are deemed
appropriate by the Advisor for inclusion in the Portfolio. In the event the
underlying security does not sufficiently increase in value during the period
when the warrant may be exercised so as to provide an attractive investment for
the Portfolio, the warrant will expire and the Portfolio will suffer a loss on
the price it paid for the warrant. The Portfolio will not purchase warrants if,
as a result of such purchase, more than 5% of the Portfolio's total assets are
invested in warrants and the Portfolio will not invest more than 2% of its total
assets in warrants or rights which are not listed on the New York or American
Stock Exchanges.
Convertible Securities
Convertible Securities are bonds, debentures, notes, preferred stocks or other
securities that may be converted or exchanged (by the holder or by the issuer)
into shares of the underlying common stock (or cash or securities of equivalent
value) at a stated exchange ratio. A convertible security may also be called for
redemption or conversion by the issuer after a particular date and under certain
circumstances (including a specified price) established upon issue. If a
convertible security held by a fund is called for redemption or conversion, the
fund could be required to tender it for redemption, convert it into the
underlying common stock, or sell it to a third
party.
Convertible securities generally have less potential for gain or loss than
common stocks. Convertible securities generally provide yields higher than the
underlying common stocks, but generally lower than comparable non-convertible
securities. Because of this higher yield, convertible securities generally sell
at prices above their "conversion value," which is the current market value of
the stock to be received upon conversion. The difference between this conversion
value and the price of convertible securities will vary over time depending on
changes in the value of the underlying common stocks and interest rates. When
the underlying common stocks decline in value, convertible Securities will tend
not to decline to the same extent because of the interest or dividend payments
and the repayment of principal at maturity for certain types of convertible
securities. However, securities that are convertible other than at the option of
the holder generally do not limit the potential for loss to the same extent as
securities convertible at the option of the holder. When the underlying common
stocks rise in value, the value of convertible securities may also be expected
to increase. At the same time, however, the difference between the market value
of convertible securities and their conversion value will narrow, which means
that the value of convertible securities will generally not increase to the same
extent as the value of the underlying common stocks. Because convertible
securities may also be interest-rate sensitive, their value may increase as
interest rates fall and decrease as interest rates rise. Convertible securities
are also subject to credit risk, and are often lower-quality securities.
Corporate Reorganizations
Subject to the Portfolio's policy of investing at least 65% of its total assets
in Common Stocks, the Portfolio may invest without limit in securities listed on
the S&P MidCap Index for which a tender or exchange offer has been made or
announced and in securities of companies for which a merger, consolidation,
liquidation or similar reorganization proposal has been announced if, in the
judgment of the Advisor, there is a reasonable prospect of capital appreciation
significantly greater than the added portfolio turnover expenses inherent in the
short term nature of such transactions. The principal risk is that such offers
or proposals may not be consummated within the time and under the terms
contemplated at the time of the investment, in which case, unless such offers or
proposals are replaced by equivalent or increased offers or proposals which are
consummated, the Portfolio may sustain a loss.
Investments in Small, Unseasoned Companies
The Portfolio may invest up to 5% of its total assets in small, less recognized
companies which (including predecessors) have operated less than three years.
The securities of such companies may have limited liquidity.
When Issued, Delayed Delivery Securities and Forward Commitments
The Portfolio from time to time, in the ordinary course of business, may
purchase securities on a when-issued or delayed-delivery basis (i.e., delivery
and payment can take place between a month and 120 days after the date of the
transaction). These securities are subject to market fluctuation and no interest
accrues to the purchaser during this period. At the time a Portfolio makes the
commitment to purchase securities on a when issued or delayed-delivery basis,
the Portfolio will record the transaction and thereafter reflect the value of
the securities, each day, in determining the Portfolio's net asset value. The
Portfolio will not purchase securities on a when-issued or delayed delivery
basis, if as a result, more than 15% of the Portfolio's net assets would be so
invested. At the time of delivery of the securities, the value of the securities
may be more or less than the purchase price.
The Portfolio will enter into when-issued or delayed-delivery transactions for
the purpose of acquiring securities and not for the purpose of leverage. When
issued securities purchased by the Portfolio may include securities purchased on
a "when, as and if issued" basis under which the issuance of the securities
depends on the occurrence of a subsequent event. Upon purchasing a security on a
when-issued or delayed-delivery basis, the Portfolio will identify, as part of a
segregated account, cash or liquid securities in an amount at least equal to the
when-issued or delayed-delivery commitment.
The Portfolio will also establish a segregated account with the Trust's
custodian bank in which the Portfolio will maintain liquid instruments equal to
or greater in value than the Portfolio's purchase commitments for such when-
issued or delayed-delivery securities, or the Portfolio does not believe that a
Portfolio's net asset value or income will be adversely affected by the
Portfolio's purchase of securities on a when issued or delayed delivery basis.
Short Sales
The Portfolio may engage in short sales transactions under which the Portfolio
sells a security it does not own. To complete such a transaction, the Portfolio
must borrow the security to make delivery to the buyer. The Portfolio then is
obligated to replace the security borrowed by purchasing the security at the
market price at the time of replacement. The price at such time may be more or
less than the price at which the security was sold by the Portfolio. Until the
security is replaced, the Portfolio is required to pay to the lender amounts
equal to any dividends or interest which accrue during the period of the loan.
To borrow the security, the Portfolio also may be required to pay a premium,
which would increase the cost of the security sold. The proceeds of the short
sale will be retained by the broker, to the extent necessary to meet the margin
requirements, until the short position is closed out.
Until the Portfolio closes its short position or replaces the borrowed security,
the Portfolio will cover its position with an offsetting position or maintain a
segregated account containing cash or liquid instruments at such a level that
the amount deposited in the account plus the amount deposited with the broker as
collateral will equal the current value of the security sold short.
The market value of the securities sold short of any one issuer will not exceed
either 2% of the Portfolio's total assets or 2% of such issuer's voting
securities. The Portfolio will not make a short sale, if, after giving effect
to such sale, the market value of all securities sold short exceeds 30% of the
value of its assets or the Portfolio's aggregate short sales of a particular
class of securities exceeds 30% of the outstanding securities of that class.
The Portfolio may also make short sales "against the box" without respect to
such limitations. In this type of short sale, at the time of the sale, the
Portfolio owns or has the immediate and unconditional right to acquire, at no
additional cost, the identical security.
Repurchase Agreements
The Portfolio may enter into repurchase agreements with financial institutions.
Under a repurchase agreement, a Portfolio purchases a debt security and
simultaneously agrees to sell the security back to the seller at a mutually
agreed-upon future price and date, normally within a few days. The resale price
is greater than the purchase price, reflecting an agreed-upon market interest
rate during the purchaser's holding period. While the maturities of the
underlying securities in repurchase transactions may be more than one year, the
term of each repurchase agreement will always be less than one year. The
Portfolio follows certain procedures designed to minimize the
risks inherent in such agreements. These procedures include effecting repurchase
transactions only with large, well-capitalized and well established financial
institutions whose condition will be continually monitored by the Advisor. In
addition, the value of the collateral underlying the repurchase agreement will
always be at least equal to the repurchase price, including any accrued interest
earned on the repurchase agreement. In the event of a default or bankruptcy by a
selling financial institution, a Portfolio will seek to liquidate such
collateral which could involve certain costs or delays and, to the extent that
proceeds from any sale upon a default of the obligation to repurchase were less
than the repurchase price, the Portfolio could suffer a loss. A Portfolio also
may experience difficulties and incur certain costs in exercising its rights to
the collateral and may lose the interest the Portfolio expected to receive under
the repurchase agreement. Repurchase agreements usually are for short periods,
such as one week or less, but may be longer. It is the current policy of the
Portfolio not to invest in repurchase agreements that do not mature within seven
days if any such investment, together with any other liquid assets held by the
Portfolio, amounts to more than 15% of the Portfolio's total net assets. The
investments of the Portfolio in repurchase agreements at times may be
substantial when, in the view of the Advisor, liquidity, investment, regulatory,
or other considerations so warrant.
Securities Lending
A fund may lend securities to brokers, dealer, and financial institutions.
Securities lending allows a fund to retain ownership of the securities loaned
and, at the same time, to earn additional income. Since there may be delays in
the recovery of loaned securities, or even a loss of rights in collateral
supplied should the borrower fail financially, loans will be made only to
parties deemed by the fund to be of good standing. Furthermore, they will only
be made if, in the advisor's judgment, the consideration to be earned from such
loans would justify the risk.
The fund understands that it is the current view of the SEC Staff that a fund
may engage in loan transactions only under the following conditions: (i) the
fund must receive 100% collateral in the form of cash or cash equivalents (e.g.,
U.S. Treasury bills or notes) from the borrower; (ii) the borrower must increase
the collateral whenever the market value of the securities loaned (determined on
a daily basis) rises above the value of the collateral; (iii) after giving
notice, the fund must be able to terminate the loan at any time; (iv) the fund
must receive reasonable interest on the loan or a flat fee from the borrower, as
well as amounts equivalent to any dividends, interest, or other distributions on
the securities loaned and to any increase in market value; (v) the fund may pay
only reasonable custodian fees in connection with the loan; and (vi) the Board
of Trustees must be able to vote proxies on the securities loaned, either by
terminating the loan or by entering into an alternative arrangement with the
borrower.
Cash received through loan transactions may be invested in other eligible
securities. Investing this cash subjects that investment, as well as the
security loaned, to market forces (i.e., capital appreciation or depreciation).
Futures and Options
The following paragraphs pertain to futures and options: Asset Coverage for
Futures and Options Positions, Combined Positions, Correlation of Price Changes,
Futures Contracts, Futures Margin Payments, Limitations on Futures and Options
Transactions, Liquidity of Options and Futures Contracts, Options and Futures
Relating to Foreign Currencies, OTC Options, Purchasing Put and Call Options,
and Writing Put and Call Options.
Asset Coverage for Futures and Options Positions
The fund will comply with guidelines established by the SEC with respect to
coverage of options and futures strategies by mutual funds and, if the
guidelines so require, we will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or options strategy is
outstanding, unless they are replaced with other suitable assets. As a result,
there is a possibility that segregation of a large percentage of the fund's
assets could impede portfolio management or the fund's ability to meet
redemption requests or other current obligations.
Combined Positions
Combined Positions involve purchasing and writing options in combination with
each other, or in combination with futures or forward contracts, to adjust the
risk and return characteristics of the overall position. For example, purchasing
a put option and writing a call option on the same underlying instrument would
construct a combined position whose risk and return characteristics are similar
to selling a futures contract. Another possible combined position would involve
writing a call option at one strike price and buying a call option at a lower
price, to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve multiple
trades, they result in higher transaction costs and may be more difficult to
open and close out.
Correlation of Price Changes
Because there are a limited number of types of exchange-traded options and
futures contracts, it is likely that the standardized contracts available will
not match a fund's current or anticipated investments exactly. A fund may invest
in options and futures contracts based on securities with different issuers,
maturities, or other characteristics from the securities in which the fund
typically invests, which involves a risk that the options or futures position
will not track the performance of the fund's other investments.
Options and futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments match a fund's investments well.
Options and futures prices are affected by such factors as current and
anticipated short-term interest rates, changes in volatility of the underlying
instrument, and the time remaining until expiration of the contract, which may
not affect security prices the same way. Imperfect correlation may also result
from differing levels of demand in the options and futures markets and the
securities markets, from structural differences in how options and futures and
securities are traded, or from imposition of daily price fluctuation limits or
trading halts. A fund may purchase or sell options and futures contracts with a
greater or lesser value than the securities it wishes to hedge or intends to
purchase in order to attempt to compensate for differences in volatility between
the contracts and the securities, although this may not be successful in all
cases. If price changes in a fund's options or futures positions are poorly
correlated with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by gains in other
investments.
Futures Contracts
In purchasing a futures contract, the buyer agrees to purchase a specified
underlying instrument at a specified future date. In selling a futures contract,
the seller agrees to sell a specified underlying instrument at a specified
future date. The price at which the purchase and sale will take place is fixed
when the buyer and seller enter into the contract. Some currently available
futures contracts are based on specific securities, such as U.S. Treasury bonds
or notes, and some are based on indices of securities prices,
such as the Standard & Poor's 500 Index (S&P 500). Futures can be held until
their delivery dates, or can be closed out before then if a liquid secondary
market is available.
The value of a futures contract tends to increase and decrease in tandem with
the value of its underlying instrument. Therefore, purchasing futures contracts
will tend to increase a fund's exposure to positive and negative price
fluctuations in the underlying instrument, much as if it had purchased the
underlying instrument directly. When a fund sells a futures contract, by
contrast, the value of its futures position will tend to move in a direction
contrary to the market. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
Futures Margin Payments
The purchaser or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, both the purchaser and seller are required to deposit "initial
margin" with a futures broker, known as a futures commission merchant (FCM),
when the contract is entered into. Initial margin deposits are typically equal
to a percentage of the contract's value. If the value of either party's position
declines, that party will be required to make additional "variation margin"
payments to settle the change in value on a daily basis. The party that has a
gain may be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin for
purposes of a fund's investment limitations. In the event of the bankruptcy of
an FCM that holds margin on behalf of a fund, the fund may be entitled to return
of margin owed to it only in proportion to the amount received by the FCM's
other customers, potentially resulting in losses to the fund.
Limitations on Futures and Options Transactions: In addition, the fund will not:
(i) sell futures contracts, purchase put options, or write call options if, as a
result, more than 10% of the fund's total assets would be hedged with futures
and options under normal conditions; (ii)) purchase futures contracts or write
put options if, as a result, the fund's total obligations upon settlement or
exercise of purchased futures contracts and written put options would exceed 10%
of its total assets; or (iii) purchase call options if, as a result, the current
value of option premiums for call options purchased by the fund would exceed 5%
of the fund's total assets. These limitations do not apply to options attached
to or acquired or traded together with their underlying securities, and do not
apply to securities that incorporate features similar to options.
The above limitations on the fund's investments in futures contracts and
options, and the fund's policies regarding futures contracts and options
discussed elsewhere in this SAI, may be changed as regulatory agencies permit.
Liquidity of Options and Futures Contracts
There is no assurance a liquid secondary market will exist for any particular
options or futures contract at any particular time. Options may have relatively
low trading volume and liquidity if their strike prices are not close to the
underlying instrument's current price. In addition, exchanges may establish
daily price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit in a
given day. On volatile trading days when the price fluctuation limit is reached
or a trading halt is imposed, it may be impossible to enter into new positions
or close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require a fund to
continue to hold a position until delivery or expiration regardless of changes
in its value. As a result, a fund's access to other assets held to cover its
options or futures positions could also be impaired.
Options and Futures Relating to Foreign Currencies
Currency futures contracts are similar to forward currency exchange contracts,
except that they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or delivery in U.S. dollars. The underlying
instrument of a currency option may be a foreign currency, which generally is
purchased or delivered in exchange for U.S. dollars, or may be a futures
contract. The purchaser of a currency call obtains the right to purchase the
underlying currency, and the purchaser of a currency obtains the right to sell
the underlying currency.
The uses and risks of currency options and futures are similar to options and
futures relating to securities or indices, as discussed above. A fund may
purchase and sell currency futures and may purchase and write currency options
to increase or decrease its exposure to different foreign currencies. Currency
options may also be purchased or written in conjunction with each other or with
currency futures or forward contracts. Currency futures and options values can
be expected to correlate with exchange rates, but may not reflect other factors
that affect the value of a fund's investments. A currency hedge, for example,
should protect a Yen-denominated security from a decline in the Yen, but will
not protect a fund against a price decline resulting from deterioration in the
issuer's creditworthiness. Because the value of a fund's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to the
value of the fund's investments exactly over time.
Purchasing Put and Call Options
By purchasing a put option, the purchaser obtains the right (but not the
obligation) to sell the option's underlying instrument at a fixed strike price.
In return for this right, the purchaser pays the current market price for the
option (known as the option premium). Options have various types of underlying
instruments, including specific securities, indices of securities prices, and
futures contracts. The purchaser may terminate its position in a put option by
allowing it to expire or by exercising the option. If the option is allowed to
expire, the purchaser will lose the entire premium. If the option is exercised,
the purchaser completes the sale of the underlying instrument at the strike
price. A purchaser may also terminate a put option position by closing it out in
the secondary market at its current price, if a liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium, plus related
transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the underlying instrument at the option's strike price. A call buyer
typically attempts to participate in potential price increases of the underlying
instrument with risk limited to the cost of the option if security prices fall.
At the same time, the buyer can expect to suffer a loss if security prices do
not rise sufficiently to offset the cost of the option.
Writing Put and Call Options
The writer of a put or call option takes the opposite side of the transaction
from the option's purchaser. In return for receipt of the premium, the writer
assumes the obligation to pay the strike price for the option's underlying
instrument if the other party to the option chooses to exercise it. The writer
may seek to terminate a position in a put option before exercise by closing out
the option in the secondary market at its current price. If the secondary market
is not liquid for a put option, however, the writer must continue to be prepared
to pay the strike price while the option is outstanding, regardless of price
changes, and must continue to set aside assets to cover its position. When
writing an option on a futures contract, a fund will be required to make margin
payments to an FCM as described above for futures contracts.
If security prices rise, a put writer would generally expect to profit, although
its gain would be limited to the amount of the premium it received. If security
prices remain the same over time, it is likely that the writer will also profit,
because it should be able to close out the option at a lower price. If security
prices fall, the put writer would expect to suffer a loss. This loss should be
less than the loss from purchasing the underlying instrument directly, however,
because the premium received for writing the option should mitigate the effects
of the decline.
Writing a call option obligates the writer to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
Investment Restrictions
The Fund has adopted the following fundamental investment restrictions. They may
not be changed unless approved by a majority of the outstanding shares "of each
series of the Fund's shares that would be affected by such a change." The term
"majority of the outstanding shares" of the Fund means the vote of the lesser of
(i) 67% or more of the shares of the Fund present at a meeting, if the holders
of more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Fund. The following are the fund's fundamental investment limitations set forth
in their entirety. The fund may not:
(1) with respect to 75% of the fund's total assets, purchase the securities of
any issuer (other than securities issued or guaranteed by the U.S. Government or
any of its agencies or instrumentalities, or securities of other investment
companies) if, as a result, more than 5% of the fund's total assets would be
invested in the securities of that issuer, or the fund would hold more than 10%
of the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;
(3) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not exceeding
33 1/3% of its total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that come to exceed this amount will be
reduced within three days (not including Sundays and holidays) to the extent
necessary to comply with the 33 1/3% limitation;
(4) underwrite securities issued by others, except to the extent that the fund
may be considered an underwriter in regard to the Securities Act of 1933 in the
disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities)
if, as a result, more than 25% of the fund's total assets would be invested in
the securities of companies whose principal business activities are in the same
industry;
(6) purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
fund from purchasing or selling options and futures contracts or from investing
in securities or other instruments backed by physical commodities); or
(8) lend any security or make any other loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties, but this limitation does not
apply to purchases of debt securities or to repurchase agreements.
If a percentage restriction is adhered to at the time an investment is made, a
later change in percentage resulting from changes in the value of the
Portfolio's investment securities will not be considered a violation of the
Portfolio's restrictions.
The following investment limitations are not fundamental and may be changed
without shareholder approval.
(1) The fund does not currently intend to purchase securities on margin, except
that the fund may obtain such short-term credits as are necessary for the
clearance of transactions, and provided that margin payments in connection with
futures contracts and options on futures contracts shall not constitute
purchasing securities on margin.
(2) The fund may borrow money only (i) from a bank or (ii) by engaging in
reverse repurchase agreements with any party (reverse repurchase agreements are
treated as borrowings for purposes of fundamental investment limitation (3)).
The fund will not borrow if total outstanding borrowings immediately after such
borrowing would exceed 15% of the fund's total assets.
(3) The fund does not currently intend to purchase any security if, as a result,
more than 10% of its net assets would be invested in securities that are deemed
to be illiquid because they are subject to legal or contractual restrictions on
resale or because they cannot be sold or disposed of in the ordinary course of
business at the prices at which they are valued.
III. MANAGEMENT OF THE FUND
The Fund's Board of Directors, which is responsible for the overall management
and supervision of the Fund, has employed the Manager to serve as investment
manager of the Fund. The Manager provides persons satisfactory to the Fund's
Board of Directors to serve as officers of the Fund. Such officers, as well as
certain other employees and directors of the Fund, may be directors or officers
of Bhirud Associates, Inc., the sole general partner of the Manager or
employees of the Manager or its affiliates. Due to the services performed by the
Manager, the Fund currently has no employees and its officers are not required
to devote their full-time to the affairs of the Fund.
Codes of Ethics: The Fund and its investment adviser have adopted amended codes
of ethics (17j-1). These codes do permit personnel subject to the codes to
invest in securities for their personal accounts, including securities that may
be purchased or held by the Fund.
The Directors and Executive Officers of the Fund, and their principal
occupations during the past five years, are set forth below. Unless otherwise
specified, the address of each of the following persons is Bhirud Funds Inc.,
1266 East Main Street, Stamford, CT 06902. Directors deemed to be "interested
persons" of the Fund for the purposes of the Investment Company Act of 1940 (the
"1940 Act"), as amended are indicated by an asterisk.
Suresh L. Bhirud* (52) Director, Chairman of the Board and Treasurer President
of Bhirud Associates, Inc., from 1991 to date; Senior Vice President, Chief
Investment Strategist, Chairman of the Investment Policy Committee of Dean
Witter Reynolds, Inc., New York, NY from 1990-91; Managing Director, Chief
Investment Strategist, Chairman of the Investment Policy Committee of
Oppenheimer & Co., New York, NY, from 1987-90; Chief Investment Strategist
(1982-87) and various positions involving quantitative market analysis
(1972-81) at The First Boston Corporation, New York, NY, from 1972-87.
Harish L. Bhirud* (47) Director and Vice-President Bhirud Funds Inc., from 1993
to date; Project Manager at M/s Mehtalia and Associates, Bombay, India, from
1990-1993.
Alexander Norman Crowder, III (65) Director; 159 E. Ave., Old Forge Green, New
Canaan, CT 06840. Management Consultant, from 1991 to date; Chairman and Chief
Executive Officer of Alexander & Alexander Consulting Group (1991); Managing
Principal and Director of Tillinghast (Towers Perrin) from 1986-91.
Timothy M. Fenton (57) Director; 46 Norton Avenue Darien, CT 06820. Chairman
of Fenton & Zalenetz Inc., a direct marketing consulting firm, from 1990 to
date; President of Bozell Direct Response, a division of Bozell Worldwide, Inc.
from 1987-90. Executive vicepresident of McCaffrey and McCall Advertising 1980-
87.
M. John Sterba, Jr., (57) Director; Investment Management Advisors, Inc. 156
Fifth Avenue, New York, NY 10010; Chairman of Investment Management Advisors,
Inc. from 1991 to date; of Counsel to Taub & Fasciana, P.C. from 1984 to 1994;
Principal of Venture Capital Associates from 1988 to date.
The Fund paid an aggregate remuneration of $12,000 to its Directors with respect
to the period ended July 31, 2000, all of which consisted of aggregate
director's fees paid to the three disinterested directors, pursuant to the terms
of the Investment Management Contract. See Compensation Table below.
Compensation Table
Name of Person, Aggregate Pension or Estimated Total
Position Compensation Retirement Annual Compensation
from Benefits Benefits from Fund
Registrant Accrued as upon and Fund
for Fiscal Part of Fund Retirement Complex Paid Year
Expenses to
Directors*
Alexander $4,000 0 0 $4,000
Norman Crowder,
III
Director
Timothy M. $4,000 0 0 $4,000
Fenton
Director
M. John Sterba, $4,000 0 0 $4,000
Jr.
Director
* The total compensation paid to such persons by the Fund for the fiscal year
ending July 31, 2000.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
On July 31, 2000 there were 309,768 shares of the Fund's common stock
outstanding. As of July 31,2000, the amount of shares owned by all officers and
directors of the Fund, as a group, was more than 2% of the outstanding shares of
the Fund. Set forth below is certain information as to persons who owned 5% or
more of the Fund's outstanding common stock as of July 31,2000:
Name & Address % of Nature of
Shares Ownership
Suresh L. Bhirud 30.31% Record &
27 Winding LN., Darien, CT 06820 Beneficial
Sunil M. Deshmukh 19.79% Record
1300 Rockrimmon Rd., Stamford, CT 06903
Dennis Shaughnessy & Rita Holmes 6.58%
Shaughnessy
103 Old King Highway South, Darien, CT
06820
Dennis Shaughnessy 6.20% Record
103 Old King Highway South, Darien, CT
06820
V. INVESTMENT ADVISORY AND OTHER SERVICES
The Advisor to the Portfolio is Bhirud Associates, Inc., a New York corporation
with principal offices located at Soundview Plaza, 1266 East Main Street,
Stamford, Connecticut 06902. In addition to serving the Portfolio as
Advisor, as of July 30, 2000, the Advisor served as an
investment advisor to individual accounts having a total value of approximately
$15 million. The Fund is the only investment company advisory client of the
Advisor.
Suresh L. Bhirud, an officer, director and sole shareholder of the Advisor is
deemed to be a "controlling person" of the Advisor. Consequently, Mr. Bhirud, as
an officer and director of the Fund, is an affiliated person of both the Advisor
and the Fund.
Pursuant to the Advisory Contract for the Portfolio, the Advisor manages the
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund. In addition, the Advisor provides persons satisfactory to the Board
of Directors of the Fund to serve as officers of the Fund. Such officers, as
well as certain other employees and directors of the Fund, may be directors,
officers or employees of the Advisor or its affiliates.
The Advisor also provides the Fund with supervisory personnel who are
responsible for supervising the performance of the Portfolio's
administrator. The administrator will provide personnel who will be responsible
for performing the operational components of such supervisory services and who
may be employees of the Advisor, of its affiliates or of other organizations.
The continuance of the Advisory Contract was approved by vote of a majority of
directors, including a majority of directors who are not interested persons (as
defined in the Act) of the Fund or Advisor, at the Board of Directors meeting
held July 13, 2000. The Advisory Contract has a term which extends to July 31,
2001, and may be continued in force thereafter for successive twelve-month
periods beginning each August 1st, provided that such continuance is
specifically approved annually by majority vote of the Portfolio's outstanding
voting securities or by the Fund's Board of Directors, and in either case by a
majority of the directors who are not parties to the Advisory Contract or
interested persons of any such party, by votes cast in person at a meeting
called for the purpose of voting on such matter.
The Advisory Contract is terminable without penalty by the Portfolio on sixty
days' written notice when authorized either by majority vote of the outstanding
voting shares of the Portfolio or by a vote of a majority of the Fund's Board of
Directors, or by the Advisor on sixty days' written notice, and will
automatically terminate in the event of an assignment. The Advisory Contract
provides that in the absence of willful misfeasance, bad faith or gross
negligence on the part of the Advisor, or of reckless disregard of its
obligations thereunder, the Advisor shall not be liable for any action or
failure to act in accordance with its duties thereunder.
For its services under the Advisory Contract, the Advisor receives from the Fund
an advisory fee, computed daily and payable monthly, in accordance with the
following schedule: (i) 1.0% of the first $250 million of the average net
assets of the Portfolio; (ii) .75% of the average net assets of the Portfolio
between $250 million and $500 million; and (iii) .65% of the average net assets
of the Portfolio over $500 million.
For its services under the Advisory Contract, the Advisor receives from the Fund
a fee, payable monthly, at the annual rate of 1.00% of the Fund's average daily
net assets. In addition to management services with respect to the purchase and
sale of securities, the fee includes compensation for overall management of the
Fund and for distributing the Fund's shares. For the Fund's fiscal years ended
July 31,2000 the Advisor voluntarily, permanently and irrevocably waived all
advisory fees and, therefore, it did not receive any advisory fees for the year
ended July 31, 2000. There can be no assurance that such fees will be waived in
the future.
Effective November 1, 1994, pursuant to an administrative services agreement
(the "Administrative Services Agreement") with the Portfolio, the Advisor
provides all management and administrative services reasonably necessary for the
Portfolio, other than those provided by the Advisor under the Advisory Contract,
subject to the supervision of the Fund's Board of Directors. Because of the
services rendered the Portfolio by the Advisor, the Fund itself may not require
any employees other than its officers, none of whom receive compensation from
the Fund.
Under the Administrative Services Agreement with the Portfolio, the Advisor
provides all administrative services including, without limitation: (i)
provides services of persons competent to perform such administrative and
clerical functions as are necessary to provide effective administration of the
Fund, including maintaining certain books and records described in Rule 31a-1
under the 1940 Act, and reconciling account information and balances among the
Portfolio's Custodian and Advisor; (ii) oversees the performance of
administrative and professional services to the Portfolio by others, including
the Portfolio's Custodian; (iii) prepares, but does not pay for, the periodic
updating of the Fund's Registration Statement, Prospectus and Statement of
Additional Information in conjunction with Fund counsel, including the printing
of such documents for the purpose of filings with the Securities and Exchange
Commission and state securities administrators, prepares the Fund's tax returns,
and prepares reports to the Portfolio's shareholders and the Securities and
Exchange Commission; (iv) prepares in conjunction with Fund counsel, but does
not pay for, all filings under the securities or "Blue Sky" laws of such states
or countries as are designated by the Distributor, which may be required to
register or qualify, or continue the registration or qualification, of the Fund
and/or the Portfolio's shares under such laws; (v) prepares notices and agendas
for meetings of the Fund's Board of Directors and minutes of such meetings in
all matters required by the 1940 Act to be acted upon by the Board; (vi)
monitors daily and periodic compliance with respect to all requirements and
restrictions of the Investment Company Act, the Internal Revenue Code and the
Prospectus; and (vii) monitors and evaluates daily income and expense accruals,
and sales and redemptions of shares of the Portfolios.
For the services rendered to the Portfolio by the Advisor under the
Administrative Services Agreement, the Portfolio pays the Advisor an
administrative fee (the "Administration Fee"), computed daily and payable
monthly, equal, on an annual basis, to .20% of the Portfolio's average daily net
assets. For the Fund's fiscal years ended July 31, 2000, the Administrator
voluntarily, permanently and irrevocably waived all administrative fees and,
therefore, it did not receive any administrative fees for the years ended July
31, 2000. There can be no assurance that such fees will be waived in the future.
VI. DISTRIBUTION AND SERVICE PLAN
The Fund has adopted a Distribution and Service Plan (the "Plan"), pursuant to
Rule 12b-1 under the Act (the "Rule") for the Portfolio. The Rule provides that
an investment company which bears any direct or indirect expense of distributing
its shares must do so only in accordance with a plan permitted by the Rule. The
Plan provides that the Portfolio may bear certain expenses and costs which in
the aggregate are subject to a maximum of .30% per annum of the Portfolio's
average daily net assets. Pursuant to the Plan, the Fund and Bhirud Associates,
Inc. (the "Distributor") have entered into a Shareholder Servicing Agreement
under which the Portfolio will pay the Distributor a Shareholder Servicing Fee
at the annual rate of .25% of the average daily net assets of the Portfolio.
The fee is accrued daily and paid monthly and any portion of the fee may be
deemed to be used by the Distributor for purposes of (i) providing personal
shareholder servicing and for maintenance of shareholder accounts and (ii) for
payments to participating organizations, with which it has written agreements,
with respect to servicing their clients or customers who are shareholders of the
Portfolio (each a "Participating Organization").
The Plan and the Shareholder Servicing Agreement provide that, the Fund will
reimburse the distributor a maximum of 0.05% per annum of the portfolio's
average daily net assets for such expenses as delivering prospectus. No expenses
have been reimbursed by the Fund for the most recent fiscal year ended July 31,
2000 under the Plan.
The Plan and the Advisory Contract provide that the Advisor may make payments
from time to time from the advisory fee and past profits for the following
purposes: to pay promotional and administrative expenses in connection with the
offer and sale of the shares of the
Portfolio, including payments to Participating Organizations for performing
shareholder servicing and related administrative functions and for providing
assistance in distributing the Portfolio's shares. The Distributor, in its sole
discretion, will determine the amount of such payments made pursuant to the
Plan, provided that such payments will not increase the amount which the Fund is
required to pay to the Advisor or Distributor for any fiscal year under the
Advisory Contract or the Shareholder Servicing Agreement in effect for that
year. The Portfolio incurred and paid fees and expenses totaling $4,805,
$21,517, $19,773, $9,276, $4,040, $4,256, $4,739 and $5,119 for the fiscal years
ended July 31, 1993, 1994, 1995, 1996, 1997, 1998, 1999 and 2000 respectively,
pursuant to the Plan.
The Glass-Steagall Act limits the ability of a depository institution to become
an underwriter or distributor of securities. However, it is the Fund
management's position that banks are not prohibited from acting in other
capacities for investment companies, such as providing administrative and
shareholder account maintenance services and receiving compensation from the
Distributor for providing such services. However, this is an unsettled area of
the law and if a determination contrary to the Fund management's position is
made by a bank regulatory agency or court concerning shareholder servicing and
administration payments to banks from the Distributor, any such payments will be
terminated and any shares registered in the banks' names, for their underlying
customers, will be reregistered in the name of the customers at no cost to the
Portfolio or its shareholders. In addition, state securities laws on this issue
may differ from the interpretation of Federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to state
law.
In accordance with the Rule, the Plan provides that all written agreements
relating to the Plan entered into between either the Fund or the Distributor and
Participating Organizations or other organizations must be in a form
satisfactory to the Fund's Board of Directors. In addition, the Plan requires
the Fund and the Distributor to prepare, at least quarterly, written reports
setting forth all amounts expended for distribution purposes by the Fund and the
Distributor pursuant to the Plan and identifying the distribution activities for
which those expenditures were made.
Under the Plan, the Manager may make payments in connection with the
distribution of the Fund's shares from the Management Fee received from the
Fund, from the Manager's revenues (which may include management or advisory fees
received from other investment companies) and past profits. The Manager, in its
sole discretion, will determine the amount of its payments made pursuant to the
Plan, but no such payment will increase the amount which the Fund is required to
pay to the Manager for any fiscal year under the Investment Management Contract.
The Plan provides that it may continue in effect for successive annual periods
provided it is approved by the shareholders or by the Board of Directors,
including a majority of directors who are not interested persons of the Fund and
who have no direct or indirect interest in the operation of the Plan or in the
agreements related to the Plan. The continuance of the Plan until July 31, 2001
was approved by a majority of the directors at a Board of Directors meeting held
July 13, 2000. The Plan further provides that it may not be amended to increase
materially the costs which may be spent by the Fund for distribution pursuant to
the Plan without shareholder approval, and that all material amendments must be
approved by a majority of the Board of Directors, including those who are not
"interested persons" of the Fund and who have no direct or indirect financial
interest in the Plan. The Plan may be terminated at any time by a vote of a
majority of the disinterested directors of the
Portfolio or the shareholders.
The Advisor has agreed to reimburse the Portfolio for its expenses (exclusive of
interest, taxes, brokerage, and extraordinary expenses) which in any year exceed
the limits on investment company expenses prescribed by any state in which the
Portfolio's shares are qualified for sale. For the purpose of this obligation
to reimburse expenses, the Portfolio's annual expenses are estimated and accrued
daily, and any appropriate estimated payments are made on a monthly basis. From
time to time, the Advisor and the Distributor may voluntarily assume certain
expenses of the Portfolio. This would have the effect of lowering the overall
expense ratio of that Portfolio and of increasing yield to investors in that
Portfolio.
VII. EXPENSE LIMITATION
The Advisor has agreed to reimburse the Fund for its expenses (exclusive of
interest, taxes, brokerage and extraordinary expenses) which in any year exceed
the limits prescribed by any state in which the Fund's shares are qualified for
sale. The Fund's expenses for distribution purposes pursuant to the Plan
described above, are included within such expenses only to the extent required
by the state with the most restrictive expense limitation in which the Fund's
shares are qualified for sale. The Fund may elect not to qualify its shares for
sale in every state. For the purpose of this limitation, expenses shall include
the fee payable to the Manager and the amortization of organization expenses.
For the purpose of this obligation to reimburse expenses, the Fund's annual
expenses are estimated and accrued daily, and any appropriate estimated payments
are made to it on a monthly basis. No such reimbursement was required for the
year ended July 31,2000. As a result of the passage of the National Securities
Markets Improvement Act of 1996, all state expense limitations have been
eliminated at this time.
Subject to the Advisor's obligations to pay for services performed by officers
of the Advisor or its affiliates and for investment management services and
certain distribution and promotional expenses and to reimburse the Fund for its
excess expenses as described above, under the Investment Management Contract the
Fund has assumed responsibility for payment of all of its other expenses,
including (i) brokerage and commission expenses, (ii) Federal, state and local
taxes, including issue and transfer taxes incurred by or levied on the Fund,
(iii) commitment fees and certain insurance premiums, (iv) interest charges on
borrowings, (v) charges and expenses of the Fund's custodian, (vi) charges and
expenses of persons performing issuance, redemption, transfer and dividend
disbursing functions for the Fund, (vii) recurring and nonrecurring legal and
accounting expenses, including the Fund's cost of the bookkeeping agent for the
determination of net asset value per share and the maintenance of portfolio and
general accounting records, (viii) telecommunication expenses, (ix) costs of
organizing and maintaining the Fund's existence as a corporation, (x)
compensation, including directors' fees, of any of the Fund's directors,
officers or employees who are not officers of Bhirud Associates, Inc., and costs
of other personnel providing services to the Fund, (xi) costs of stockholders'
services including charges and expenses of persons providing confirmations of
transactions in Fund shares, periodic statements to stockholders, and
recordkeeping and stockholder services, (xii) costs of stockholders' reports,
proxy solicitations, and corporate meetings, (xiii) fees and expenses of
registering the Fund's shares under the appropriate Federal securities laws and
of qualifying those shares under applicable state securities laws, including
expenses attendant upon the initial registration and qualifications of the
Fund's shares and attendant upon renewals of, or amendments to, those
registrations and qualifications, (xiv) expenses of preparing and printing the
Fund's prospectuses and statements of additional information and of
delivering them to stockholders of the Fund, (xv) payment of fees and expenses
provided for in the Investment Management Contract, Administrative Services
Agreement and Distribution Agreement and (xvi) any other distribution or
promotional expenses pursuant to a distribution and service plan.
VIII. CUSTODIAN AND TRANSFER AGENT
The Firstar Bank, N.A., Mutual Fund Custody Department, 425 Walnut Street, M.L.
6118, Cincinnati, Ohio 45202, is custodian for the Portfolio's cash and
securities. Mutual Shareholders Services Inc., 1301 E. 9th Street, Suite 1005,
Cleveland, OH 44114-1800 is transfer agent for the Portfolio's shares. Pursuant
to a custody agreement with the Portfolio, The Star Bank, N.A. is responsible
for safekeeping the Portfolio's securities and cash and maintaining the books
and records related to such duties. Subject to the supervision of the Advisor,
Star Bank, N.A. also maintains the portfolio transaction records and Mutual
Shareholders Services Inc., maintains Portfolio's accounting records. The
custodian and transfer agents do not assist in, and are not responsible for,
investment decisions involving assets of the Fund.
IX. COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Sherman & Sterling, 801 Pennsylvania Ave., NW, Washington, DC
20004.
Van Buren & Hauke, LLC , 63 Wall Street, Suite 2501, New York, NY 10005,
independent certified public accountants, have been selected as auditors for the
Fund.
X. BROKERAGE ALLOCATION AND OTHER PRACTICES
The Advisor makes the Fund's portfolio investment decisions and determines the
broker to be used in each specific transaction with the objective of negotiating
a combination of the most favorable commission and the best price obtainable on
each transaction (generally defined as best execution). When consistent with
the objective of obtaining best execution, brokerage may be directed to persons
or firms supplying investment information to the Advisor or portfolio
transactions may be effected by the Advisor. Neither the Fund nor the Advisor
has entered into agreements or understandings with any brokers regarding the
placement of securities transactions because of research services they provide.
To the extent that such persons or firms supply investment information to the
Advisor for use in rendering investment advice to the Fund, such information may
be supplied at no cost to the Advisor and, therefore, may have the effect of
reducing the expenses of the Advisor in rendering advice to the Fund. While it
is impossible to place an actual dollar value on such investment information,
its receipt by the Advisor probably does not reduce the overall expenses of the
Advisor to any material extent. Consistent with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., and subject to seeking
best execution, the Advisor may consider sales of shares of the Fund as a factor
in the selection of brokers to execute portfolio transactions for the Fund.
The investment information provided to the Advisor is of the type described in
Section 28(e) of the Securities Exchange Act of 1934 and is designed to augment
the Advisor's own internal research and investment strategy capabilities.
Research services furnished by brokers through which the Fund effects securities
transactions are used by the Advisor in carrying out its investment management
responsibilities with respect to all its clients' accounts. There may be
occasions where the transaction cost charged by a broker may be greater than
that which another broker may charge if the Advisor
determines in good faith that the amount of such transaction cost is reasonable
in relation to the value of brokerage and research services provided by the
executing broker. The Advisor may consider the sale of shares of the Portfolio
by brokers including the Distributor as a factor in its selection of brokers of
Portfolio transactions.
The Fund may deal in some instances in securities which are not listed on a
national securities exchange but are traded in the overthe-counter market. It
may also purchase listed securities through the third market. Where
transactions are executed in the over-thecounter market or third market, the
Fund will seek to deal with the primary market makers; but when necessary in
order to obtain best execution, it will utilize the services of others. In all
cases the Fund will attempt to negotiate the best execution.
The Distributor may from time to time effect transactions in the Fund's
portfolio securities. In such instances, the placement of orders with the
Distributor would be consistent with the Fund's objective of obtaining the best
execution. With respect to orders placed with the Distributor for execution on a
national securities exchange, commissions received must conform to Section
17(e)(2)(A) of the Investment Company Act of 1940 and Rule 17e-1 thereunder,
which permit an affiliated person of a registered investment company (such as
the Fund) to receive brokerage commissions from such registered investment
company provided that such commissions are reasonable and fair compared to
commissions received by other brokers in connection with comparable transactions
involving similar securities during a comparable period of time. In addition,
pursuant to Section 11(a) of the Securities Exchange Act of 1934, the
Distributor is restricted as to the nature and extent of the brokerage services
it may perform for the Fund. The Securities and Exchange Commission has adopted
rules under Section 11(a) which permit a distributor to a registered investment
company to receive compensation for effecting, on a national securities
exchange, transactions in portfolio securities of such investment company,
including causing such transactions to be transmitted, executed, cleared and
settled and arranging for unaffiliated brokers to execute such transactions. To
the extent permitted by such rules, the Distributor may receive compensation
relating to transactions in portfolio securities of the Fund provided that the
Fund enters into a written agreement, as required by such rules, with the
Distributor authorizing it to retain compensation for such services.
Transactions in portfolio securities placed with the Distributor which are
executed on a national securities exchange must be effected in accordance with
procedures adopted by the Board of Directors of the Fund pursuant to Rule 17e-1.
Bhirud Associates, Inc. is affiliated persons of the Fund, and was paid by the
Portfolio $24,380, in brokerage commissions for the fiscal year ended July 31,
2000 in conformity with Section 17(e)(2)(A) of the Investment Company Act and
Rule 17e-1 thereunder. The percentage of the Portfolio's aggregate brokerage
commissions paid to Bhirud Associates, Inc. for the fiscal year ended July 31,
2000 was 50.06%. The percentage of the Portfolio's aggregate dollar amount of
transactions involving the payment of commissions effected through Bhirud
Associates, Inc. for the fiscal year ended July 31, 2000 was 62.48%.
XI. CAPITAL STOCK AND OTHER SECURITIES
The authorized capital stock of the Fund consists of twenty billion shares of
common stock having a par value of one-tenth of one cent ($.001) per share. Each
share has equal dividend, distribution, liquidation and voting rights. There are
no conversion or preemptive rights in connection with any shares of the Fund.
All shares when issued in accordance with the terms of the offering will be
fully paid and non-assessable.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's stockholders. This is because the Bylaws of the Fund provide for annual
meetings only (i) for the election of directors, (ii) for approval of revised
investment advisory contracts with respect to a particular class or series of
stock, (iii) for approval of revisions to the Fund's distribution agreement with
respect to a particular class or series of stock, and (iv) upon the written
request of shareholders entitled to cast not less than 25% of all the votes
entitled to be cast at such meeting. Annual and other meetings may be required
with respect to such additional matters relating to the Fund as may be required
by the 1940 Act including the removal of Fund director(s) and communication
among stockholders, any registration of the Fund with the SEC or any state, or
as the Directors may consider necessary or desirable. Each Director serves until
the next meeting of the stockholders called for the purpose of considering the
election or reelection of such Director or of a successor to such Director, and
until the election and qualification of his or her successor, elected at such a
meeting, or until such Director sooner dies, resigns, retires or is removed by
the vote of the stockholders.
XII. PURCHASE, REDEMPTION AND PRICING SHARES
Pricing of Fund Shares
The Fund determines the net asset value of the shares as of 4:00 p.m., New York
City time, on each Fund Business Day. Fund Business Day is a weekday (Monday
through Friday) except days on which the New York Stock Exchange is closed for
trading (e.g. national holidays). The net asset value is computed by dividing
the value of the Fund's net assets (i.e., the value of its securities and other
assets less its liabilities, including expenses payable or accrued, but
excluding capital stock and surplus) by the total number of shares outstanding.
Portfolio securities for which market quotations are readily available are
valued at market value. U.S. Government obligations and other debt instruments
having sixty days or less remaining until maturity are stated at amortized cost.
All other investment assets of the Fund are valued in such manner as the Board
of Directors of the Fund in good faith deems appropriate to reflect their fair
value. Shares are issued as of the first determination of the Fund's net asset
value per share made after acceptance of the investor's purchase order. In order
to maximize earnings on its portfolio, the Fund normally has its assets as fully
invested as is practicable. Many securities in which the Fund invests require
the immediate settlement in funds of Federal Reserve member banks on deposit at
a Federal Reserve Bank (commonly known as "Federal Funds"). The Fund reserves
the right to reject any purchase order for its shares. Certificates for Fund
shares will not be issued to an investor. Shares are issued as of 4:00 p.m., New
York City time, on any Fund Business Day on which an order for the shares and
accompanying Federal Funds are received by the Fund's transfer agent before 4:00
p.m., New York City time. Fund shares begin accruing income on the day after the
shares are issued to an investor.
Purchase and Redemption of Fund Shares
The material relating to the purchase and redemption of shares in the Prospectus
is herein incorporated by reference.
Net Asset Value
The Fund does not determine its net asset value per share on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
For purposes of determining the Fund's net asset value per share, readily
marketable portfolio securities listed on the New York Stock
Exchange are valued, except as indicated below, at the last sale price reflected
on the consolidated tape at the close of the New York Stock Exchange on the
business day as of which such value is being determined. If there has been no
sale on such day, the securities are valued at the mean of the closing bid and
asked prices on such day. If no bid or asked prices are quoted on such day, then
the security is valued by such method as the Board of Directors shall determine
in good faith to reflect its fair market value. Readily marketable securities
not listed on the New York Stock Exchange but listed on other national
securities exchanges or admitted to trading on the National Association of
Securities Dealers Automated Quotations, Inc. ("NASDAQ") National List are
valued in like manner. Portfolio securities traded on more than one national
securities exchange are valued at the last sale price on the business day as of
which such value is being determined as reflected on the tape at the close of
the exchange representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market, including
listed securities whose primary market is believed by the Manager to be
over-the-counter but excluding securities admitted to trading on the NASDAQ
National List, are valued at the mean of the current bid and asked prices as
reported by NASDAQ or, in the case of securities not quoted by NASDAQ, the
National Quotation Bureau or such other comparable sources as the Board of
Directors deems appropriate to reflect their fair market value.
U.S. Government obligations and other debt instruments having sixty days or less
remaining until maturity are stated at amortized cost. All other investment
assets, including restricted and not readily marketable securities, are valued
in such manner as the Board of Directors in good faith deems appropriate to
reflect their fair market value.
XIII. TAXATION OF THE FUND
The Fund intends to continue to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). To
qualify as a regulated investment company, the Fund must distribute to
shareholders at least 90% of its investment company taxable income (which
includes, among other items, dividends, taxable interest and the excess of net
short-term capital gains over net long-term capital losses), and meet certain
diversification of assets, source of income, and other requirements. By meeting
these requirements, the Fund generally will not be subject to Federal income tax
on investment company taxable income and net capital gains (the excess of net
long-term capital gains over net short-term capital losses) designated by the
Fund as capital gain dividends and distributed to shareholders. In determining
the amount of net capital gains to be distributed, any capital loss carryover
from prior years will be applied against capital gains to reduce the amount of
distributions paid. If the Fund does not meet all of these requirements, it will
be taxed as an ordinary corporation and distributions will generally be taxed to
shareholders as ordinary income.
Amounts, other than tax-exempt interest, not distributed on a timely basis in
accordance with a calendar year distribution requirement may be subject to a
nondeductible 4% of excise tax. To prevent imposition of the excise tax, the
Fund must distribute for the calendar year an amount equal to the sum of (i) at
least 98% of its ordinary income (excluding any capital gains or losses) for the
calendar year, (ii) at least 98% of the excess of its capital gains over capital
losses (adjusted for certain losses) for the one-year period ending October 31
of such year, and (iii) all ordinary income and capital gain net income
(adjusted for certain ordinary losses) for previous years that were not
distributed during such years.
Distributions of investment company taxable income generally are taxable to
shareholders as ordinary income. Distributions from the Fund may be eligible for
the dividends-received deduction available to corporations. However, any
dividends received by the Fund that are attributable to foreign corporations
will not be eligible for the dividends-received deduction, since that deduction
is generally available only with respect to dividends paid by domestic
corporations. In addition, the dividends-received deduction will be disallowed
for shareholders who do not hold their shares in the Fund for at least 45 days
during the 90 day period beginning 45 days before a share in the Fund becomes ex
dividend with respect to such dividend and will be disallowed with respect to an
investment in the Fund that is debt financed.
Distributions of net capital gains, if any, designated by the Fund as capital
gain dividends are taxable to shareholders as long-term capital gains,
regardless of the length of time the Fund's shares have been held by the
shareholder. All distributions are taxable to the shareholder whether reinvested
in additional shares or received in cash. Shareholders will be notified annually
as to the Federal tax status of distributions.
Investors should be careful to consider the tax implications of buying shares
just prior to a distribution by the Fund. The price of shares purchased at that
time includes the amount of the forthcoming distribution. Distributions by the
Fund reduce the net asset value of the Fund's shares, and if a distribution
reduces the net asset value below a stockholder's cost basis, such distribution,
nevertheless, would be taxable to the shareholder as ordinary income or capital
gain as described above, even though, from an investment standpoint, it may
constitute a partial return of capital.
Upon the taxable disposition (including a sale or redemption) of shares of the
Fund, a shareholder may realize a gain or loss depending upon its basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in
the shareholder's hands. Such gain or loss will be long-term or shortterm,
generally depending upon the shareholder's holding period for the shares. Non-
corporate shareholders are subject to tax at a
maximum rate of 20% on capital gains resulting from the disposition of shares
held for more than 12 months. However, a loss realized by a shareholder on the
disposition of Fund shares with respect to which capital gains dividends have
been paid will, to the extent of such capital gain dividends, also be treated as
long-term capital loss if such shares have been held by the shareholder for six
months or less. Furthermore, a loss realized on a disposition will be disallowed
to the extent the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
Shareholders receiving distributions in the form of additional shares will have
a cost basis for Federal income tax purposes in each share received equal to the
net asset value of a share of the Fund on the reinvestment date.
Under certain circumstances, the sales charge incurred in acquiring shares of
the Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of the Fund are
exchanged within 90 days after the date they were purchased and new shares of
the Fund are acquired without sales charge or at a reduced sales charge. In that
case, the gain or loss recognized on the exchange will be determined by
excluding from the tax basis of the shares exchanged all or a portion of the
sales charge incurred in acquiring those shares. This exclusion. applies to the
extent that the otherwise applicable sales charge with respect to
the newly acquired shares is reduced as a result of having incurred the sales
charge initially. Instead, the portion of the sales charge affected by this rule
will be treated as a sales charge paid for the new shares.
Gains or losses attributable to fluctuations in exchange rates resulting from
transactions in a foreign currency generally are treated as ordinary income or
ordinary loss. These gains or losses may increase, decrease, or eliminate the
amount of the Fund's investment company taxable income to be distributed to its
shareholders as ordinary income.
Income received by the Fund from sources within foreign countries may be subject
to withholding and other similar income taxes imposed by the foreign country.
The Fund does not expect to be eligible to elect to allow shareholders to claim
such foreign taxes or a credit against their U.S. tax liability.
The Fund is required to report to the IRS all distributions to shareholders
except in the case of certain exempt shareholders. Distributions by the Fund
(other than distributions to exempt shareholders) are generally subject to
backup withholding of Federal income tax at a rate of 31% if (i) the shareholder
fails to furnish the Funds with and to certify the shareholder's correct
taxpayer identification number or social security number, (ii) the IRS notifies
the Fund or a shareholder that the shareholder has failed to report properly
certain interest and dividend income to the IRS and to respond to notices to
that effect, or (iii) when required to do so, the shareholder fails to certify
that he or she is not subject to backup withholding. If the withholding
provisions are applicable, any such distributions (whether reinvested in
additional shares or taken in cash) will be reduced by the amounts required to
be withheld.
The foregoing discussion relates only to Federal income tax law as applicable to
U.S. persons (i.e., U.S. citizens and residents and U.S. domestic corporations,
partnerships, trusts and estates). Distributions by the Fund also may be subject
to state and local taxes, and the treatment of distributions under state and
local income tax laws may differ from the Federal income tax treatment.
Shareholders should consult their tax advisors with respect to particular
questions of Federal, state and local taxation. Shareholders who are not U.S.
persons should consult their tax advisors regarding U.S. foreign tax
consequences of ownership of shares of the Fund, including the likelihood that
distributions to them would be subject to withholding of U.S. tax at a rate of
30% (or at a lower rate under a tax treaty).
XIV. UNDERWRITERS
The Fund sells and redeems its shares on a continuing basis at their net asset
value and imposes a sales charge for sells. The Distributor receives an
underwriting commission. In effecting sales of Fund shares under the
Distribution Agreement, the Distributor, for nominal consideration (i.e., $1.00)
and as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any subscriptions and orders will not be binding on the
Fund until accepted by the Fund as principal.
The Glass-Steagall Act and other applicable laws and regulations prohibit banks
and other depository institutions from engaging in the business of underwriting,
selling or distributing most types of securities. In the opinion of the Manager,
however, based on the advice of counsel, these laws and regulations do not
prohibit such depository institutions from providing other services for
investment companies such as the shareholder servicing and related
administrative functions referred to above. The Fund's Board of
Directors will consider appropriate modifications to the Fund's operations,
including discontinuation of any payments being made under the Plan to banks and
other depository institutions, in the event of any future change in such laws or
regulations which may affect the ability of such institutions to provide the
abovementioned services. It is not anticipated that the discontinuation of
payments to such an institution would result in loss to shareholders or change
in the Fund's net asset value. In addition, state securities laws on this issue
may differ from the interpretations of Federal law expressed herein and banks
and financial institutions may be required to register ad dealers pursuant to
state law.
XV. CALCULATION OF PERFORMANCE DATA
From time to time the Fund may distribute sales literature or publish
advertisements containing "total return" quotations for the Fund. Such sales
literature or advertisements will disclose the Fund's average annual compounded
total return for the Fund's last one year period, five year period and the
period since the Fund's inception, and may include total return information for
other periods. The Fund's total return for each period is computed by finding,
through the use of a formula prescribed by the Securities and Exchange
Commission, the average annual compounded rates of return over the period that
would equate an assumed initial amount invested to the value of such investment
at the end of the period. For purposes of computing total return, income
dividends and capital gains distributions paid on shares of the Fund are assumed
to have been reinvested when received.
The Fund's total return for the twelve months ended July 31,2000 was (40.82)%.
The Fund's average annual compounded total return for the five year period ended
July 31, 2000 was (9.63)%. The Fund's average annual compounded total return
from December 23, 1992 (inception) to July 31, 2000 was (4.68)%.
The Fund's total return is not fixed and will fluctuate in response to
prevailing market conditions or as a function of the type and quality of the
securities in the Fund's portfolio and the Fund's expenses. Total return
information is useful in reviewing the Fund's performance but such information
may not provide a basis for comparison with bank deposits or other investments
which pay a fixed return for a stated period of time. An investor's principal
invested in the Fund is not fixed and will fluctuate in response to prevailing
market conditions.
XVI. FINANCIAL STATEMENTS
The audited financial statements for the Fund for the fiscal year ended July 31,
2000 and the report thereon of Van Buren & Hauke, LLC, 63 Wall Street, Suite
2501, New York, NY 10005 are herein incorporated by reference to the Fund's
Annual Report. The Annual Report is available upon request and without charge.
BHIRUD FUNDS INC.
PART C - OTHER INFORMATION
(A) Financial Statements (filed with the annual report and
incorporated herein by reference).
(B) Exhibits.
*(1) Amended Articles of Incorporation of the Registrant.
**(2) By-laws of the Registrant
(3) Not applicable
*(4) Form of certificate for shares of Common Stock, par value
$0.001 per share, of the Registrant.
**(5) Form of Advisory Contract between the Registrant and Bhirud
Associates, Inc.
(6) See Distribution Agreement filed as Exhibit 15.2 hereto.
(7) Not applicable.
***(8) Form of Custody Agreement between the Registrant and The Star
Bank, N. A., 425 Walnut Street, Cincinnati, OH 45202.
***(9.1) Form of Administrative Services Agreement
between the Registrant and Bhirud Associates, Inc. for the
Portfolio of the Registrant.
***(9.2) Form of Transfer Agent Agreement between
the Registrant and Mutual Shareholders Services Inc.
**(10) Opinion of Messrs. Battle Fowler LLP, as to the legality of
the securities being registered, including their consent to
the filing thereof and to the use of their name under the
heading "Dividends, Distributions and Taxes" in the
Prospectus.
****(11) Consent of Van Buren & Hauke, LLC, Independent Auditors.
(12) Not applicable.
*(13) Written assurance of Thomas James MidCap Partners, that its
purchase of shares of the Registrant was for investment
purposes without any present intention of redeeming or
reselling.
(14) Not applicable.
***(15.1) Form of Distribution and Service Plan
Pursuant to Rule 12b-1 under the Investment Company Act of
1940.
*(15.2) Form of Distribution Agreement between the Registrant and
Bhirud Associates, Inc.
***(15.3) Form of Shareholder Servicing Agreement
between the Registrant and Bhirud Associates, Inc.
(16) Not applicable.
------------------------------------------------------------
* Filed with Registration Statement on Form N-1A
Registration No. 33 - 48013, filed May 27, 1992, and incorporated by
reference herein.
** Filed with Pre-Effective Amendment No. 1 to said
Registration Statement on August 11, 1992, and incorporated herein by
reference.
*** Filed with Post-Effective Amendment No. 7 to said
Registration Statement on November 23, 1998, and
incorporated herein by reference.
**** Filed with Post-Effective Amendment No. 8 to said Registration
Statement on October 1, 1999, and incorporated herein by reference.
Item 23. Codes of Ethics.
Item 24. Persons Controlled by or Under Common Control with Registrant.
None.
Item 25. Indemnification.
Filed as Item 27 to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N -1A (Registration No. 33-48013) on August 11, 1992,
and is incorporated herein by reference.
Item 26. Business and other Connections of Investment Adviser.
The description of Bhirud Associates, Inc. under the caption "Management
of the Fund" in the Prospectus and in the Statement of Additional
Information constituting parts A and B, respectively, of the
Registration Statement are incorporated herein by reference.
Registrant's investment adviser, Bhirud Associates, Inc., is a
registered investment adviser. Bhirud Associates, Inc. serves as an
advisor to individual accounts having a total value of about $15
million. The advisor does not serve as investment advisor to any other
investment companies.
Item 27. Principal Underwriters.
(a) Bhirud Associates, Inc. is the Registrant's distributor.
(b) The following are the directors and officers of Bhirud Associates,
Inc. The principal business address of each of these persons is
1266 East Main Street, Stamford, Connecticut 06902.
Name Position & Position &
offices with offices with
Distributor Registrant
Suresh L. Bhirud President, Director,
Treasurer and Chairman of
Director the Board,
Treasurer
Susan Bhirud Secretary None
Harish L. Bhirud Assistant Director and
Secretary Vice-President
Item 28. Location of Accounts and Records.
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder are maintained in the physical possession of the
Registrant, at Bhirud Associates, Inc., 1266 East Main Street, Stamford,
Connecticut 06902, the Registrant's advisor and administrator, and
Mutual Shareholder Services Inc., 1301 E. 9th Street, Suite 1005,
Cleveland, OH 44114, the Registrant's transfer agent and fund
accountant.
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
(a) Not applicable.
(b) Not applicable.
(c) The Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's annual
report upon request, without
charge.
(d) The Fund shall, if requested by the holders of at least 10% of the
Portfolios outstanding shares, call a meeting of the stockholders
for purposes of voting upon the question of removal of a director or
directors and the Fund shall assist in communications with other
stockholders.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to this Registration
Statement pursuant to Rule 485 (b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Stamford, and
State of Connecticut, on the 30th day of November, 2000.
BHIRUD FUNDS INC.
By: /s/ Suresh L. Bhirud
Suresh L. Bhirud,
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
1 Principal Executive officer Chairman of November 30,
and Principal Financial the Board, 2000
officer: Treasurer
and Director
/s/ Suresh L. Bhirud
Suresh L. Bhirud
2 Majority of Directors
Timothy Fenton Director
Alexander Norman Crowder,III Director
M. John Sterba, Jr. Director
November 30, 2000
By: /s/ Suresh L. Bhirud
Suresh L. Bhirud
Attorney - in - Fact*
--------------------------------------------------------------------------------
* Power of Attorney filed with Pre-Effective Amendment No. 1 to
said Registration Statement filed on August 11, 1992, and
incorporated by reference herein.
Exhibit Index
Item Description Page
No. No.
23 Code of Ethics 39
Exhibit No. 23
Bhirud Funds Inc. (BFI)
Bhirud Associates, Inc. (BAI)
FORM OF
CODE OF ETHICS
I. INTRODUCTION
Bhirud Funds Inc. ("BFI" or the "Funds") on behalf of each of its
portfolios that currently offer shares to the public (a "Portfolio") Bhirud
Associates, Inc. (the "Adviser"), and Bhirud Associates, Inc. (the
"Distributor") have adopted this Code of Ethics. The Adviser is a fiduciary
that provides investment advisory services to the Funds and private investment
management accounts, and the Distributor acts as the principal underwriter for
the Fund (the Adviser and Distributor are collectively referred to as "BAI"
(Bhirud Associates, Inc.)).
II. GENERAL PRINCIPLES
A. Shareholder and Client Interests Come First
Every director, officer and employee of the Funds and every director,
officer and employee of BAI owes a fiduciary duty to the investment
account and the respective investors of each portfolio or private
investment management account (collectively, the "Clients"). This
means that in every decision relating to investments, such persons
must recognize the needs and interests of the Client and be certain
that at all times the Clients' interests are placed ahead of any
personal interest of such person.
B. Avoid Actual and Potential Conflicts of Interest
The restrictions and requirements of this Code are designed to prevent
behavior that conflicts, potentially conflicts or raises the
appearance of an actual or potential conflict with the interests of
Clients. It is of the utmost importance that the personal securities
transactions of directors, officers and employees of the Funds, and
directors, officers and employees of BAI be conducted in a manner
consistent with both the letter and spirit of the Code, including
these principles, to avoid any actual or potential conflict of
interest or any abuse of such person's position of trust and
responsibility.
C. Avoiding Personal Benefit
1. Directors, officers and employees of the Funds and directors,
officers and employees of BAI should ensure that they do not
acquire
personal benefit or advantage as a result of the performance of
their normal duties as they relate to Clients. Consistent with the
principle that the interests of Clients must always come first is
the fundamental standard that personal advantage deriving from
management of Clients' money is to be avoided.
III. OBJECTIVE
Section 17(j) of the Investment Company Act of 1940, as amended
(the "Investment Company Act"), makes it unlawful for certain
persons associated with investment companies to engage in conduct which is
deceitful, fraudulent or manipulative, or which involves false or misleading
statements, in connection with the purchase or sale of a security held or
proposed to be acquired by an investment company. In addition, Section 204A
of the Investment Advisers Act of 1940, as amended (the "Investment Advisers
Act"), requires investment advisers to establish, maintain and enforce
written policies and procedures designed to prevent misuse of material non-
public information. The objective of this Code is to require directors,
officers and employees of the Funds and directors, officers and employees of
BAI to conduct themselves in accordance with the general principles set
forth above, as well as to prevent directors, officers and employees of the
Funds or the Distributor from engaging in conduct prohibited by the
Investment Company Act and directors, officers and employees of the Adviser
from engaging in conduct prohibited by the Investment Company Act and the
Investment Advisers Act.
IV. DEFINITIONS
A. "Access Person," means (i) with respect to the Funds, (a) any
director or officer of the Funds, (b) any director or officer of the
Funds' Adviser, (c) any employee of a Fund or the Funds'Adviser (or
any company in a control relationship to the Funds or Adviser) who, in
connection with such person's regular functions or duties, makes,
participates in, or obtains information regarding the purchase or sale
of a Covered Security by a Client, or whose functions relate to the
making of any recommendations with respect to such purchases or sales;
(d) any natural person in a control relationship to the Funds or the
Funds' Adviser who obtains information concerning recommen dations
made to a Client with regard to the purchase or sale of a Covered
Security by such Client, and (e) any director or officer of the
Distributor, who, in the ordinary course of business, makes,
participates in or obtains information regarding, the purchase or sale
of a Covered Security by a Client for which it acts as principal
underwriter, or whose functions relate to the making of any
recommendations with respect to such purchases or sales.
B. "Beneficial Ownership" is interpreted in the same manner as it
is under Rule 16a-1(a)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), in determining whether a person is the
beneficial owner of a security for purposes of Section 16 of the 1934
Act and the rules and regulations thereunder, which includes "any
person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest in" a security. The term "pecuniary
interest" is further defined to mean "the opportunity, directly or
indirectly, to profit or share in any profit derived from a
transaction in the subject securities." "Beneficial ownership"
includes (i) securities held by members of a person's immediate family
sharing the same household and includes any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling,
motherin-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or
sister-in-law" and includes adoptive relationships and (ii) a right to
acquire securities through the exercise or conversion of any
derivative security, whether or not presently exercisable.
Any report required to be made by this Code may contain a statement
that the report shall not be construed as an admission by the person
making such report that he has any direct or indirect Beneficial
Ownership in the security to which the report relates.
C. "Board of Directors" means the directors of the Funds listed on
"Exhibit A".
D. "Chief Compliance Officer" ("CCO"), for BAI means Suresh L.
Bhirud, President of BAI and Chairman of BFI, or his designee.
E. "Client" means each investor in a Fund and each private
management account or investment account over which BAI exercises
investment discretion.
F. "Control" has the same meaning as in Section 2(a)(9) of the
Investment Company Act.
G. "Covered Security" refers not only to the instruments set forth
in Section 2(a)(36) of the Investment Company Act but to any
instrument into which such instrument may be converted or exchanged,
any warrant of any issuer that has issued the instrument and any
option written relating to such instrument, provided, however, that
it does not include: (a) any direct obligation of the United
States Government, (b) banker's acceptances, bank certificates of
deposit, commercial paper and high quality short-term debt
instruments, including repurchase agreements, (c) shares issued by
any open-end investment companies registered under the Investment
Company Act, and (d) shares of continuously offered closed-end
investment companies registered under the Investment Company Act.
H. "Disinterested Director" means a director of the Funds listed on
"Exhibit A" who is not an "interested person" of the Funds within the
meaning of Section 2(a)(19) of the Investment Company Act.
I. "Employee Account" means any brokerage account or unit
investment trust account in which the BAI Employee has any direct or
indirect beneficial ownership.
J. "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933, as amended (the
"Securities Act"), the issuer of which, immediately before the
registration, was not subject to the reporting requirements of
sections 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
K. "Limited Offering" is an offering that is exempt from
registration under the Securities Act pursuant to Section 4(2) or
Section 4(6) of the Securities Act or pursuant to Rule 504, Rule 505
or Rule 506 under the Securities Act.
L. "Portfolio Manager" means any person who exercises investment
discretion on behalf of an Adviser for a Client.
M. "BAI Employee" includes any director, officer or employee of
BAI.
V. STANDARDS OF CONDUCT FOR PERSONAL SECURITIES TRANSACTIONS
A. BAI Employee Brokerage Accounts
a) Each BAI Employee must identify and disclose on his or her
date of hire to the CCO, in writing, of his or her
brokerage accounts. The CCO shall direct, and the employee
shall consent in writing to such direction, the brokerage
firm to provide duplicate confirmations and account
statements to the CCO.
(1) BAI Employees shall obtain written consent from the CCO
before opening a brokerage account.
B. Other Restrictions
1. BAI Employees are prohibited from the following activities
unless they have obtained prior written approval from the CCO:
a) BAI Employees may not purchase a Covered Security in a private
placement or any other Limited Offering.
2. BAI Employees shall not purchase Covered Securities during an
initial or secondary public offering.
C. Additional Responsibilities of Access Persons
In addition to the requirements set forth above, the
following prohibitions and reporting obligations are
applicable to Access Persons.
1. Access Persons shall not purchase or sell a Covered Security
prior to any pending Client order for purchase or sale in that same
Covered Security. However, in such cases, Access Persons are
allowed to participate in the trade as long as it is executed as
one trade with average price allocation.
2. Initial/Annual Reporting: Within ten days after becoming an
Access Person and thereafter, annually at the end of the calendar
year, each Access Person must furnish a report to CCO showing
(i) the date of the report, (ii) the title, number of shares and
principal amount of each Covered Security in which the Access
Person has direct or indirect Beneficial Ownership on the date
such person become an Access Person (for initial reports)
or as of a date no more than 30 prior to the date of the
report (for annual reports) and (iii) the name of any broker,
dealer or bank with an account holding any securities for the
direct or indirect benefit of the Access Person as of the date
such person became an Access Person (for initial reports) or as
of a date no more than 30 prior to the date of the report
(for annual reports).
a) Exclusion: A Disinterested Director who would be required to
make this report solely by reason of being a Fund director is
excluded from the initial and annual reporting requirement
for Access Persons.
3. Quarterly Reporting: On a calendar quarterly basis, each Access
Person must furnish a report to CCO within ten days after the end
of each calendar quarter, on forms sent to the Access Person each
quarter:
a) With respect to any transactions in Covered Securities that
the Access Person has made in the previous calendar quarter
in which the Access Person had direct or indirect
Beneficial Ownership, a report showing (i) the date of the
report; (ii) the date of the transaction, the title, the
interest rate and maturity date (if applicable), the number
of shares, and the principal amount of each Covered
Security involved; (iii) the nature of the
transaction (i.e., purchase, sale or any other type of
acquisition or disposition); (iv) the price at which the
transaction was effected; and (v) the name of the broker,
dealer or bank with or through which the transaction was
effected; and
b) With respect to any account established by the Access
Person in which any securities were held during the quarter
for direct or indirect benefit of the Access Person, a report
showing (i) the date of the report; (ii) the name of the
broker, dealer or bank with which established the account;
and (iii) the date the account was established.
c) Exclusion: A Disinterested Director who would be required to
make this report solely by reason of being a director of the
Funds is excluded from the quarterly reporting requirement for
Access Persons unless the director knew or, in the ordinary
course of fulfilling his or her official duties as a director
of the Funds, should have known that during the 15-day period
immediately before or after the director's transaction in a
Covered Security, a Portfolio purchased or sold the Covered
Security, or the Portfolio or its investment adviser
considered purchasing or selling the Covered Security. For
the purposes of this Code, a Covered Security will be deemed
to being considered for a purchase or sale when a
recommendation to purchase or sell has been made and
communicated to an Access Person, or with
respect to the person making the recommendation, when such
person considers making a recommendation.
d) Exclusion: An Access Person need not make a quarterly
transaction report if the report would duplicate information
contained in broker trade confirmations or account statements
received by the Funds, the Adviser and the Distributor with
respect to the Access Person in the time period required above
if all of the information required by that paragraph is
contained in the broker trade confirmations or account
statements, or in the records of the Fund, the Adviser and
the Distributor.
D. Insiders
1. Each BAI Employee shall comply with all laws and regulations,
and prohibitions against insider trading. Trading on or
communicating material non-public information, or "inside
information," of any sort, whether obtained in the course of
research activities, through a Client relationship or otherwise,
is strictly prohibited.
2. BAI Employees shall not disclose any non-public information
relating to a Client's account portfolio or transactions or to the
investment recommendations of BAI, nor shall any BAI Employee
disclose any non-public information relating to the business or
operations of the members of BAI, unless properly authorized to do
so by CCO.
E. Exceptions
1. Notwithstanding the foregoing, the CCO or his designee, in
keeping with the general principles and objectives of this Code,
may refuse to grant clearance of a personal transaction in his sole
discretion without being required to specify any reason for the
refusal.
VI. ADMINISTRATION OF THE CODE
A. The administration of this Code shall be the responsibility of
CCO, whose duties shall include:
1. Continuously maintaining a list of all current Access Persons
who are under a duty to make reports or pre-clear transactions
under this Code.
2. Providing each such person with a copy of this Code and informing
them of their duties and obligations hereunder.
3. Reviewing all quarterly securities transactions and holdings
reports required to be filed pursuant to this Code, and
maintaining a record of such review, including the name of the
compliance personnel performing the review.
4. Reviewing all initial and annual securities position reports
required to be filed pursuant to this Code, and maintaining a
record of such review, including the name of the person
performing the review.
5. Preparing listings of all transactions effected by persons
subject to reporting requirements under the Code and comparing
all reported personal securities transactions with completed
portfolio transactions of the Client to determine whether a
violation of this Code may have occurred.
6. Conducting such inspections or investigations as shall
reasonably be required to detect and report any apparent violations
of this Code to any person or persons appointed by BAI to deal with
such information and to the Funds' Board of Directors.
7. Submitting a written report, no less frequently than annually,
to the Board of Directors of the Funds containing a description of
issues arising under the Code or procedures since the last report,
including, but not limited to, material violations of the Code or
procedures and sanctions imposed in response to material
violations.
8. Submitting a certification, no less frequently than annually, to
the Board of Directors of the Funds, the Adviser and the
Distributor that they have adopted procedures reasonably necessary
to prevent Access Persons from violating the Code.
VII. RECORDS
The Funds, the Adviser and the Distributor shall, at its
principal places of business, maintain records of the following:
A. A copy of any code of ethics adopted by such entity that is and
has been in effect during the past five years must be maintained in an
easily accessible place;
B. A copy of any record or report of any violation of the code of
ethics of such entity and any action taken thereon maintained in an
easily accessible place for at least five years after the end of the
fiscal year in which the violation occurs;
C. A copy of each report made by an Access Person as required by
this Code, including any information provided in lieu of the reports
and all Trade Authorization Forms, must be maintained for at least
five years after the end of the fiscal year in which the report is
made or the information is provided, the first two years in an easily
accessible place;
D. A record of all persons, currently or within the past five
years, who are or were required to make reports under this Code, or
who are or were responsible for reviewing these reports, must be
maintained in an easily accessible place; and
E. A copy of each written report required to be provided to the
Board of Directors of each Fund containing a description of issues
arising under the Code or procedures since the last report, including,
but not limited to, material violations of the Code or procedures and
sanctions imposed in response to material violations
must be maintained for at least five years after the end of the fiscal
year in which it is made, the first two years in an easily accessible
place.
F. The Funds or investment adviser must maintain a record of any
decision, and the reasons supporting the decision, to approve the
acquisition by an Access Person of securities in an Initial Public
Offering or in a Limited Offering.
VIII. SANCTIONS
Upon discovering a violation of this Code, BAI may impose such
sanctions as it deems appropriate, including, but not limited to, a reprimand
(orally or in writing), fine, demotion, and suspension or termination of
employment.
IX. APPROVAL OF CODE OF ETHICS
A. BAI shall provide to the Board of Directors of the Funds the
following:
1. A copy of this Code for the Board's review and approval.
2. Promptly, a copy of any amendments to the Code.
3. Upon request, copies of any reports made pursuant to the Code by
any person as to an investment company client.
4. Immediately, without request by an investment company client,
all material information regarding any violation of the Code by any
person as to such investment company client.
5. Certification, no less frequently than annually, to the Board of
Directors of the Funds from the Adviser and the Distributor that it
has adopted procedures reasonably necessary to prevent Access
Persons from violating the Code.
B. Prior to adopting this Code, the Board of Directors of Funds,
including a majority of Disinterested Directors, if applicable,
reviewed and approved this Code with respect to the Funds, the Adviser
and the Distributor, including all procedures or provisions related to
the enforcement of this Code. The Board based its approval of this
Code on, among other things, (i) certifications from the Funds, the
Adviser and the Distributor that it has adopted procedures reasonably
necessary to prevent violations of the Code and (ii) a determination
that such Code is adequate and contains provisions reasonably
necessary to prevent Access Persons from engaging in any conduct
prohibited by Rule 17j-1(b).
X. EFFECTIVE DATE
All BAI Employees are required to sign a copy of this Code
indicating their agreement to abide by the terms of the Code.
In addition, BAI Employees will be required to certify
annually that (i) they have read and understand the terms of this
Code and recognize the responsibilities and obligations incurred by their being
subject to this Code, and (ii) they are in compliance with the requirements of
the Code.
Approved this _____ day of .
"Exhibit A"
BOARD OF DIRECTORS
Suresh L. Bhirud* Chairman of the Board; President of
Bhirud Associates, Inc.
Alexander N. Crowder, III Management Consultant
Harish L. Bhirud* Bhirud Funds Inc..
M. John Sterba, Jr. Chairman of Investment Management
Advisors, Inc.
Tim Fenton Partner, Fenton & Zelenetz, Inc.
* "Interested person" as defined in the Investment Company Act of 1940.
OFFICERS
Suresh L. Bhirud* Chairman of the Board & Treasurer
Harish L. Bhirud* Vice-President
