As filed with the Securities and Exchange Commission on May 5, 1998
Registration Statement No. 33-79068
No. 811-08516
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Post-Effective Amendment No. 4 |_X_|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_X_|
Post-Effective Amendment No. 4
(Check appropriate box or boxes)
RUPAY-BARRINGTON TOTAL RETURN FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1000 Ballpark Way
Suite 302
Arlington, Texas 76011
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (800) 469-7220
Misty S. Gruber, Esq.
Sachnoff & Weaver, Ltd.
30 S. Wacker Drive
Suite 2900
Chicago, Illinois 60606
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
|_| Immediately upon filing pursuant to paragraph (b)
|_| on (date) pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1)
|_| on (date) pursuant to paragraph (a)(1)
|X| 75 days after filing pursuant to paragraph (a)(2)
|_| on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Pursuant to Section 24f-2 of the Investment Company Act of 1940, the Registrant
has registered on indefinite number of securities under the Securities Act of
1933. The Rule 24f-2 Notice for the year ended December 31, 1997 was filed on
March 20, 1998.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
any offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation, or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
Subject to Completion, dated May 5, 1998
RUPAY-BARRINGTON GROWTH FUND
PROSPECTUS
July__, 1998
Investment Rupay-Barrington Growth Fund(the "Fund")is a diversified,open-
Objective: end series of Rupay-Barrington Total Return Fund,Inc.,a series
company and a registered management investment company (the
"Company"). The Company issues one class of capital stock in
a number of series, of which the shares of the Fund are one
such series (the shares of the Fund being referred to herein
as the "Shares"). The Fund invests in a portfolio of equity
securities (typically common stocks and securities which carry
the right to buy common stocks). The Fund is designed for
investors primarily seeking the potential for capital
appreciation over the long term. See "Investment Program."
Purchase of Please complete and return the New Account Form. If you need
Shares: assistance in completing the New Account Form, please call our
Stockholder Services Department (see below). The Fund's Shares
may be purchased at a price equal to their net asset value
plus a sales commission not exceeding 4.50% of the offering
price. The minimum initial investment is $2,000 ($100 minimum
for subsequent investments).
Prospectus This Prospectus sets forth basic information about the Fund
Information: that a prospective investo ought to know before investing.
Investors should read this Prospectus and retain it for future
reference. A Statement of Additional Information ("SAI") for
the Fund dated July__, 1998, which contains additional
information about the Fund, has been filed with the
Securities and Exchange Commission (the "SEC") and is
incorporated in its entirety by reference in, and made a part
of, this Prospectus. The SAI is available without charge
upon request from Rupay-Barrington Securities Corporation
("Rupay-Barrington Securities"), an affiliate of the Fund,
1000 Ballpark Way, Suite 207-A, Arlington, Texas 76011.
The SEC maintains a Web site (http://www.sec.gov) that
contains the SAI, material incorporated by reference
and other information regarding the Fund.
Stockholder 1-800-628-4077 (8:30 A.M. to 5:00 P.M. Eastern Time)
Services Department:
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
RUPAY-BARRINGTON GROWTH FUND
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE..............................................1
INVESTMENT PROGRAM................................................1
SPECIAL RISK CONSIDERATIONS.......................................2
OFFERING PRICE AND SUMMARY OF FUND EXPENSES.......................2
RISK FACTORS......................................................5
INVESTMENT POLICIES...............................................5
FUNDAMENTAL AND OTHER INVESTMENT POLICIES.........................9
PERFORMANCE INFORMATION..........................................11
HOW TO BUY SHARES................................................11
OPENING A NEW ACCOUNT AND PURCHASING SHARES......................15
PURCHASING ADDITIONAL SHARES.....................................15
COMPLETING THE NEW ACCOUNT FORM..................................15
NET ASSET VALUE, PRICING AND EFFECTIVE DATE......................16
REDEEMING SHARES.................................................16
RECEIVING YOUR PROCEEDS..........................................18
DIVIDENDS AND DISTRIBUTIONS......................................18
CONDITIONS OF YOUR PURCHASE......................................18
STOCKHOLDER SERVICES.............................................20
TAXES ...........................................................21
THE FUND AND ITS MANAGEMENT......................................21
FUND EXPENSES AND MANAGEMENT FEES................................23
<PAGE>
INVESTMENT
OBJECTIVE
The Fund seeks capital appreciation by investing in a
diversified portfolio of equity securities (typically common
stocks and securities which carry the right to buy common
stocks). See "Investment Program."
The Fund's Share price will fluctuate with changing
market conditions. Therefore, your investment may be worth more
or less when redeemed than when purchased. The Fund should not
be relied upon for short-term financial needs, nor used to play
short-term swings in the stock market. While there is no
assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the investment policies
described in this Prospectus.
The Fund's investments are managed by Rupay-Barrington
Advisors, Inc. (the "Investment Advisor").
INVESTMENT The Fund is designed for investors primarily seeking the
PROGRAM potential for capital appreciation over the long term. The
Fund's investment in common stocks is intended to provide
sufficient capital growth to offset the erosive effects of
inflation. For an IRA, retirement plan, or other long-term
investment, the Fund offers an investment program which
seeks to provide attractive returns over the long term.
To achieve its investment objective, the Fund will
normally invest substantially all of its assets in equity
securities (primarily common stocks). While the actual
portfolio mix may vary depending on the Investment Advisor's
short-term and long-term assessments of market conditions, the
Fund will not attempt to time short-term moves in the market.
The Fund will invest at least 65% of its total assets and may
invest up to 100% of its total assets in equity securities,
except for the purpose of effecting temporary defensive
strategies.
At times the Investment Advisor may judge that conditions
in the securities market make pursuing the Fund's basic
investment strategy inconsistent with the best interests of its
stockholders. At such times, the Fund may temporarily use
alternative investment strategies, primarily designed to reduce
fluctuation of the value of the Fund's assets. In implementing
these temporary defensive strategies, the Fund may in some
instances maintain cash reserves on a temporary basis equal to
100% of its assets.
The Fund will make common stock investments primarily in
established companies which the Investment Advisor believes to
exhibit good prospects for growth.
See "Investment Policies" for a more detailed description
of the Fund's investments.
SPECIAL RISK The Fund may or may not be a suitable or appropriate
CONSIDERATIONS investment for all investors. The Fund is not intended to be
a complete investment program and there can be no assurance
that the Fund will achieve its investment objective. To the
extent that a major portion of the Fund's portfolio is
invested in equity securities, it may be expected that its net
asset value will be subject to greater fluctuation than a
portfolio containing mostly fixed-income securities. The U.S.
stock market tends to be cyclical with periods when stock
prices generally rise and periods when prices generally
decline. The Fund may invest in small and medium-
capitalization stocks contained in various technology
indices. Small-capitalization stocks are generally
classified as having an aggregate market value of approximately
$30 million to $800 million, while medium-capitalization stocks
are classified as having an aggregate market value
capitalization of approximately $800 million to $5 billion.
Traditionally, such stocks have been more volatile in price
than the large-capitalization stocks. Among the reasons for the
greater price volatility of these securities are the less
certain growth prospects of smaller companies, the lower degree
of liquidity in the markets for such stocks, and the greater
sensitivity of small and medium-sized companies to changing
economic conditions. Besides exhibiting greater volatility,
small and medium company stocks, may, to some degree, fluctuate
independently of larger company stocks. Small and medium
company stocks may decline in price as large company stocks
rise, or rise in price as large company stocks decline. For a
more comprehensive discussion of the risks associated with
investing in the Fund, see "Risk Factors" and "Investment
Policies."
OFFERING PRICE The offering price to the public on purchases of the Fund's
AND SUMMARY OF Shares made at one time by a single purchaser,by an indivi-
FUND EXPENSES dual, his spouse and their children under the age of 21, or by
a single trust or fiduciary account other than an employee plan
plan is the net asset value per Share of the Fund plus a sales
commission not exceeding 4.50% of the offering price
(equivalent to 4.71% of the net asset value), which is reduced
on larger sales as shown below:
Total Sales Commission*
As a Percentage of As a Percentage Portion of total
Amount of Single Offering Price of the of Net Asset Value Offering Price
Sale at Offering Fund's Shares of the Fund's Retained by Dealers
Price Purchased Shares Purchased
Less than $25,000 4.50% 4.71% 3.75%
$25,000 but less than $250,000 3.00% 3.09% 2.40%
$250,000 but less than $500,000 2.00% 2.04% 1.55%
$500,000 but less than $1,000,000 1.00% 1.01% 0.75%
$1,000,000 or more none none none
_______________
* At the discretion of Rupay-Barrington Securities, the entire sales
commission may at times be reallowed to dealers. Rupay-Barrington
Securities also may, at its expense, provide additional promotional
incentives or payments to dealers that sell the Fund's Shares. In some
instances, the full reallowance, incentives or payments may be offered
only to certain dealers who have sold or may sell significant amounts of
Shares. When 90% or more of the sales commission is reallowed, such
dealers may be deemed to be underwriters as that term is defined in the
Securities Act of 1933.
** The following commissions will be paid by Rupay-Barrington Securities to
dealers who initiate and are responsible for purchases of $1 million or
more and for purchases made at net asset value by certain retirement plans
or organizations with collective retirement plan assets of $10 million or
more: 1.00% on sales of up to $2 million, plus 0.80% on sales of $2
million to $3 million, plus 0.50% on sales of $3 million to $10 million,
plus 0.25% on sales of $10 million to $25 million, plus 0.15% on sales in
excess of $25 million.
A sales commission equal to 4.00% of the offering price (4.17% of the net
asset value) is applicable to all purchases of Shares, regardless of
amount, made for any qualified or non-qualified employee benefit plan. Of
the 4.00% sales commission applicable to such purchases, 3.20% of the
offering price will be reallowed to dealers.
Shown below are all the expenses and fees the Fund is expected
to incur. Such expenses and fees are expressed as a percentage
of average Fund net assets. The table and Example are provided
for purposes of assisting prospective stockholders in
understanding the various costs and expenses that an investor
in the Fund will bear directly or indirectly.
EXPENSE TABLE
Stockholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of Offering Price)..... 4.50%
Maximum Sales Load Imposed on Reinvested
Dividends.................................None
Deferred Sales Load on Redemptions........None
Redemption Fees...........................None*
Annual Fund Operating Expenses (as a percentage of
average net assets)
Management Fees.........................0.80% **
12b-1 Fees..............................0.35%***
Other Expenses (audit, legal, stockholder services,
transfer agent and custodian based on estimated
amounts for the first full fiscal
year)................................0.70%
Total Fund Operating Expenses .........1.85%
Example
You would pay the following expenses 1 Yr 3 Yrs
on a $1,000 investment, assuming (1)
5% average annual return and (2)
redemption at the end of each time period: $63 $101
--------------------
* The information in the table does not reflect a
charge of $25 that may be imposed for the transfer
of redemption proceeds by wire. ** The Management
Fee is higher than that charged by many other
mutual funds. *** Long-term stockholders may pay
more than the economic equivalent of the maximum
front-end sales charges permitted by the National
Association of Securities Dealers, Inc. See "Fund
Expenses and Management Fees. A trailer fee of .25%
of the .35% 12b-1 fee will be paid by Rupay-
Barrington Securities to dealers whose stock-
holder accounts with the Fund equal or exceed
$500,000.
THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESSER THAN THOSE SHOWN.
Federal regulations require the Example to assume a 5%
annual return. Actual returns will vary.
No projection can be made with respect to total
expenses to be incurred in future years of operation. The
Rupay-Barrington Financial Group, Inc. ("Rupay-Barrington
Financial") has agreed to limit the operational expense
to be paid by the Fund during its first five years of
operations, by paying such fees and expenses as exceed
1.85% during each of such first five years of operation.
More information about these expenses may be found under
"Fund Expenses and Management Fee."
<PAGE>
RISK FACTORS All investments involve risk. There can be no guarantee
against loss resulting from an investment in the Fund, nor can
there be any assurance that the Fund's investment objective will
be attained. As with any investment in securities, the value of,
and income from, an investment in the Fund can decrease as well
as increase depending on a variety of factors which may affect
the values and income generated by the Fund's portfolio
securities, including general economic conditions, market
factors and currency exchange rates. Because of its investment
policy, the Fund may or may not be a suitable or appropriate
investment for all investors. The Fund is not a money market
fund and is not an appropriate investment for those investors
whose primary objective is principal stability. Although the
Fund seeks to reduce risk by investing in a diversified
portfolio, such diversification does not eliminate all risk.
There are risk considerations other than those disclosed herein
described in the SAI.
To the extent that a major portion of the Fund's
portfolio is invested in equity securities, it may be
expected that its net asset value will be subject to greater
fluctuation than a portfolio containing mostly fixed-income
securities. The U.S. stock market tends to be cyclical with
periods when stock prices generally rise and periods when
prices generally decline. The Fund may invest in small and
medium-capitalization stocks contained in various technology
indices. Small-capitalization stocks are generally classified
as having an aggregate market value of approximately $30
million to $800 million, while medium-capitalization stocks
are classified as having an aggregate market value
capitalization of approximately $800 million to $5 billion.
Traditionally, such stocks have been more volatile in price
than the large-capitalization stocks. Among the reasons for
the greater price volatility of these securities are the less
certain growth prospects of smaller firms, the lower degree
of liquidity in the markets for such stocks, and the greater
sensitivity of small and medium-sized companies to changing
economic conditions. Besides exhibiting greater volatility,
small and medium company stocks, may to some degree,
fluctuate independently of larger company stocks. Small and
medium company stocks may decline in price as large company
stocks rise, or rise in price as large company stocks
decline.
INVESTMENT TYPES OF INVESTMENTS. The Fund's investments
POLICIES include, but are not limited to, the equity and fixed income
securities described below.
Equity Securities. The Fund may invest in equity
securities of domestic entities. For a general discussion of
the equity securities in which the Fund may invest see
"Fundamental and Other Investment Policies."
Fixed Income Securities. The Fund may invest in fixed
income securities of any type that are considered investment
grade (e.g., AAA, AA, A, or BBB by Standard & Poor's
Corporation ("S&P"), or Aaa, Aa, A, or Baa by Moody's
Investors Service, Inc. ("Moody's")), or, if not rated, are
of equivalent investment quality as determined by the
Investment Advisor. Debt Securities within the top credit
categories (e.g., AAA and AA by S&P) comprise what are
generally known as high-quality bonds. Medium grade bonds
(e.g., BBB by S&P or Baa by Moody's) are regarded as having
an adequate capacity to pay principal and interest, although
adverse economic conditions or changing circumstances are
more likely to lead to a weakening of such capacity than that
for higher grade bonds. In light of the possible risks
associated with an economic downturn, medium grade bonds are
considered speculative in some respects. The Fund has no
current intent to purchase any security which at the time of
purchase is rated below investment grade or, if not rated, is
not of equivalent investment quality. Such policy will not
preclude the Fund from retaining a security whose credit
quality is downgraded to a non-investment grade level after
purchase. In no event will the Fund purchase or hold
non-investment grade securities if as a result such
securities would, in the aggregate, comprise 5% or more of
the Fund's net assets.
A fixed income security's yield is determined by
computing the fixed annual interest of the security as a
percent of its current price. The price (the fixed income
security's market value) increases or decrease in response
to changes in market interest rate levels, thereby adjusting
the fixed income security's yield. Therefore, fixed income
security prices generally move in the opposite direction of
interest rates.
Movements in interest rates typically have a greater
effect on the prices of longer fixed income securities than
on those with shorter maturities. The following table
illustrates the effect of a one percentage point change in
interest rates on a $1,000 bond with a 7% coupon.
Principal value if rates:
Maturity Increase 1% Decrease 1%
Intermediate fixed income 5 years $959 $1,043
security
Long-term fixed income 20 years $901 $1,116
security
The other types of fixed income securities in which the
Fund may invest include the securities described below.
Asset-Backed Securities. Asset-backed securities are
securities which represent a participation in, or are secured
by and payable from, a stream of payments generated by
particular assets, most often a pool or pools of similar
assets (e.g. trade receivables). Asset-backed commercial
paper, one type of asset-backed security, is issued by a
special purpose entity, organized solely to issue the
commercial paper and to purchase interests in the assets. The
credit quality of these securities depends primarily upon the
quality of the underlying assets and the level of credit
support and/or enhancement provided. The Fund may invest in
asset-backed securities which are rated in one of the two
highest rating categories by a nationally recognized rating
agency such as Standard & Poor's Corporation, Moody's
Investors Services, Inc. or Duff & Phelps, or if not so
rated, of equivalent investment quality in the opinion
of the Investment Advisor. Certain of the asset-backed
securities in which the Fund may invest include automobile
and credit card receivable securities. See the "Investment
Objectives and Policies" section of the SAI for a more
detailed discussion of asset-backed securities.
Bonds. The quality of a bond is measured by credit risk
-- the ability of the issuer to meet interest and principal
payments on a timely basis. Issuers who are believed to be
good credit risks receive high quality ratings, and those
believed to be poor credit risks receive low quality ratings.
High-quality bonds involve less credit risk and typically
offer a lower yield than bonds of low quality.
Convertible Securities and Preferred Stock. The Fund
may invest in preferred equity securities and/or debt and
equity securities convertible into or exchangeable for common
equity securities. Preferred stocks are securities that
represent an ownership interest in a corporation providing
the owner with claims on the company's earnings and assets
before common stock owners, but after debt owners. It is not
anticipated that the investment quality of the preferred
equity or debt convertible securities in which the Fund may
invest will be rated; however, the Fund will not invest in
securities that the Investment Advisor does not deem to be
investment grade.
Mortgage Obligations. The Fund may invest in mortgage
obligations issued or guaranteed by non-governmental entities
as well as the U.S. Government, its agencies or
instrumentalities. Such mortgage obligations may include, but
are not limited to, collateralized mortgage obligations,
which are obligations fully collateralized by a portfolio of
mortgages or mortgage-related
<PAGE>
securities ("CMOs"), principal obligations ("POs"), interest
obligations ("IOs") and other mortgage-backed securities.
Some mortgage-backed securities, such as GNMA certificates,
are backed by the full faith and credit of the U.S. Treasury
while others, such as Freddie Mac certificates, are not.
Risks associated with investment in mortgage obligations
include, but are not limited to, principal volatility,
fluctuations in interest rates and prepayment. Payments of
principal and interest on the mortgages are passed through to
the holders of the CMOs on the same schedule as they are
received, although certain classes of CMOs have priority over
others with respect to the receipt of prepayments in the
mortgages. Therefore, depending on the type of CMOs in which
the Fund invests, the investment may be subject to a greater
or lesser risk of prepayment than other types of
mortgage-related securities, which prepayments could have an
adverse impact on the Fund's overall yield. CMOs may also be
less marketable than other securities.
Other Fixed Income Securities. Certain of the other
fixed income securities in which the Fund may invest include,
but are not limited to, the following: U.S. Government
Obligations (debt securities issued by the U.S. Treasury);
U.S. Government Agency Securities (securities issued or
guaranteed by U.S. Government sponsored enterprises and
federal agencies); Bank Obligations (certificates of deposit,
bankers' acceptances, and other debt obligations); and
Savings and Loan Obligations (negotiable certificates of
deposit and other debt obligations of savings and loan
associations).
Hybrid Instruments. As part of its investment program
and to maintain greater flexibility, the Fund may invest in
instruments which have the characteristics of futures and
securities. Such instruments may take a variety of forms,
such as debt instruments with interest or principal payments
determined by reference to the value of a currency or
commodity at a future point in time. Examples of hybrid
instruments in which the Fund may invest include swaps,
options on swaps and inverse floaters. The risks of such
investments would reflect both the risks of investing in
futures and the risks of investing in securities, including
volatility and illiquidity. The Fund's investments in hybrid
instruments will be limited to less than 5% of the Fund's net
assets.
Other Securities. Other securities in which the Fund
may invest include, but are not limited to, the following:
Futures Contracts and Options. The Fund may enter into
futures contracts (or options thereon) to hedge all or a
portion of its portfolio, as a hedge against changes in
prevailing levels of
<PAGE>
interest rates or currency exchange rates, or as an efficient
means of adjusting its exposure to the bond, stock and
currency markets. The Fund will limit its use of futures
contracts so that no more than 5% of the Fund's total assets
would be committed to initial margin deposits or premiums on
such contracts. The Fund may write covered call and put
options and purchase put and call options on securities,
financial indices, and currencies, also for hedging purposes.
The aggregate market value of the Fund's portfolio securities
or currencies covering call or put options will not exceed
25% of the Fund's net assets. Futures contracts and options
can be highly volatile and could result in reduction of the
Fund's total return, and the Fund's attempt to use such
investments for hedging purposes may not be successful. The
Fund could suffer substantial and even unlimited losses if
the prices of its futures contracts and options were poorly
correlated with its other investments, or if it could not
close out its position because of an illiquid secondary
market. For additional information regarding the risks that
may be associated with futures contracts and options, see
"Investment Objective and Policies -- Special Risks of
Transactions in Futures Contracts" in the SAI.
Repurchase Agreements. The Fund may enter into
repurchase agreements with a well-established securities
dealer or a bank that is a member of the Federal Reserve
System. In the event of a bankruptcy or default of certain
sellers of repurchase agreements, the Fund may experience
costs and delays in liquidating the underlying security which
is held as collateral, and the Fund might incur a loss if the
value of the collateral held declines during this period.
FUNDAMENTAL Fundamental Investment Policies. As a matter of
AND OTHER fundamental policy, the Fund will not, among other things:(i)
INVESTMENT purchase a security of any issuer if as a result, it would(a)
POLICIES cause the Fund to have 25% or more of its total assets
concentrated in any one industry, or (b) with respect to
50% of its assets, cause the Fund's holdings of any
issuer to amount to more than 5% of the Fund's total assets
or cause the Fund to own more than 10% of the outstanding
voting securities of any issuer, provided that, as an
operating policy, the Fund will not purchase a security if,
as a result, more than 10% of the outstannding voting
securities of any issuer would be held by the Fund; (ii)
borrow money, except temporarily from banks to facilitate
redemption requests, in amounts exceeding 30% of its total
assets valued at market; or (iii) in any manner
transfer as collateral for indebtedness any securities owned
by the Fund except in connection with permissible borrowings,
which in no event will exceed 30% of the Fund's total assets
valued at market. For the purpose of realizing income, as a
fundamental policy, the Fund may lend securities
<PAGE>
with a value of up to 30% of its total assets to domestic
broker-dealers or institutional investors. Any such loan will
be continuously secured by collateral at least equal to the
value of the security loaned; however, such lending could
result in delays in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially. See
"Investment Restrictions -- Fundamental Policies" in the SAI.
Other Investment Policies. As a matter of operating
policy, the Fund will not, among other things: (i) purchase
securities of an issuer if, as a result, (a) more than 10% of
the value of the Fund's net assets would be invested in
illiquid securities, including repurchase agreements which do
not provide for payment within seven days, or other
securities which are not readily marketable or (b) more than
5% of the value of the Fund's total assets would be invested
in the securities of unseasoned issuers which at the time of
purchase have been in operation for less than three years,
including predecessors and unconditional guarantors; (ii)
purchase securities when money borrowed exceeds 5% of the
Fund's total assets; (iii) purchase or hold the securities of
other investment companies if, as a result: (a) the Fund
owns, in the aggregate, more than 3% of the total outstanding
voting stock in such investment companies; (b) securities
issued by such investment companies are in excess of 5% of
the value of the Fund's total assets; or (c) more than 10% of
the value of the Fund's assets would be invested in such
investment companies; (iv) purchase interests in oil, gas or
other mineral exploration or development programs; (v)
purchase warrants, valued at the lower of cost or market, if,
as a result, more than 5% of the value of the Fund's net
assets would be invested in warrants, more than 2% of which
are not listed on the New York Stock Exchange, American Stock
Exchange or The Nasdaq National Market, and (vi) purchase POs
and IOs, if, as a result, more than 5% of the value of the
Fund's net assets would be invested in POs and IOs. The Fund
may acquire illiquid securities which are privately placed,
subject to the foregoing operating policies. Because an
active trading market may not exist for such securities, the
sale of any such privately placed securities may be subject
to delay and additional costs. In addition, the Fund may
purchase securities which, while privately placed, are
eligible for purchase and sale under Rule 144A under the
Securities Act of 1933, as amended (the "Act"). The liquidity
of Rule 144A securities would be monitored, and, if as a
result of changed conditions it is determined by the Board of
Directors of the Company that a Rule 144A security is no
longer liquid, the Fund's holdings of illiquid securities
would be reviewed to determine what, if any, steps are
required to assure that the Fund does not invest more than
10% of its assets in illiquid securities. In any
<PAGE>
event, the Fund will not purchase 144A securities if, as a
result, more than 5% of the value of the Fund's net assets
would be invested in 144A securities. In addition, the Fund
may establish and maintain cash reserves for temporary
defensive purposes or to enable it to take advantage of
buying opportunities. For a discussion of the Fund's
temporary defensive strategy see "Investment Program." The
Fund's reserves may be invested in domestic money market
instruments including, but not limited to, government
obligations, certificates of deposit, bankers' acceptances,
commercial paper, short-term corporate debt issues, and
repurchase agreements.
Portfolio Turnover. Generally, the Fund does not intend
to purchase securities for short-term trading; however, when
circumstances warrant, securities may be sold without regard
to the length of time held. The Fund cannot accurately
predict its annual turnover rate for its portfolio.
Further Information. The Fund's investment program and
policies, discussed above, are subject to further
restrictions and risks which are described in the SAI. The
Fund's investment objective and investment program, unless
otherwise specified, are not fundamental policies and may be
changed without stockholder approval. Stockholders will be
notified of any material change in such program. Fundamental
policies may be changed only with stockholder approval.
PERFORMANCE Total Return Performance.The Fund may advertise total re-
INFORMATION turn figures on both a compound average annual and cumulative
basis. Cumulative total return compares the amount invested
at the beginning of a period with the amount redeemed at the
end of the period, assuming the reinvestment of all dividends
and capital gain distributions. The compound average annual
total return, derived from the cumulative total return
figure, indicates a yearly average of the Fund's performance.
The annual compound rate of return for the Fund may vary from
its average annual return.
Total Return Components. The total return from the Fund
consists of the change in its net asset value per Share of
the Fund and the income it generates. The net asset value of
the Fund will be affected primarily by changes in stock
values and interest rate levels, the maturity and credit
quality of the Fund's debt securities, as well as changes in
the values of foreign currencies.
Yield. The Fund may advertise a yield figure derived by
dividing the Fund's net investment income per Share (as
defined by applicable SEC regulations) during a 30-day base
period by the maximum offering price on the last day of the
base period.
HOW TO BUY Shares of the Fund may be purchased on any Business
SHARES Day (as defined below) at the offering price through any
broker which has a dealer agreement with Rupay-Barrington
Securities,** the Principal Underwriter of the Fund's Shares,
or directly from Rupay-Barrington Securities upon receipt of
a completed New Account Form and a check made payable to
Rupay-Barrington Growth Fund by the Fund's transfer agent,
Fund Services, Inc. ("FSI") 1500 Forest Avenue, Suite 111,
Richmond, VA 23229, Attention: Rupay-Barrington Growth Fund
Account Services. A "Business Day" is any weekday that the
New York Stock Exchange (the "NYSE") and the Federal
Reserve Bank of Richmond (the "FRB") is open for business.
The minimum initial purchase order is $2,000 with subsequent
investments of $100 or more.
With respect to telephone orders placed with
Rupay-Barrington Securities by dealers, the dealer must
receive the investor's order before the close of the NYSE and
transmit it to FSI by 4:00 p.m., Eastern Time for the
investor to receive that day's offering price. Payment for
such orders must be by check in U.S. currency and must be
promptly submitted to Rupay-Barrington Securities c/o FSI,
P.O. Box 26305, Richmond, VA 23260-6305.
** Rupay-Barrington Securities may recommend brokers
who have dealer agreements with Rupay-Barrington Securities
for potential stockholders residing in states in which Rupay-
Barrington Securites is not registered.
Orders mailed to Rupay-Barrington Securities c/o FSI by
dealers or individual investors are effected at the offering
price next computed after the purchase order accompanied by
payment has been received by FSI. Such payment must be by
check in U.S. currency drawn on a commercial bank in the U.
S. Any subscription may be rejected by Rupay-Barrington
Securities or by the Fund.
Shares also may be purchased through an investment
dealer, bank or other institution. The Fund may enter into an
arrangement with such institution to process purchase orders
or redemption requests for its customers with the Fund on an
expedited basis, including requesting Share redemptions by
telephone. Although these arrangements might permit one to
effect a purchase or redemption of Fund Shares through the
institution more quickly than would otherwise be possible,
the institution may impose charges for its services. These
charges could constitute a significant portion of a smaller
account, and might not be in a stockholder's best interest.
Shares of the Fund may be purchased or redeemed directly from
the Fund without imposition of any charges other than those
described in the Prospectus.
Investors should promptly check the confirmation advice
that is mailed after each purchase (or redemption) to insure
that it has been accurately recorded in the investor's
account.
Cumulative Quantity Discount. The schedule of reduced
sales commissions also may be applied to qualifying sales on
a cumulative basis. For this purpose, the dollar amount of
the sale is added to the higher of: (i) the value (calculated
at the applicable offering price); or (ii) the purchase price
of any other Shares of the Fund owned at that time by the
investor. For example, if the investor held Shares valued at
$20,000 (or, if valued at less than $20,000, had been
purchased for $20,000) and purchased an additional $10,000 of
the Fund's Shares, the sales commission for the $10,000
purchase would be at the rate of 3%. It is Rupay-Barrington
Securities' policy to give investors the best sales
commission rate possible; however, there can be no assurance
that an investor will receive the appropriate discount
unless, at the time of placing the purchase order, the
investor or the dealer makes a request for the discount and
gives Rupay-Barrington Securities sufficient information to
determine whether the purchase will qualify for the discount.
On telephone orders from dealers for the purchase of Shares
to be registered in "street name," FSI will accept the
dealer's instructions with respect to the applicable sales
commission rate to be applied. The cumulative quantity
discount may be amended or terminated at any time. Any money
market funds which may be offered now or in the future will
not qualify for the cumulative quantity discount (See
Stockholder Services -- Exchange Privileges).
Letter of Intent. Investors may also reduce sales
charges on all investments by means of a Letter of Intent
("LOI") which expresses the investor's intention to invest a
certain amount within a 13-month period in the Fund's Shares.
The minimum initial investment under an LOI is 5% of the
total LOI amount. Shares purchased with the first 5% of such
amount will be held in escrow to secure payment of the higher
sales charge applicable to the Shares actually purchased if
the full amount indicated is not purchased, and such escrowed
Shares will be involuntarily redeemed to pay the additional
sales charge, if necessary. Such escrowed Shares will be
registered in the stockholder's name and will continue to
earn any dividends and capital gains paid by the Fund.
Dividends declared on escrowed Shares will be paid to the
stockholder or as otherwise instructed by the stockholder.
The escrowed Shares will be released when the full amount
indicated has been purchased. Any redemptions made during the
13-month period will be subtracted from the amount of
purchase in
<PAGE>
determining whether the LOI has been completed. A purchase
not originally made pursuant to an LOI may be included under
a subsequent LOI executed within 90 days of the purchase. The
stockholder must instruct the transfer agent upon making
subsequent purchases that such purchases are subject to an
LOI. All dividends and capital gains of the Fund that are
invested in additional Shares are applied to the LOI.
Investors electing to purchase Shares pursuant to a LOI
should contact Rupay-Barrington Securities at 1-800-688-1688.
Group Purchases. An individual who is a member of a
qualified group may also purchase Shares of the Fund at the
reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of
Shares previously purchased and still owned by the group,
plus the amount of the current purchase. For example, if
members of the group had previously invested and still held
$225,000 of the Fund Shares and now were investing $50,000,
the sales charge would be 2%. Information concerning the
current sales charge applicable to a group may be obtained by
contacting Rupay-Barrington Securities at 1-800 688-1688.
A "qualified group" is one which: (i) has been in
existence for more than six months; (ii) has a purpose other
than acquiring Fund Shares at a discount; and (iii) satisfies
uniform criteria which enable Rupay-Barrington Securities to
realize economies of scale in its costs of distributing
Shares. A qualified group must have more than 10 members,
must be available to arrange for group meetings between
representatives of the Fund and the members, must agree to
include sales and other materials related to the Fund in its
publications and mailings to members at reduced or no cost to
Rupay-Barrington Securities, and must seek to arrange for
payroll deduction or other bulk transmission of investments
to the Fund.
Net Asset Value Purchases. Shares of the Fund may be
purchased at a price equal to the net asset value per Share
of the Fund without imposition of a sales commission by the
following persons: (i) dealers who initiate and are
responsible for purchases of $1 million or more; (ii)
trustees or other fiduciaries purchasing securities for
certain retirement plans with assets of $10 million or more;
(iii) directors, trustees and officers of the investment
companies sponsored by Rupay-Barrington Financial and its
affiliates (collectively, the "Rupay-Barrington Group"),
directors, officers and employees (current or retired) in the
Rupay-Barrington Group (and their families), and retirement
plans established by the Rupay-Barrington Group for
employees; (iv) companies exchanging shares with or selling
assets to the Fund pursuant to a merger, acquisition or
exchange offer; (v) dealers or
<PAGE>
brokers who have a sales agreement with Rupay-Barrington
Securities for their own accounts, or for retirement plans
for their employees or sold to registered representatives or
full time employees (and their families) that certify to
Rupay-Barrington Securities at the time of purchase that such
purchase is for their own account (or for the benefit of
their families); (vi) insurance company separate accounts;
(vii) accounts managed by the Rupay-Barrington Group
affiliates; and (viii) certain unit investment trusts and
unit holders of such trusts reinvesting their distributions
from the trusts in the Fund.
Shares of the Fund may also be purchased at a price
equal to the net asset value per Share of the Fund by
employee benefit plans qualified under Section 401 of the
Code, including salary reduction plans qualified under
Section 401(k) of the Code, subject to minimum requirements
with respect to number of employees or amount of purchase,
which may be established by Rupay-Barrington Securities.
Currently, those criteria require that the employer
establishing the plan have 500 or more employees or that the
amount invested or to be invested during the subsequent
13-month period in the Fund totals at least $1 million.
Employee benefit plans not qualified under Section 401 of the
Code may be afforded the same privilege if they meet the
above requirements as well as the uniform criteria for
qualified groups described above under "Group Purchases"
which enable Rupay-Barrington Securities to realize economies
of scale in its sales efforts and sales-related expenses.
Shares of the Fund may be purchased at a price equal to
the net asset value per Share of the Fund by trust companies
and bank trust departments for funds over which they exercise
exclusive discretionary investment authority and which are
held in a fiduciary, agency, advisory, custodial or similar
capacity. Such purchases are subject to minimum requirements
with respect to amount of purchase, which may be established
by Rupay-Barrington Securities. Currently, those criteria
require that the amount invested or to be invested during the
subsequent 13-month period in the Fund must total at least $1
million. Orders for such accounts will be accepted by mail
accompanied by a check, or by wire transfer directly from the
bank or trust company, with payment by federal funds received
by the close of business on the next business day following
such order.
OPENING A NEW Minimum initial investment: $2,000
ACCOUNT AND
PURCHASING By Mail: Send your New Account Form and check by Regular,
SHARES Express, Registered, or Certified Mail, to:
Checks payable to Rupay-Barrington Growth Fund
Rupay-Barrington Account Services
Growth Fund c/o FSI
1500 Forest Avenue, Suite 111
Richmond, VA 23229
Fund Serve Information regarding Fund Serve eligibility
Eligibility may be obtained by contacting Rupay-Barrington Securities at
1-800- 688-1688.
PURCHASING Minimum subsequent investment: $100
ADDITIONAL
SHARES
Stockholder By Wire: Call Stockholder Services and use the Wire Address
Services below.
1-800-628-4077
Wire Address
(to give to
your bank): Crestar Bank
Richmond, VA
ABA #051000020
CREDIT: 201648180
FURTHER CREDIT: Rupay-Barrington Growth
Fund Purchase Account
By Mail: Indicate your account number and the name of the
Fund on your check. (Please use the additional
investment portion (tear-off stub) from a confirmation
statement.)
COMPLETING THE Tax Identification Number. We must have your correct
NEW ACCOUNT social security or corporate tax identification number and a
FORM signed New Account Form or W-9 Form. Otherwise, federal law
requires the Fund to withhold 31% of your dividends, capital
gain distributions, and upon redemption or exchange of your
Shares and may subject you to a fine.
You must provide You also will be prohibited from opening another account. If
your Tax ID this information is not received within 60 days after your
number and sign account is established, the Fund will begin withholding.
the New Account
Form
Services. By signing up for services on the New Account
Form, rather than after the account is opened, you will avoid
having to complete a separate form and obtain a signature
guarantee (See Conditions of Your Purchase -- Signature
Guarantees.
NET ASSET VALUE, Net Asset Value per Share of the Fund. The net asset
PRICING AND value per Share of the Fund, or Share price, for the Fund, is
EFFECTIVE DATE determined at the close of trading normally 4:00 p.m. Eastern
Time each day the New York Stock Exchange is open. The
Fund's Share price is calculated by subtracting its
liabilities from its total assets and dividing the result by
the total number of Shares of the Fund outstanding. Among
other things, the Fund's liabilities include accrued
expenses and dividends payable,and its total assets include
portfolio securities valued at market as well as income
accrued but not yet received.
If your order is Purchased Shares are priced at the net asset value per
received before Share of the Fund on that day plus sales charge if your
4:00 p.m. Eastern request is received before 4:00 p.m. Eastern Time in good
Time in good order,order. If received later than 4:00 p.m. Eastern time shares
you will receive will be priced at the net asset value per Share of the Fund
that day's net on the next business day plus sales charge. We cannot
asset value accept requests which specify a particular date for purchase
or which specify any special conditions.
Redemptions are priced at the net asset value per Share
of the Fund on that day if your request is received before
4:00 p.m. Eastern Time in good order. if received after 4:00
p.m. Eastern Time, Shares will be priced at the net asset
value per Share of the Fund on the next business day.
Requests mailed to any of our offices must be forwarded to
Richmond, Virginia and will not be effective until received
there in good order. Also, we cannot accept requests
which specify a particular date for redemption or which
specify any special conditions. If your redemption
request cannot be accepted, you will be notified and given
further instructions.
The Fund reserves the right to change the time at which
purchases, redemptions and exchanges are priced if the New
York Stock Exchange closes earlier than 4:00 p.m. Eastern
Time.
REDEEMING By Phone: Call Stockholders Services at 1-800-628-4077.
SHARES If you find our phones busy during unusually volatile
markets, please consider placing your order by express mail.
Redemption proceeds can be mailed or wired to your bank.
The Fund's bank charges a $25.00 fee for all wire
redemptions, subject to change without notice. Your bank may
also charge you for receiving wires.
By Mail: Indicate account name(s) and numbers, fund
name(s), and exchange or redemption amount. For exchanges,
mail to the attention of the Fund you are exchanging from and
indicate the Fund(s) you are exchanging to (See Stockholder
Services --
<PAGE>
Exchange Privileges). The signature of all owners
exactly as registered, and possibly a signature guarantee
(See Conditions of Your Purchase -- Signature Guarantees).
Note: Distributions from retirement accounts, including
IRAs, must be in writing. For employer-sponsored retirement
accounts, call Stockholder Services or your plan
administrator for instructions.
Repurchase of Shares. The Fund, through
Rupay-Barrington Securities, also repurchases Shares through
securities dealers. The Fund normally will accept orders to
repurchase such Shares by wire from dealers for their
customers at the net asset value per Share of the Fund next
computed after the dealer has received the stockholder's
request for repurchase, if the dealer received such request
before closing time of the NYSE on that day. Dealers have the
responsibility of submitting such repurchase requests by
calling not later than 4:00 p.m. Eastern Time on such day in
order to obtain that day's applicable redemption price.
Repurchase of Shares is for the convenience of stockholders
and does not involve a charge by the Fund; however,
securities dealers may impose a charge on the stockholder
for transmitting the notice of repurchase to the Fund. The
Fund reserves the right to reject any order for repurchase,
which right of rejection might adversely affect stockholders
seeking redemption through the repurchase procedure;
however, such stockholders may redeem Shares other than
through repurchase. Ordinarily payment will be made to the
securities dealer within seven days after receipt of a
repurchase order in "Good Order" as set forth above. The
Fund will also accept, from member firms of the NYSE, orders
to repurchase Shares by wire or telephone with a redemption
request signed by the stockholder, provided the member firm
indemnifies the Fund and Rupay-Barrington Securities from
any liability resulting from the absence of the stockholder's
signature. Forms for such indemnity agreement can be
obtained by contacting Rupay-Barrington Securities at
1-800-688-1688.
Stock Certificates. To facilitate redemptions and
transfers, stockholders will not receive stock certificates.
Evidence of ownership will be given by issuance of periodic
account statements which will show the number of Shares
owned.
Systematic Withdrawal Plan. Stockholders owning $10,000
or more of the Fund Shares may elect to have periodic
redemptions from their accounts to be paid on a monthly
basis. The minimum periodic payment is $100. A sufficient
number of Shares to make the scheduled redemption will be
redeemed on the 25th day of the month. Redemptions for the
purpose of making such payments may reduce or even exhaust
your account if the monthly redemption
<PAGE>
payments exceed the dividends, interest and capital
appreciation, if any, on your Shares. A stockholder may
request that these payments be sent to a predesignated bank
or other designated party.
Amounts paid to you pursuant to the Systematic
Withdrawal Plan are not a return on your investment. Payments
to you pursuant to the Systematic Withdrawal Plan are derived
from the redemption of Shares in your account and are taxable
transactions on which gain or loss may be recognized for
federal, state and city income tax purposes.
RECEIVING YOUR Generally, redemption proceeds will be mailed to the
PROCEEDS address you designated on your New Account Form or wired to
your bank the next business day after receiving your
redemption request in good order. In addition, under unusual
conditions, or when deemed to be in the best interests of the
Fund, redemption proceeds may not be sent for up to seven
calendar days after your request is received to allow for the
orderly liquidation of securities. Requests by mail for wire
redemptions (unless previously authorized) must have a
signature guarantee.
DIVIDENDS AND The Fund normally distributes all net income and capital
DISTRIBUTIONS gains to stockholders. Dividends from net investment income
will be declared and paid semi-annually. Distributions
from capital gains, if any, are normally declared in December
and paid in early January. Dividends and capital gains
declared by the Fund will be reinvested unless you
choose an alternative payment option on the New Account
Form. Dividends not reinvested are paid by check or ACH
transfer. Your bank must be a member of the National
Automatic Clearing House Association. If the U.S. Postal
Service cannot deliver your check, then your dividends will
be held by the Fund and will not be reinvested.
CONDITIONS OF Account Balance. If, as a result of redemptions, your
YOUR PURCHASE account drops below $1,000 for three months or more, the Fund
has the right to close your account, after giving 60 days
notice, unless you make additional investments to bring your
account value to $1,000 or more.
Nonpayment. If your check or wire does not clear, you
will be responsible for any loss the Fund incurs. If you are
already a stockholder, the Fund can redeem Shares from any
identically registered account in this Fund as reimbursement
for any loss incurred.
Non-U.S. Bank Checks. Checks drawn on foreign banks
must be in U.S. dollars and have the routing number of the
U.S. bank indicated on the check.
Redemptions in Excess of $250,000. Redemption proceeds
are normally paid in cash. However, if you redeem more than
$250,000, or 1% of the Fund's net assets, in any 90-day
period, the Fund may in its discretion: (i) pay the
difference between the redemption amount and the lesser of
$250,000 or 1% of the Fund's assets with securities owned by
the Fund; or (ii) delay the transmission of your proceeds for
up to five business days (but in no event more than seven
calendar days) after your request is received. In the
event the Fund elects to pay any portion of your redemption
proceeds with Fund securities, you will bear the market
risk associated with the ownership of such securities
and the brokerage costs associated with the disposition
of any such securities.
Signature Guarantees. A signature guarantee is
designed to protect you and the Fund by verifying your
signature. You will need a signature guarantee to:
(1) Establish certain services after the account is opened.
(2) Redeem over $5,000 by written request if you do not
have telephone redemption services.
(3) Redeem or exchange Shares when someone who is
not a registered owner of the account will receive the
proceeds, or when proceeds are being sent to a bank
account not listed on your fund account.
(4) Transfer Shares to another owner.
(5) Send us written instructions asking us to wire
redemption proceeds.
These requirements may be waived or modified in certain
instances.
"Eligible guarantors" are: national or state banks,
savings associations, savings and loan associations, trust
companies, savings banks, industrial loan companies and
credit unions; national securities exchanges, registered
securities associations and clearing agencies; or brokers,
dealers, municipal securities dealers, municipal securities
brokers, government securities dealers, and government
securities brokers. We cannot accept guarantees from
institutions or individuals who do not provide reimbursement
in the case of fraud, such as notary public.
Fifteen-Day Hold. The mailing of proceeds on redemption
requests involving any Shares recently purchased by personal,
corporate or government check may be delayed by the Fund's
Transfer Agent for a period of up to 15 calendar days after
the purchase date, pending a determination that the check has
cleared or funds have been received. Proceeds of redemption
requests sent by mail or telegram will be mailed no later
than the seventh day
<PAGE>
following receipt unless the check has not cleared. The
clearing period does not apply to purchases made by wire or
cashier's, treasurer's, or certified checks.
The Fund and its agents reserve the right to: (i)
reject any purchase or exchange and cancel any purchase due
to nonpayment; (ii) waive or lower the investment minimums;
(iii) accept initial purchases by telephone or telegram; (iv)
waive the limit on subsequent purchases by telephone; (v)
reject any purchase or exchange prior to receipt of the
confirmation statement; (vi) redeem your account (see Tax
Identification Number); and (vii) modify the conditions of
purchase at any time.
STOCKHOLDER The following is a brief summary of our services, some
SERVICES of which may be restricted or unavailable to retirement plan
accounts. Services may be modified at any time without
notice.
Be sure to sign up Exchange Privileges. Shares of one fund of the Company
for all telephone may be exchanged for Shares of other funds of the Company.
services on the Exchanges of Shares will be made at their relative net asset
New Account Form. value. Shares may only be exchanged if the amount being
exchanged satisfies the minimum investment required and the
stockholder is a resident of a state where Shares of the
appropriate Fund are qualified for sale. Investors should
note that an exchange may result in a taxable event.
Exchange privileges may be terminated, modified or suspended
by the Fund upon 60 days notice to stockholders.
Telephone Exchange and Redemption Services. All
telephone calls to Stockholder Services, including
transaction-related calls to Stockholder Services are
recorded in order to protect you, the Fund, and its agents.
You may elect to effect exchanges or redemptions by
telephone. By establishing telephone exchange or redemption
services, you authorize us to: (i) redeem or exchange Shares
from your account based on any instructions believed to be
genuine; and (ii) honor any written instructions for a
redemption or exchange without a signature guarantee (other
than as required under Signature Guarantees). The Fund
reserves the right to change or suspend these services upon
60 days prior written notice. The Fund and Rupay-Barrington
Securities will not be liable for any loss, liability, cost
or expense for acting upon telephone instructions that are
reasonably believed to be genuine. In attempting to confirm
that telephone instructions are genuine, the Fund will use
such procedures as are considered reasonable, including
reporting of instructions and requesting information as to
account registration (such as the name in which an account is
registered, the account number, recent transactions in the
account, and the accountholder's Social Security Number,
address and/or bank). To the extent that the Fund fails to
use reasonable procedures as the basis for its belief, it
and/or its service contractors may be liable for instructions
<PAGE>
that prove to be fraudulent or unauthorized.
Automated Investment Program. If your bank is a member
of the Automated Clearing House ("ACH") network, we offer a
method of purchasing Fund Shares in amounts of $50 to
$100,000 through automatic transfers from your bank account
to your Fund account. Although the Fund does not impose any
additional fees for automatic transfers, your bank may impose
a fee for such services. See "Net Asset Value, Pricing and
Effective Date" for additional information.
Wire Transfers. Bank-Fund transfers can be made through
bank wires (a $25.00 charge applies to all wire redemptions).
While this is usually the quickest transfer method, the Fund
reserves the right to temporarily suspend wires under unusual
circumstances.
TAXES
Form 1099-DIV Taxes on Dividends and Distributions. In January, the
will be mailed to Fund will mail you Form 1099-DIV indicating the federal tax
you in January status of your dividends and capital gain distributions.
Generally, dividends and distributions are taxable in the
year they are paid. However, any dividends and
distributions paid in January but declared during the prior
three months are taxable in the year they are declared.
Dividends and distributions are taxable to you regardless
of whether they are taken in cash or reinvested. Dividends
and short-term capital gains are taxable as ordinary
income; distributions from long-term capital gains are
taxable as long-term capital gains. The capital gains
holding period for such distributions is determined by
the length of time the Fund has held the securities,
not the length of time you owned Fund shares.
Taxes on Redemptions (Shares Sold or Exchanged). A
redemption or exchange of Fund Shares is treated as a sale
for tax purposes which will result in a short or long-term
capital gain or loss, depending on how long you have owned
the Shares. In January, the Fund will mail you Form 1099-B
indicating the date of and proceeds from all sales and
exchanges.
Taxes on Undistributed Income and Gains. At the time of
purchase, the Share price of the Fund may reflect
undistributed income, capital gains or unrealized
appreciation of securities. Any income or capital gains from
these amounts which are later distributed to you are fully
taxable, even though they represent a portion of the price
you paid for your shares.
Tax-Qualified Retirement Plans. Tax-qualified
retirement plans generally will not be subject to federal tax
liability on either distributions from the Fund or redemption
of Shares of the Fund. Rather, participants in such plans
will be taxed when they begin taking distributions from the
plans.
THE FUND AND ITS The Fund is a diversified open-end series of the Company,
MANAGEMENT an investment company organized as a Maryland corporation and
registered with the Securities and Exchange Commission under
the Investment Company Act of 1940 as a diversified, open-end
investment company, commonly known as a "mutual fund." A
mutual fund, such as the Fund, enables stockholders to: (i)
obtain professional management of investments, including the
Investment Advisor's proprietary research; (ii) diversify
their portfolio to a greater degree than would be generally
possible if they were investing as individuals and thereby
reduce, but not eliminate risks; and (iii) simplify the
record keeping and reduce transaction costs associated with
investments. The Board of Directors of the Company has
overall responsibility for management of the Fund. The
SAI identifies the directors and officers of the Company abd
provides information about them. The Company issues one
class of capital stock, all shares of which have equal
rights with regard to voting, redemptions, dividends,
distributions, and liquidations. Fractional shares have
voting rights and participate in any distribution and
dividends. Stockholders have no preemptive or conversion
rights. When issued, the shares of each series of the
Company, including the Fund will be fully paid,
nonassessable and redeemable. Shares of the Company do not
have cumulative voting rights. The Company does not routinely
hold annual meetings of stockholders. However, if
stockholders representing at least 10% of all votes of the
Company entitled to vote so desire, they may call a special
meeting of stockholders of the Company for the purpose of
voting on the question of the removal of any director(s). The
total authorized capital stock of the Company consists of
1,000,000,000 shares, each share having a par value of $0.01.
As of the date of this Prospectus, Rupay-Barrington Financial
owned ten Shares of the Fund.
Fund Advisor. The Investment Advisor, a wholly owned subsid-
iary of Rupay-Barrington Financial, manages the Fund's
investments. Subject to the authority of the Board of
Directors, the
<PAGE>
Investment Advisor provides the Fund with a continuous
program of supervision of the Fund's assets, including the
composition of its portfolio, and furnishes advice and
recommendations with respect to investments, investment
policies and the purchase and sale of securities, pursuant to
an Investment Advisory Agreement with the Company. The
Investment Advisor is also responsible for the selection of
broker-dealers through which the Fund executes portfolio
transactions, subject to brokerage policies established by
the Company's Board of Directors. The Investment Advisor's
portfolio manager for the Fund, Jill H. Travis, has been
rendering investment counsel, utilizing investment strategies
similar to that of the Fund, to other growth mutual funds
since 1993. Ms. Travis is primarily responsible for
the day-to-day management of the Fund's portfolio and has
been managing the Fund since its inception. Ms. Travis is
chief portfolio strategist for Amelia Earhart Capital
Management, Inc. and was portfolio manager of the Amelia
Earhart Eagle Equity Fund from inception in March 1993 until
the fund closed in December 1997. Ms. Travis is currently
portfolio manager of the Regional Opportunity Fund and is
affiliated with CityFund Advisory, Inc. Ms. Travis has been
an independent business and financial consultant, primarily
to financial institutions and mutual funds, since 1991, a
licensed certified financial planner since 1988 and mutual
fund portfolio manager since 1993. Ms. Travis' professional
credentials include 20 years of senior management experience
as an investment and banking executive. Ms. Travis received a
Masters of Business Administration degree from Wayne State
University and a Bachelor of Science degree in Business
Administration from Valparaiso University.
Investment Services. Rupay-Barrington Securities, a
wholly-owned subsidiary of Rupay-Barrington Financial, is the
distributor for the Fund.
Transfer and Dividend Disbursing Agent. Fund Services
Inc. ("FSI") serves the Fund as transfer agent and dividend
disbursing agent. FSI's main office is in Richmond, Virginia
and may be contacted at FSI, P.O. Box 26305, Richmond,
Virginia 23260-6305.
FSI will perform the transfer and dividend disbursing
agent functions as well as: (i) certain stockholder services
for all accounts, for which FSI may be paid fees totaling
approximately $1,000 per month; (ii) and calculation of daily
Share price and maintenance of portfolio and general
accounting records of the Fund, for which Commonwealth Fund
Accounting, Inc. may be paid fees totaling approximately
$1,250 per month.
FUND EXPENSES Fund Expenses. Fund expenses include: the management
AND MANAGEMENT fee; stockholder servicing fees and expenses; custodian and
FEES accounting fees and expenses; legal and auditing fees;
expenses of preparing and printing prospectuses and
stockholder reports; registration fees and expenses; proxy
and annual meeting expenses, if any; and directors' fees
and expenses. In addition, the expenses of organizing,
registering, and qualifying its shares under federal,
state, and other securities laws will be charged to the
Fund's operations, as an expense, over a period not to
exceed 60 months.
Rupay-Barrington Financial has agreed to bear any
expenses for the Fund's first five years of operations, which
would cause the Fund's ratio of operating expenses to average
net assets to exceed 1.85%. This guarantee is not subject to
later reimbursement.
Management Fee. The Fund pays its Investment Advisor an
investment management fee equal to .80% of the Fund's net
assets ("Management Fee").
Distribution Plan and Agreement. The Fund has adopted a
Distribution Plan and Agreement (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940. The purpose
of the Plan is to permit the Company to compensate
Rupay-Barrington Securities for services provided and
expenses incurred by it in promoting the sale of Shares of
the Fund, reducing redemptions, and maintaining or improving
services provided to stockholders by Rupay-Barrington
Securities or dealers. The Plan provides for payments by the
Fund to Rupay-Barrington Securities at the annual rate of
0.35% of the Fund's average net assets subject to the
authority of the Company's Board of Directors to reduce the
amount of payments or to suspend the Plan for such periods as
they may determine. Subject to these limitations, the amount
of such payments and the specific purposes for which they are
made shall be determined from time to time by the Company's
Board of Directors. At present, the Company's Board of
Directors has approved payments under the Plan for the
purpose of compensating Rupay-Barrington Securities for
services provided and reimbursing Rupay-Barrington Securities
for expenses incurred and payments made by it to dealers
whose stockholder accounts with the Fund equal or exceed
$500,000, as described below, subject to the overall
limitation that payments under the Plan shall not exceed a
maximum annual rate of 0.35% of average net assets. The Plan
may not be amended to materially increase the costs which the
Fund may bear for distribution pursuant thereto without
stockholder approval.
Dealers whose stockholder accounts with the Fund equal
or exceed $500,000 are paid a continuing trailer fee by
Rupay-
<PAGE>
Barrington Securities at the annual rate of 0.25% of the
value of the Shares purchased in those stockholder accounts,
as adjusted to reflect redemptions. This fee is paid in order
to promote selling efforts and to compensate dealers for
providing certain services, including processing purchase and
redemption transactions, establishing stockholder accounts
and providing certain information and assistance with respect
to the Fund.
<PAGE>
Information contained herein subject to completion or amendment. A registration
statement relating to these securities has been filed with the Securities and
Exchange Commission. These securities may not be sold nor may any offers to buy
be accepted prior to the time the registration statement becomes effective.
This prospectus shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any State in
which such offer, solicitation, or sale would be unlawful prior to registration
or qualification under the securities laws of any such state.
Subject to Completion, dated May 5, 1998
RUPAY-BARRINGTON VALUE EQUITY FUND
PROSPECTUS
July__, 1998
Investment Rupay-Barrington Value Equity Fund (the "Fund") is a
Objective: diversified, open-end series of Rupay-Barrington Total Return
Fund, Inc., a series company and a registered management
investment company (the "Company"). The Company issues one
class of capital stock in a number of series, of which the
shares of the Fund are one such series (the shares of the
Fund being referred to herein as the "Shares"). The Fund
invests in a portfolio of equity securities (typically common
stocks and securities which carry the right to buy common
stocks) that Rupay-Barrington Advisors, Inc. (the
"Investment Advisor") believes have strong fundamentals and
low prices relative to their prior price histories. The Fund
is designed for investors primarily seeking the potential for
capital appreciation and income over the long term. See
"Investment Program."
Purchase of Please complete and return the New Account Form. If you need
Shares: assistance in completing this Form,please call our Stock-
holder Services Department (see below). The Fund's Shares may
be purchased at a price equal to their net asset value plus a
sales commission not exceeding 4.50% of the offering price.
The minimum initial investment is $2,000 ($100 minimum for
subsequent investments).
Prospectus This Prospectus sets forth basic information about the Fund
Information: that a prospective investor ought to know before investing.
Investors should read this Prospectus and retain it
for future reference. A Statement of Additional Information
("SAI") for the Fund dated July __, 1998, which contains
additional information about the Fund has been filed with
the Securities and Exchange Commission (the "SEC") and is
incorporated in its entirety by reference in, and made a
part of, this Prospectus. The SAI is available without
charge upon request from Rupay-Barrington Securities
Corporation ("Rupay-Barrington Securities"), an affiliate
of the Fund. 1000 Ballpark Way, Suite 207-A, Arlington, Texas
76011. The SEC maintains a Web site (http://www.sec.gov)
which contains the SAI, material incorporated by reference
and other information regarding the Fund.
Stockholder 1-800-628-4077 (8:30 A.M. to 5:00 P.M. Eastern Time)
Services Department:
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION,
<PAGE>
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
RUPAY-BARRINGTON VALUE EQUITY FUND
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE..............................................1
INVESTMENT PROGRAM................................................1
SPECIAL RISK CONSIDERATIONS.......................................2
OFFERING PRICE AND SUMMARY OF FUND EXPENSES.......................3
RISK FACTORS......................................................5
INVESTMENT POLICIES...............................................6
FUNDAMENTAL AND OTHER INVESTMENT POLICIES.........................9
PERFORMANCE INFORMATION..........................................11
HOW TO BUY SHARES................................................11
OPENING A NEW ACCOUNT AND PURCHASING SHARES......................15
PURCHASING ADDITIONAL SHARES.....................................15
COMPLETING THE NEW ACCOUNT FORM..................................15
NET ASSET VALUE, PRICING AND EFFECTIVE DATE......................16
REDEEMING SHARES.................................................16
RECEIVING YOUR PROCEEDS..........................................18
DIVIDENDS AND DISTRIBUTIONS......................................18
CONDITIONS OF YOUR PURCHASE......................................18
STOCKHOLDER SERVICES.............................................20
TAXES ...........................................................21
THE FUND AND ITS MANAGEMENT......................................21
FUND EXPENSES AND MANAGEMENT FEES................................23
<PAGE>
INVESTMENT
OBJECTIVE
The Fund seeks capital appreciation by investing in a
diversified portfolio of equity securities (typically common
stocks and securities which carry the right to buy common
stocks), which the Investment Advisor believes have strong
fundamentals and low prices relative to their prior price
histories. See "Investment Program."
The Fund's Share price will fluctuate with changing
market conditions. Therefore, your investment may be worth
more or less when redeemed than when purchased. The Fund
should not be relied upon for short-term financial needs, nor
used to play short-term swings in the stock market. While
there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the
investment policies described in this Prospectus.
The Fund's investments are managed by the Investment
Advisor.
INVESTMENT The Fund is designed for investors primarily seeking
PROGRAM the potential for capital appreciation and income over the
the long term. The Fund's investment in common
stocks is intended to provide sufficient capital growth to
offset the erosive effects of inflation. For an IRA,
retirement plan, or other long-term investment, the Fund
offers an investment program which seeks to provide
attractive returns over the long term.
To achieve its investment objective, the Fund will
normally invest substantially all of its assets in equity
securities (primarily common stocks). While the actual
portfolio mix may vary depending on the Investment Advisor's
short-term and long-term assessments of market conditions,
the Fund will not attempt to time short-term moves in the
market. The Fund will invest at least 60% of its total assets
and may invest up to 100% of its total assets in equity
securities, except for the purpose of effecting temporary
defensive strategies which could be up to one full year.
The Fund's investment philosophy is to invest by using
a value and contrarian approach. Value investing means
selecting equity securities with strong fundamentals and low
prices relative to past price histories. Contrarian investing
means selecting troubled industries and companies when out of
favor and when the level of downside risk is at a perceived
minimum.
At times the Investment Advisor may judge that
conditions in the securities market make pursuing the Fund's
basic investment strategy inconsistent with the best
interests of its stockholders. At such times, the Fund may
temporarily use alternative investment strategies, primarily
designed to reduce fluctuation of the value of the Fund's
assets. In implementing these temporary defensive
strategies, the Fund may in some instances maintain cash
reserves on a temporary basis equal to 80% of its assets for
one full year.
The Fund will make common stock investments primarily
in established companies which the Investment Advisor
believes to exhibit good prospects for capital appreciation
and income.
See "Investment Policies" for a more detailed
description of the Fund's investments.
SPECIAL RISK The Fund may or may not be a suitable or appropriate
CONSIDERATIONS investment for all investors. The Fund is not intended to be
a complete investment program and there can be no assurance
that the Fund will achieve its investment objective. To the
extent that a major portion of the Fund's portfolio is
invested in equity securities, it may be expected that its
net asset value will be subject to greater fluctuation than a
portfolio containing mostly fixed-income securities. The U.S.
stock market tends to be cyclical with periods when stock
prices generally rise and periods when prices generally
decline. The Fund may invest in small and
medium-capitalization stocks. Small-capitalization stocks are
generally classified as having an aggregate market value of
approximately $30 million to $800 million, while
medium-capitalization stocks are classified as having an
aggregate market value capitalization of approximately $800
million to $5 billion. Traditionally, such stocks have been
more volatile in price than the large-capitalization stocks.
Among the reasons for the greater price volatility of these
securities are the less certain growth prospects of smaller
companies, the lower degree of liquidity in the markets for
such stocks, and the greater sensitivity of small and
medium-sized companies to changing economic conditions.
Besides exhibiting greater volatility, small and medium
company stocks may, to some degree, fluctuate independently
of larger company stocks. Small and medium company stocks may
decline in price as large company stocks rise, or rise in
price as large company stocks decline. For a more
comprehensive discussion of the risks associated with
investing in the Fund, see "Risk Factors" and "Investment
Policies."
OFFERING PRICE The offering price to the public on purchases of the Fund's
AND SUMMARY OF Shares made at one time by a single purchaser, by an
FUND EXPENSES individual, his spouse and their children under the age of 21
or by a single trust or fiduciary account other than an
employee plan, is the net asset value per Share of the Fund
plus a sales commission not exceeding 4.50% of the offering
price (equivalent to 4.71% of the net asset value),
which is reduced on larger sales as shown below:
Total Sales Commission*
As a
As a Percentage of Percentage of Portion of Total
Amount of Single Offering Price of Net Asset Value of Offering Price
Sale at Offering the Fund's Shares the Fund's Shares Retained by Dealer
Price Purchased Purchased
Less than $25,000 4.50% 4.71% 3.75%
$25,000 but less than $250,000 3.00% 3.09% 2.40%
$250,000 but less than $500,000 2.00% 2.04% 1.55%
$500,000 but less than 1,000,000 1.00% 1.01% 0.75%
$1,000,000 or more none none see below*
- --------------------
* At the discretion of Rupay-Barrington Securities, the entire sales
commission may at times be reallowed to dealers. Rupay-Barrington
Securities also may, at its expense, provide additional promotional
incentives or payments to dealers that sell the Fund's Shares. In some
instances, the full reallowance, incentives or payments may be offered
only to certain dealers who have sold or may sell significant amounts of
Shares. When 90% or more of the sales commission is reallowed, such
dealers may be deemed to be underwriters as that term is defined in the
Securities Act of 1933.
** The following commissions will be paid by Rupay-Barrington Securities to
dealers who initiate and are responsible for purchases of $1 million or
more and for purchases made at net asset value by certain retirement plans
of oganizations with collective retirement plan assets of $10 million or
more: 1.00% on sales of up to $2 million, plus 0.80% on sales of $2
million to $3 million, plus 0.50% on sales of $3 million to $10 million,
plus 0.25% on sales of $10 million to $25 million, plus 0.15% on sales in
excess of $25 million.
A sales commission equal to 4.00% of the offering price (4.17% of the net
asset value) is applicable to all purchases of Shares, regardless of
amount, made for any qualified or non-qualified employee benefit plan. Of
the 4.00% sales commission applicable to such purchases, 3.20% of the
offering price will be reallowed to dealers.
Shown below are all the expenses and fees the Fund
is expected to incur. Such expenses and fees are
expressed as a percentage of average Fund net assets. The
table and Example are provided for purposes of assisting
prospective stockholders in understanding the various
costs and expenses that an investor in the Fund will bear
directly or indirectly.
EXPENSE TABLE
Stockholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of Offering Price)..... 4.50%
Maximum Sales Load Imposed on Reinvested
Dividends..................................None
Deferred Sales Load on Redemptions.........None
Redemption Fees............................None*
Annual Fund Operating Expenses (as a percentage of
average net assets)
Management Fees........................0.80% **
12b-1 Fees.............................0.35%***
Other Expenses (audit, legal, stockholder services,
transfer agent and custodian based on estimated
amounts for the first full fiscal
year)................................0.70%
Total Fund Operating Expenses .........1.85%
Example
You would pay the following expenses 1 Yr 3yrs
on a $1,000 investment, assuming (1)
5% average annual return and (2)
redemption at the end of each time period: $63 $101
--------------------
* The information in the table does not reflect a
charge of $25 that may be imposed for the transfer
of redemption proceeds by wire. ** The Management
Fee is higher than that charged by many other
mutual funds. *** Long-term stockholders may pay
more than the economic equivalent of the maximum
front-end sales charges permitted by the National
Association of Securities Dealers, Inc. See "Fund
Expenses and Management Fees." A trailer fee
of .25% of the .35% 12b-1 fee will be paid by
Rupay-Barrington Securities to dealers whose
stockholder accounts with the Fund equal or
exceed $500,000.
THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESSER THAN THOSE SHOWN.
Federal regulations require the Example to assume a 5%
annual return. Actual returns will vary.
No projection can be made with respect to total
expenses to be incurred in future years of operation. The
Rupay-Barrington Financial Group, Inc. ("Rupay-Barrington
Financial") has agreed to limit the operational expense
to be paid by the Fund during its first five years of
operations, by paying such fees and expenses as exceed
1.85% during each of such first five years of operation.
More information about these expenses may be found under
"Fund Expenses and Management Fee."
<PAGE>
RISK FACTORS All investments involve risk. There can be no guarantee
against loss resulting from an investment in the Fund, nor can
there be any assurance that the Fund's investment objective
will be attained. As with any investment in securities, the
value of, and income from, an investment in the Fund can
decrease as well as increase depending on a variety of factors
which may affect the values and income generated by the Fund's
portfolio securities, including general economic conditions,
market factors and currency exchange rates. Because of its
investment policy, the Fund may or may not be a suitable or
appropriate investment for all investors. The Fund is not a
money market fund and is not an appropriate investment for
those investors whose primary objective is principal
stability. Although the Fund seeks to reduce risk by
investing in a diversified portfolio, such diversification
does not eliminate all risk. There are risk considerations
other than those disclosed herein described in the SAI.
To the extent that a major portion of the Fund's
portfolio is invested in equity securities, it may be expected
that its net asset value will be subject to greater
fluctuation than a portfolio containing mostly fixed-income
securities. The U.S. stock market tends to be cyclical with
periods when stock prices generally rise and periods when
prices generally decline. The Fund may invest in small and
medium-capitalization stocks. Small-capitalization stocks are
generally classified as having an aggregate market value of
approximately $30 million to $800 million, while
medium-capitalization stocks are classified as having an
aggregate market value capitalization of approximately $800
million to $5 billion. Traditionally, such stocks have been
more volatile in price than the large-capitalization stocks.
Among the reasons for the greater price volatility of these
securities are the less certain growth prospects of smaller
firms, the lower degree of liquidity in the markets for such
stocks, and the greater sensitivity of small and medium-sized
companies to changing economic conditions. Besides exhibiting
greater volatility, small and medium company stocks may, to
some degree, fluctuate independently of larger company stocks.
Small and medium company stocks may decline in price as large
company stocks rise, or rise in price as large company stocks
decline.
Foreign Investing. The Fund may invest in the securities
of foreign issuers, but intends to limit any such investments
to not more than 15% of its assets. Because the Fund may
invest in foreign securities, investment in the Fund involves
risks that are different in some respects from an investment
in a fund which invests only in securities of U.S. domestic
issues. Foreign investments may be affected favorably or
unfavorably by changes in currency rates and exchange control
regulations. There may be
<PAGE>
less publicly available information about a foreign company
than about a U.S. company, and foreign companies may not be
subject to accounting, auditing, and financial reporting
standards and requirements comparable to those applicable to
U.S. companies. Securities of some foreign companies are less
liquid or more volatile than securities of U.S. companies, and
foreign broker commissions and custodian fees are generally
higher than in the United States. Investments in foreign
securities may also be subject to other risks different from
those affecting U.S. investment, including local political or
economic developments, expropriation or nationalization of
assets, imposition of withholding taxes on dividend or
interest payments, and currency blockage (which would prevent
cash from being brought back to the United States).
INVESTMENT TYPES OF INVESTMENTS. The Fund's investments
POLICIES include, but are not limited to, the equity and fixed income
securities described below.
Equity Securities. The Fund may invest in equity
securities of domestic and foreign entities. For a general
discussion of the equity securities in which the Fund may
invest see "Fundamental and Other Investment Policies."
Fixed Income Securities. The Fund may invest in fixed
income securities of any type that are considered investment
grade (e.g., AAA, AA, A, or BBB by Standard & Poor's
Corporation ("S&P"), or Aaa, Aa, A, or Baa by Moody's
Investors Service, Inc. ("Moody's")), or, if not rated, are of
equivalent investment quality as determined by the Investment
Advisor. Debt Securities within the top credit categories
(e.g., AAA and AA by S&P) comprise what are generally known as
high-quality bonds. Medium grade bonds (e.g., BBB by S&P or
Baa by Moody's) are regarded as having an adequate capacity to
pay principal and interest, although adverse economic
conditions or changing circumstances are more likely to lead
to a weakening of such capacity than that for higher grade
bonds. In light of the possible risks associated with an
economic downturn, medium grade bonds are considered
speculative in some respects. The Fund has no current intent
to purchase any security which at the time of purchase is
rated below investment grade or, if not rated, is not of
equivalent investment quality. Such policy will not preclude
the Fund from retaining a security whose credit quality is
downgraded to a non-investment grade level after purchase. In
no event will the Fund purchase or hold non-investment grade
securities if as a result such securities would, in the
aggregate, comprise 5% or more of the Fund's net assets.
<PAGE>
A fixed income security's yield is determiend by
calculating the fixed annual interest of the security as a
percent of its current price. The price (the fixed income
security's market value) increases or decrease in response
to changes in market interest rate levels, thereby adjusting
the fixed incoem security's yield Therefore, fixed income
security prices generally move in the opposite direction of
interest rates.
Movements in interest rates typically have a greater
effect on the prices of longer fixed income securities than on
those with shorter maturities. The following table illustrates
the effect of a one percentage point change in interest rates
on a $1,000 bond with a 7% coupon.
Principal value if rates:
Maturity Increase 1% Decrease 1*
Intermediate fixed income 5 years $959 $1,043
security
Long-term fixed income 20 years $901 $1,116
security
The other types of fixed income securities in which the
Fund may invest include the securities described below.
Asset-Backed Securities. Asset-backed securities are
securities which represent a participation in, or are secured
by and payable from, a stream of payments generated by
particular assets, most often a pool or pools of similar
assets (e.g. trade receivables). Asset-backed commercial
paper, one type of asset-backed security, is issued by a
special purpose entity, organized solely to issue the
commercial paper and to purchase interests in the assets. The
credit quality of these securities depends primarily upon the
quality of the underlying assets and the level of credit
support and/or enhancement provided. The Fund may invest in
asset-backed securities which are rated in one of the two
highest rating categories by a nationally recognized rating
agency such as Standard & Poor's Corporation, Moody's
Investors Services, nc. or Duff & Phelps, or if not so rated,
of equivalent investment quality in the opinion of the
Investment Advisor. Certain of the asset-backed securities in
which the Fund may invest include automobile and credit card
receivable securities. See the "Investment Objectives and
Policies" section of the SAI for a more detailed discussion
of asset-backed securities.
Bonds. The quality of a bond is measured by credit risk --
the ability of the issuer to meet interest and principal
payments on a timely basis. Issuers who are believed to be
good credit risks receive high quality ratings, and those
believed to be poor credit risks receive low quality ratings.
High-quality bonds involve less credit risk and typically
offer a lower yield than bonds of low quality.
Convertible Securities and Preferred Stock. The Fund may
invest in preferred equity securities and/or debt and equity
securities convertible into or exchangeable for common equity
securities. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with
claims on the company's earnings and assets before common
stock owners, but after debt owners. It is not anticipated
that the investment quality of the preferred equity or debt
convertible securities in which the Fund may invest will be
rated; however, the Fund will not invest in securities that
the Investment Advisor does not deem to be investment grade.
Mortgage Obligations. The Fund may invest in mortgage
obligations issued or guaranteed by non-governmental entities
as well as the U.S. Government, its agencies or
instrumentalities. Such mortgage obligations may include, but
are not limited to, collateralized mortgage obligations, which
are obligations fully collateralized by a portfolio of
mortgages or mortgage-related securities ("CMOs"), principal
obligations ("POs"), interest obligations ("IOs") and other
mortgage-backed securities. Some mortgage-backed securities,
such as GNMA certificates, are backed by the full faith and
credit of the U.S. Treasury while others, such as Freddie Mac
certificates, are not. Risks associated with investment in
mortgage obligations include, but are not limited to,
principal volatility, fluctuations in interest rates and
prepayment. Payments of principal and interest on the
mortgages are passed through to the holders of the CMOs on the
same schedule as they are received, although certain classes
of CMOs have priority over others with respect to the receipt
of prepayments in the mortgages. Therefore, depending on the
type of CMOs in which the Fund invests, the investment may be
subject to a greater or lesser risk of prepayment than other
types of mortgage-related securities, which prepayments could
have an adverse impact on the Fund's overall yield. CMOs may
also be less marketable than other securities.
Other Fixed Income Securities. Certain of the other
fixed income securities in which the Fund may invest include,
but are not limited to, the following: U.S. Government
Obligations (debt securities issued by the U.S. Treasury);U.S.
Government Agency Securities (securities issued or guaranteed
by U.S. Government sponsored enterprises and federal
agencies); Bank Obligations (certificates of deposit, bankers'
acceptances, and other debt obligations); and Savings and Loan
Obligations (negotiable certificates of deposit and other debt
obligations of savings and loan associations).
Other Securities. Other securities in which the Fund may
invest include, but are not limited to, the following:
Futures Contracts and Options. The Fund may enter into
futures contracts (or options thereon) to hedge all or a
portion of its portfolio, as a hedge against changes in
prevailing levels of interest rates or currency exchange
rates, or as an efficient means of adjusting its exposure to
the bond, stock and currency markets. The Fund will limit its
use of futures contracts so that no more than 5% of the Fund's
total assets would be committed to initial margin deposits or
premiums on such contracts. The Fund may write covered call
and put options and purchase put and call options on
securities, financial indices, and currencies, also for
hedging purposes. The aggregate market value of the Fund's
portfolio securities or currencies covering call or put
options will not exceed 25% of the Fund's net assets. Futures
contracts and options can be highly volatile and could result
in reduction of the Fund's total return, and the Fund's
attempt to use such investments for hedging purposes may not
be successful. The Fund could suffer substantial and even
unlimited losses if the prices of its futures contracts and
options were poorly correlated with its other investments, or
if it could not close out its position because of an illiquid
secondary market. For additional information regarding the
risks that may be associated with futures contracts and
options, see "Investment Objective and Policies -- Special
Risks of Transactions in Futures Contracts" in the SAI.
Repurchase Agreements. The Fund may enter into
repurchase agreements with a well-established securities
dealer or a bank that is a member of the Federal Reserve
System. In the event of a bankruptcy or default of certain
sellers of repurchase agreements, the Fund may experience
costs and delays in liquidating the underlying security which
is held as collateral, and the Fund might incur a loss if the
value of the collateral held declines during this period.
FUNDAMENTAL Fundamental Investment Policies. As a matter of
AND OTHER fundamental policy, the Fund will not, among other things: (i)
INVESTMENT purchase a security of any issuer if, as a result it would a)
POLICIES cause the Fund to have 25% or more of its total assets
concentrated in any one industry, or (b) with respect to
50% of its assets, cause the Fund's holdings of any issuer to
amount to more than 5% of the Fund's total assets or cause
the Fund to own more than 10% of the outstanding voting
securities of any issuer provided that, as an operating
policy, the Fund will not purchase a security if, as a
result, more than 10% of the outstanding voting securities of
any issuer would be held by the Fund (ii) borrow money,except
<PAGE>
temporarily from banks to facilitate redemption requests, in
amounts exceeding 30% of its total assets valued at market; or
(iii) in any manner transfer as collateral for indebtedness
any securities owned by the Fund except in connection with
permissible borrowings, which in no event will exceed 30% of
the Fund's total assets valued at market. For the purpose of
realizing income, as a fundamental policy, the Fund may lend
securities with a value of up to 30% of its total assets to
domestic broker-dealers or institutional investors. Any such
loan will be continuously secured by collateral at least equal
to the value of the security loaned; however, such lending
could result in delays in receiving additional collateral or
in the recovery of the securities or possible loss of rights
in the collateral should the borrower fail financially. See
"Investment Restrictions -- Fundamental Policies" in the SAI.
Other Investment Policies. As a matter of operating
policy, the Fund will not, among other things: (i) purchase
securities of an issuer if, as a result, (a) more than 10% of
the value of the Fund's net assets would be invested in
illiquid securities, including repurchase agreements which do
not provide for payment within seven days, or other securities
which are not readily marketable or (b) more than 5% of the
value of the Fund's total assets would be invested in the
securities of unseasoned issuers which at the time of purchase
have been in operation for less than three years, including
predecessors and unconditional guarantors; (ii) purchase
securities when money borrowed exceeds 5% of the Fund's total
assets; (iii) purchase or hold the securities of other
investment companies if, as a result: (a) the Fund owns, in
the aggregate, more than 3% of the total outstanding voting
stock in such investment companies; (b) securities issued by
such investment companies are in excess of 5% of the value of
the Fund's total assets; or (c) more than 10% of the value of
the Fund's assets would be invested in such investment
companies; (iv) purchase interests in oil, gas or other
mineral exploration or development programs; (v) purchase
warrants, valued at the lower of cost or market, if, as a
result, more than 5% of the value of the Fund's net assets
would be invested in warrants, more than 2% of which are not
listed on the New York Stock Exchange, American Stock Exchange
or The Nasdaq National Market, and (vi) purchase POs and IOs,
if, as a result, more than 5% of the value of the Fund's net
assets would be invested in POs and IOs. In addition, the Fund
may establish and maintain cash reserves for temporary
defensive purposes or to enable it to take advantage of buying
opportunities. For a discussion of the Fund's temporary
defensive strategy see "Investment Program." The Fund's
reserves may be invested in domestic money market instruments
including, but not limited to, government obligations,
certificates of deposit, bankers' acceptances, commercial
paper, short-term corporate debt issues, and repurchase
agreements.
Portfolio Turnover. Generally, the Fund does not intend
to purchase securities for short-term trading; however, when
circumstances warrant, securities may be sold without regard
to the length of time held. The Fund cannot accurately predict
its annual turnover rate for its portfolio.
Further Information. The Fund's investment program and
policies, discussed above, are subject to further restrictions
and risks which are described in the SAI. The Fund's
investment objective and investment program, unless otherwise
specified, are not fundamental policies and may be changed
without stockholder approval. Stockholders will be notified of
any material change in such program. Fundamental policies may
be changed only with stockholder approval.
PERFORMANCE Total Return Performance. The Fund may advertise total
INFORMATION return figures on both a compound average annual and
cumulative basis. Cumulative total return compares the amount
invested at the beginning of a period with the amount redeemed
at the end of the period, assuming the reinvestment of all
dividends and capital gain distributions. The compound
average annual total return, derived from the cumulative
total return figure, indicates a yearly average of the
Fund's performance. The annual compound rate of return for
the Fund may vary from its average annual return.
Total Return Components. The total return from the Fund
consists of the change in its net asset value per Share of the
Fund and the income it generates. The net asset value of the
Fund will be affected primarily by changes in stock values and
interest rate levels, the maturity and credit quality of the
Fund's debt securities, as well as changes in the values of
foreign currencies.
Yield. The Fund may advertise a yield figure derived by
dividing the Fund's net investment income per Share (as
defined by applicable SEC regulations) during a 30-day base
period by the maximum offering price on the last day of the
base period.
HOW TO BUY Shares of the Fund may be purchased on any Business Day
SHARES (as defined below) at the offering price through any broker
which has a dealer agreement with Rupay-Barrington
Securities++, the Principal Underwriter of the Fund's Shares,
or directly from Rupay-Barrington Securities upon receipt of a
completed New Account Form and a check ade payable to Rupay-
Barrington Value Equity Fund, by the Fund's transfer Agent,
Fund Services, Inc. ("FSI"), 1500 Forest Avenue, Suite
111, Richmond, VA 23229, Attention: Rupay-Barrington
Value Equity Fund Account Services. A "Business Day" is any
weekday that the New York Stock Exchange (the "NYSE") and
the Federal Reserve Bank of Richmond (the "FRB") is open for
business. The minimum initial purchase order is $2,000
with subsequent investments of $100 or more.
With respect to telephone orders placed with
Rupay-Barrington Securities by dealers, the dealer must
receive the investor's order before the close of the NYSE and
transmit it to FSI by 4:00 p.m., Eastern Time, for the
investor to receive that day's offering price. Payment for
such orders must be by check in U.S. currency and must be
promptly submitted to Rupay-Barrington Securities c/o FSI,
P.O. Box 26305, Richmond, VA 23260-6305.
++ Rupay-Barrington Securities may recommend brokers
who have dealer agreements with Rupay-Barrington Securities
for potential stockholders residing in states in which Rupay-
Barrington Securities is not registerd.
Orders mailed to Rupay-Barrington Securities c/o FSI by
dealers or individual investors are effected at the offering
price next computed after the purchase order accompanied by
payment has been received by FSI. Such payment must be by
check in U.S. currency drawn on a commercial bank in the U.S.
Any subscription may be rejected by Rupay-Barrington
Securities or by the Fund.
Shares also may be purchased through an investment
dealer, bank or other institution. The Fund may enter into an
arrangement with such institution to process purchase orders
or redemption requests for its customers with the Fund on an
expedited basis, including requesting Share redemptions by
telephone. Although these arrangements might permit one to
effect a purchase or redemption of Fund Shares through the
institution more quickly than would otherwise be possible, the
institution may impose charges for its services. These charges
could constitute a significant portion of a smaller account,
and might not be in a stockholder's best interest. Shares of
the Fund may be purchased or redeemed directly from the Fund
without imposition of any charges other than those described
in the Prospectus.
Investors should promptly check the confirmation advice
that is mailed after each purchase (or redemption) to insure
that it has been accurately recorded in the investor's
account.
Cumulative Quantity Discount. The schedule of reduced
sales commissions also may be applied to qualifying sales on a
cumulative basis. For this purpose, the dollar amount of the
sale is added to the higher of:(i)the value (calculated at the
applicable offering price);or (ii)the purchase price of any
other Shares of the Fund owned at that time by the investor.
For example, if the investor held Shares valued at $20,000
(or, if valued at less than $20,000, had been purchased for
$20,000) and purchased an additional $10,000 of the Fund's
Shares, the sales commission for the $10,000 purchase would be
at the rate of 3.0%. It is Rupay-Barrington Securities' policy
to give investors the best sales commission rate possible;
however, there can be no assurance that an investor will
receive the appropriate discount unless, at the time of
placing the purchase order, the investor or the dealer makes a
request for the discount and gives Rupay-Barrington Securities
sufficient information to determine whether the purchase will
qualify for the discount. On telephone orders from dealers for
the purchase of Shares to be registered in "street name," FSI
will accept the dealer's instructions with respect to the
applicable sales commission rate to be applied. The cumulative
quantity discount may be amended or terminated at any time.
Any money market funds which may be offered now or in the
future will not qualify for the cumulative quantity discount
(See Stockholder Services -- Exchange Privileges).
Letter of Intent. Investors may also reduce sales
charges on all investments by means of a Letter of Intent
("LOI") which expresses the investor's intention to invest a
certain amount within a 13-month period in the Fund's Shares.
The minimum initial investment under an LOI is 5% of the total
LOI amount. Shares purchased with the first 5% of such amount
will be held in escrow to secure payment of the higher sales
charge applicable to the Shares actually purchased if the full
amount indicated is not purchased, and such escrowed Shares
will be involuntarily redeemed to pay the additional sales
charge, if necessary. Such escrowed Shares will be registered
in the stockholder's name and will continue to earn any
dividends and capital gains paid by the Fund. Dividends
declared on escrowed Shares will be paid to the stockholder or
as otherwise instructed by the stockholder. The escrowed
Shares will be released when the full amount indicated has
been purchased. Any redemptions made during the 13-month
period will be subtracted from the amount of purchase in
determining whether the LOI has been completed. A purchase not
originally made pursuant to an LOI may be included under a
subsequent LOI executed within 90 days of the purchase. The
stockholder must instruct the transfer agent upon making
subsequent purchases that such purchases are subject to an
LOI. All dividends and capital gains of the Fund that are
invested in additional Shares are applied to the LOI.
Investors electing to purchase Shares pursuant to a LOI should
contact Rupay-Barrington Securities at 1-800-688-1688.
Group Purchases. An individual who is a member of a
qualified group may also purchase Shares of the Fund at the
reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of
Shares previously purchased and still owned by the group, plus
the amount of the current purchase. For example, if members of
the group had previously invested and still held $225,000 of
Fund Shares and now were investing $50,000, the sales charge
would be 2%. Information concerning the current sales charge
applicable to a group may be obtained by contacting
Rupay-Barrington Securities at 1-800-688-1688.
A "qualified group" is one which: (i) has been in
existence for more than six months; (ii) has a purpose other
than acquiring Fund Shares at a discount; and (iii) satisfies
uniform criteria which enable Rupay-Barrington Securities to
realize economies of scale in its costs of distributing
Shares. A qualified group must have more than 10 members, must
be available to arrange for group meetings between
representatives of the Fund and the members, must agree to
include sales and other materials related to the Fund in its
publications and mailings to members at reduced or no cost to
Rupay-Barrington Securities, and must seek to arrange for
payroll deduction or other bulk transmission of investments to
the Fund.
Net Asset Value Purchases. Shares of the Fund may be
purchased at a price equal to the net asset value per Share of
the Fund without imposition of a sales commission by the
following persons: (i) dealers who initiate and are
responsible for purchases of $1 million or more; (ii) trustees
or other fiduciaries purchasing securities for certain
retirement plans with assets of $10 million or more; (iii)
directors, trustees and officers of the investment companies
sponsored by Rupay-Barrington Financial and its affiliates
(collectively, the "Rupay-Barrington Group"), directors,
officers and employees (current or retired) in the
Rupay-Barrington Group (and their families), and retirement
plans established by the Rupay-Barrington Group for employees;
(iv) companies exchanging shares with or selling assets to the
Fund pursuant to a merger, acquisition or exchange offer; (v)
dealers or brokers who have a sales agreement with
Rupay-Barrington Securities for their own accounts, or for
retirement plans for their employees or sold to registered
representatives or full time employees (and their families)
that certify to Rupay-Barrington Securities at the time of
purchase that such purchase is for their own account (or for
the benefit of their families); (vi) insurance company
separate accounts; (vii) accounts managed by the
Rupay-Barrington Group affiliates; and (viii) certain unit
investment trusts and unit holders of such trusts reinvesting
their distributions from the trusts in the Fund.
<PAGE>
Shares of the Fund may also be purchased at a price
equal to the net asset value per Share of the Fund by employee
benefit plans qualified under Section 401 of the Code,
including salary reduction plans qualified under Section
401(k) of the Code, subject to minimum requirements with
respect to number of employees or amount of purchase, which
may be established by Rupay-Barrington Securities. Currently,
those criteria require that the employer establishing the plan
have 500 or more employees or that the amount invested or to
be invested during the subsequent 13-month period in the Fund
totals at least $1 million. Employee benefit plans not
qualified under Section 401 of the Code may be afforded the
same privilege if they meet the above requirements as well as
the uniform criteria for qualified groups described above
under "Group Purchases" which enable Rupay-Barrington
Securities to realize economies of scale in its sales efforts
and sales-related expenses.
Shares of the Fund may be purchased at a price equal to
the net asset value per Share of the Fund by trust companies
and bank trust departments for funds over which they exercise
exclusive discretionary investment authority and which are
held in a fiduciary, agency, advisory, custodial or similar
capacity. Such purchases are subject to minimum requirements
with respect to amount of purchase, which may be established
by Rupay-Barrington Securities. Currently, those criteria
require that the amount invested or to be invested during the
subsequent 13-month period in the Fund must total at least $1
million. Orders for such accounts will be accepted by mail
accompanied by a check, or by wire transfer directly from the
bank or trust company, with payment by federal funds received
by the close of business on the next business day following
such order.
OPENING A NEW Minimum initial investment: $2000
ACCOUNT AND
PURCHASING By Mail: Send your New Account Form and check by Regular,
SHARES Express, Registered, or Certified Mail, to:
Checks payable to Rupay-Barrington Value Equity Fund
Rupay-Barrington Account Services
Value Equity Fund c/o FSI
1500 Forest Avenue, Suite 111
Richmond, VA 23229
Fund Serve Information regarding Fund Serve eligibility may
Eligibility be obtained by contacting Rupay-Barrington Securities at
1-800-688-1688.
PURCHASING Minimum subsequent investment: $100
ADDITIONAL
SHARES
Stockholder By Wire: Call Stockholder Services and use the Wire Address
Services below.
1-800-628-4077
Wire Address
(to give to
your bank):Crestar Bank
Richmond, VA
ABA #051000020
CREDIT: 201648180
FURTHER CREDIT: Rupay-Barrington Value
Equity Fund Purchase Account
By Mail: Indicate your account number and the name of the Fund
on your check. (Please use the additional investment
portion (tear-off stub) from a confirmation statement.)
COMPLETING THE Tax Identification Number. We must have your correct
NEW ACCOUNT social security or corporate tax identification number and a
FORM signed New Account Form or W-9 Form. Otherwise, federal law
requires the Fund to withhold 31% of your dividends, capital
You must provide gain distributions, and upon redemption or exchange of your
your Tax ID Shares and may subject you to a fine. You also will be
number and sign prohibited from opening another account. If this information
the New Account is not received within 60 days after your account is
Form established, the Fund will begin withholding.
Services. By signing up for services on the New Account
Form, rather than after the account is opened, you will avoid
having to complete a separate form and obtain a signature
guarantee (See Conditions of Your Purchase -- Signature
Guarantees page).
NET ASSET VALUE, Net Asset Value per Share of the Fund. The net asset
PRICING AND value per Share of the Fund, or Share price for the Fund, is
EFFECTIVE DATE determined at the close of trading normally 4:00 p.m. Eastern
Time each day the New York Stock Exchange is open. The Fund's
Share price is calculated by subtracting its liabilities
from its total assets and dividing the result by the total
number of Shares of the Fund outstanding. Among other things,
the Fund's liabilities include accrued expenses and dividends
payable, and its total assets include portfolio securities
valued aT market as well as income accrued but not yet
received.
If your order is Purchased Shares are priced at the net asset value per
received before Share of the Fund on that day, plus sales charge, if your
4:00 p.m. Eastern request is received before 4:00 p.m. Eastern Time in good
Time in good order. If received later than 4:00 p.m. Eastern Time Shares
order, you will will be priced at the net asset value per Share of the Fund on
receive the net the next business day, plus sales charge. We cannot accept
asset value per requests which specify a particular date for purchases or
share of the Fund which specify any special conditions.
on that day.
Redemptions are priced at the net asset value per Share
of the Fund on that day if your request is received before
4:00 p.m. Eastern Time in good order. If received after 4:00
p.m. Eastern Time, Shares will be priced at the net asset
value per Share of the Fund on the next business day.
Requests mailed to any of our offices must be forwarded to
Richmond, Virginia and will not be effective until received
there in good order. Also, we cannot accept requests
which specify a particular date for redemption or which
specify any special conditions. If your redemption request
cannot be accepted, you will be notified and given further
instructions.
The Fund reserves the right to change the time at which
purchases, redemptions and exchanges are priced if the New
York Stock Exchange closes earlier than 4:00 p.m. Eastern
Time.
REDEEMING By Phone: Call Stockholders Services at 1-800-628-4077.
SHARES If you find our phones busy during unusually volatile markets,
please consider placing your order by express mail.
Redemption proceeds can be mailed or wired to your bank.
The Fund's bank charges a $25.00 fee for all wire redemptions,
subject to change without notice. Your bank may also charge
you for receiving wires.
By Mail: Indicate account name(s) and numbers, fund
name(s), and exchange or redemption amount. For exchanges,
mail to the attention of the Fund you are exchanging from and
indicate the Fund(s) you are exchanging to (See Stockholder
Services -- Exchange Privileges, page ). The signature of all
owners exactly as registered, and possibly a signature
guarantee (See Conditions of Your Purchase -- Signature
Guarantees, page ).
Note: Distributions from retirement accounts, including
IRAs, must be in writing. For employer-sponsored retirement
accounts, call Stockholder Services or your plan administrator
for instructions.
Repurchase of Shares. The Fund, through Rupay-Barrington
Securities, also repurchases Shares through securities
dealers. The Fund normally will accept orders to repurchase
such Shares by wire from dealers for their customers at the
net asset value per Share of the Fund next computed after the
dealer has received the stockholder's request for repurchase,
if the dealer received such request before closing time of the
NYSE on that day. Dealers have the responsibility of
submitting such repurchase requests by calling not later than
4:00 p.m. Eastern Time on such day in order to obtain that
day's applicable redemption price. Repurchase of Shares is
for the convenience of stockholders and does not involve a
charge by the Fund; however, securities dealers may impose a
charge on the stockholder for transmitting the notice of
repurchase to the Fund. The Fund reserves the right to reject
any order for repurchase, which right of rejection might
adversely affect stockholders seeking redemption through
the repurchase procedure; however, such stockholders may
redeem Shares other than through repurchase. Ordinarily
payment will be made to the securities dealer within seven
days after receipt of a repurchase
<PAGE>
order in "Good Order" as set forth above. The Fund will also
accept, from member firms of the NYSE, orders to repurchase
Shares by wire or telephone with a redemption request signed
by the stockholder, provided the member firm indemnifies the
Fund and Rupay-Barrington Securities from any liability
resulting from the absence of the stockholder's signature.
Forms for such indemnity agreement can be obtained from
Rupay-Barrington Securities.
Stock Certificates. To facilitate redemptions and
transfers, stockholders will not receive stock certificates.
Evidence of ownership will be given by issuance of periodic
account statements which will show the number of Shares owned.
Systematic Withdrawal Plan. Stockholders owning $10,000
or more of the Fund Shares may elect to have periodic
redemptions from their accounts to be paid on a monthly basis.
The minimum periodic payment is $100. A sufficient number of
Shares to make the scheduled redemption will be redeemed on
the 25th day of the month. Redemptions for the purpose of
making such payments may reduce or even exhaust your account
if the monthly redemption payments exceed the dividends,
interest and capital appreciation, if any, on your Shares. A
stockholder may request that these payments be sent to a
predesignated bank or other designated party.
Amounts paid to you pursuant to the Systematic
Withdrawal Plan are not a return on your investment. Payments
to you pursuant to the Systematic Withdrawal Plan are derived
from the redemption of Shares in your account and are taxable
transactions on which gain or loss may be recognized for
federal, state and city income tax purposes.
RECEIVING YOUR Generally, redemption proceeds will be mailed to the
PROCEEDS address you designated on your New Account Form or wired to
your bank the next business day after receiving your
redemption request in good order. In addition, under unusual
conditions, or when deemed to be in the best interests of the
Fund, redemption proceeds may not be sent for up to seven
calendar days after your request is received to allow for the
orderly liquidation of securities. Requests by mail for wire
redemptions (unless previously authorized) must have a
signature guarantee.
DIVIDENDS AND The Fund normally distributes all net income and capital
DISTRIBUTIONS gains to stockholders. Dividends from net investment income
will be declared and paid semi-annually. Distributions from
capital gains, if any, are normally declared in December and
paid in early January. Dividends and capital gains
declared by the Fund will be reinvested unless you choose
an alternative payment option on the New Account Form.
Dividends not reinvested are paid by check or ACH transfer.
Your bank must be a member of the National Automatic
Clearing House Association. If the U.S. Postal Service
cannot deliver your check, then your dividends will be
held by the Fund and will not be reinvested.
CONDITIONS OF Account Balance. If, as a result of redemptions, your
YOUR PURCHASE account drops below $1,000 for three months or more, the Fund
has the right to close your account, after giving 60 days
notice, unless you make additional investments to bring your
account value to $1,000 or more.
Nonpayment. If your check or wire does not clear, you
will be responsible for any loss the Fund incurs. If you are
already a stockholder, the Fund can redeem Shares from any
identically registered account in this Fund as reimbursement
for any loss incurred.
Non-U.S. Bank Checks. Checks drawn on foreign banks
must be in U.S.dollars and have the routing number of the U.S.
bank indicated on the check.
Redemptions in Excess of $250,000. Redemption proceeds
are normally paid in cash. However, if you redeem more than
$250,000, or 1% of the Fund's net assets, in any 90-day
period, the Fund may in its discretion: (i) pay the difference
between the redemption amount and the lesser of $250,000 or 1%
of the Fund's assets with securities owned by the Fund; or
(ii) delay the transmission of your proceeds for up to five
business days (but in no event more than seven calendar days)
after your request is received. In the event the Fund elects
to pay any portion of your redemption proceeds with Fund
securities, you will bear the market risk associated with the
ownership of such securities and the brokerage costs
associated with the disposition of any such securities.
Signature Guarantees. A signature guarantee is designed
to protect you and the Fund by verifying your signature. You
will need a signature guarantee to:
(1) Establish certain services after the account is
opened.
(2) Redeem over $5,000 by written request if you do not
have telephone redemption services.
(3) Redeem or exchange Shares when someone who is not
a registered owner of the account will receive the
<PAGE>
proceeds, or when proceeds are being sent to a bank
account not listed on your fund account.
(4) Transfer Shares to another owner.
(5) Send us written instructions asking us to wire
redemption proceeds.
These requirements may be waived or modified in certain
instances.
"Eligible guarantors" are: national or state banks,
savings associations, savings and loan associations, trust
companies, savings banks, industrial loan companies and credit
unions; national securities exchanges, registered securities
associations and clearing agencies; or brokers, dealers,
municipal securities dealers, municipal securities brokers,
government securities dealers, and government securities
brokers. We cannot accept guarantees from institutions or
individuals who do not provide reimbursement in the case of
fraud, such as notary public.
Fifteen-Day Hold. The mailing of proceeds on redemption
requests involving any Shares recently purchased by personal,
corporate or government check may be delayed by the Fund's
Transfer Agent for a period of up to 15 calendar days after
the purchase date, pending a determination that the check has
cleared or funds have been received. Proceeds of redemption
requests sent by mail or telegram will be mailed no later than
the seventh day following receipt unless the check has not
cleared. The clearing period does not apply to purchases made
by wire or cashier's, treasurer's, or certified checks.
The Fund and its agents reserve the right to: (i) reject
any purchase or exchange and cancel any purchase due to
nonpayment; (ii) waive or lower the investment minimums; (iii)
accept initial purchases by telephone or telegram; (iv) waive
the limit on subsequent purchases by telephone; (v) reject any
purchase or exchange prior to receipt of the confirmation
statement; (vi) redeem your account (see Tax Identification
Number); and (vii) modify the conditions of purchase at any
time.
STOCKHOLDER The following is a brief summary of our services, some of
SERVICES which may be restricted or unavailable to retirement plan
accounts. Services may be modified at any time without notice.
Be sure to sign up Exchange Privileges. Shares of one fund of the Company
for all telephone may be exchagned for Shares of other funds of the Company.
services on the Exchanges of Shares will be made at their relative net asset
New Account Form. values. Shares may only be exchanged if the amount being
exchanged satisfies the minimum investment required and the
stockholder is a resident of a state where Shares of the
appropriate Fund are qualified for sale. Investors should
note that an exchange may result in a taxable event.
Exchange privileges may be terminated, modified or suspended
by the Fund upon 60 days notice to stockholders.
Telephone Exchange and Redemption Services. All
telephone calls to Stockholder Services, including
transaction-related calls to Stockholder Services are recorded
in order to protect you, the Fund, and its agents. You may
elect to effect exchanges or redemptions by telephone. By
establishing telephone exchange or redemption services, you
authorize us to: (i) redeem or exchange Shares from your
account based on any instructions believed to be genuine; and
(ii) honor any written instructions for a redemption or
exchange without a signature guarantee (other than as required
under Signature Guarantees). The Fund reserves the right to
change or suspend these services upon 60 days prior written
notice. The Fund and Rupay-Barrington Securities will not be
liable for any loss, liability, cost or expense for acting
upon telephone instructions that are reasonably believed to be
genuine. In attempting to confirm that telephone instructions
are genuine, the Fund will use such procedures as are
considered reasonable, including reporting of instructions and
requesting information as to account registration (such as the
name in which an account is registered, the account number,
recent transactions in the account, and the accountholder's
Social Security Number, address and/or bank). To the extent
that the Fund fails to use reasonable procedures as the basis
for its belief, it and/or its service contractors may be
liable for instructions that prove to be fraudulent or
unauthorized.
Automated Investment Program. If your bank is a member
of the Automated Clearing House ("ACH") network, we offer a
method of purchasing Fund Shares in amounts of $50 to $100,000
through automatic transfers from your bank account to your
Fund account. Although the Fund does not impose any additional
fees for automatic transfers, your bank may impose a fee for
such services. See "Net Asset Value, Pricing and Effective
Date" for
<PAGE>
additional information.
Wire Transfers. Bank-Fund transfers can be made through
bank wires (a $25.00 charge applies to all wire redemptions).
While this is usually the quickest transfer method, the Fund
reserves the right to temporarily suspend wires under unusual
circumstances.
TAXES
Form 1099-DIV Taxes on Dividends and Distributions. In January, the
will be mailed to Fund will mail you Form 1099-DIV indicating the federal tax
you in January status of your dividends and capital gain distributions.
Generally, dividends and distributions are taxable in the
year they are paid. However, any dividends and distributions
paid in January but declared during the prior three months
are taxable in the year they are declared. Dividends and
distributions are taxable to you regardless of whether they
are taken in cash or reinvested. Dividends and short-term
capital gains are taxable as ordinary income; distributions
from long-term capital gains are taxable as long-term capital
gains. The capital gains holding period for such
distributions is determined by the length of time the Fund
has held the securities, not the length of time you owned
Fund Shares.
Taxes on Redemptions (Shares Sold or Exchanged). A
redemption or exchange of Fund Shares is treated as a sale for
tax purposes which will result in a short or long-term capital
gain or loss, depending on how long you have owned the Shares.
In January, the Fund will mail you Form 1099-B indicating the
date of and proceeds from all sales and exchanges.
Taxes on Undistributed Income and Gains. At the time of
purchase, the Share price of the Fund may reflect
undistributed income, capital gains or unrealized appreciation
of securities. Any income or capital gains from these amounts
which are later distributed to you are fully taxable, even
though they represent a portion of the price you paid for your
Shares.
Tax-Qualified Retirement Plans. Tax-qualified retirement
plans generally will not be subject to federal tax liability
on either distributions from the Fund or redemption of Shares
of the Fund. Rather, participants in such plans will be taxed
when they begin taking distributions from the plans.
THE FUND AND ITS The Fund is a diversified open-end series of the Company,
MANAGEMENT an investment company organized as a Maryland corporation and
<PAGE>
registered with the Securities and Exchange Commission under
the Investment Company Act of 1940 as a diversified, open-end
investment company, commonly known as a "mutual fund." A
mutual fund, such as the Fund, enables stockholders to: (i)
obtain professional management of investments, including the
Investment Advisor's proprietary research; (ii) diversify
their portfolio to a greater degree than would be generally
possible if they were investing as individuals and thereby
reduce, but not eliminate risks; and (iii) simplify the record
keeping and reduce transaction costs associated with
investments. The Board of Directors of the Company has overall
responsibility for management of the Fund. The Statement of
Additional Information identifies the directors and officers
of the Company and provides information about them. The
Company issues one class of capital stock, all shares of which
have equal rights with regard to voting, redemptions,
dividends, distributions, and liquidations. Fractional shares
have voting rights and participate in any distribution and
dividends. Stockholders have no preemptive or conversion
rights. When issued, the shares of each series of the Company,
including the Fund will be fully paid, nonassessable and
redeemable. Shares of the Company do not have cumulative
voting rights. The Company does not routinely hold annual
meetings of stockholders. However, if stockholders
representing at least 10% of all votes of the Company entitled
to vote so desire, they may call a special meeting of
stockholders of the Company for the purpose of voting on the
question of the removal of any director(s). The total
authorized capital stock of the Company consists of
1,000,000,000 shares, each share having a par value of $0.01.
As of the date of this Prospectus, Rupay-Barrington Financial
owned ten Shares of the Fund.
Fund Advisor. The Investment Advisor, a wholly owned
subsidiary of Rupay-Barrington Financial, manages the Fund's
investments. Subject to the authority of the Board of
Directors, the Investment Advisor provides the Fund with a
continuous program of supervision of the Fund's assets,
including the composition of its portfolio, and furnishes
advice and recommendations with respect to investments,
investment policies and the purchase and sale of securities,
pursuant to an Investment Advisory Agreement with the Company.
The Investment Advisor is also responsible for the selection
of broker-dealers through which the Fund executes portfolio
transactions, subject to brokerage policies established by the
Company's Board of Directors. The Investment Advisor's
portfolio manager for the Fund, Nelson J. Kjos, has been
rendering investment counsel and utilizing investment
strategies similar to
<PAGE>
that of the Fund, to other institutions and clients since
1966. Mr. Kjos is primarily responsible for the day-to-day
management of the Fund's portfolio and has been managing the
Fund since its inception. Mr. Kjos is President of Nelson
Kjos & Co., Inc., a consultant, Director of Value Research,
and Portfolio Manager for Rupay-Barrington Investment Advisory
Services, Inc. Mr. Kjos has been an equity portfolio manager
for thirty-two years for individuals, municipalities,
corporations and pension and profit-sharing plans. Mr. Kjos
is a graduate of the College for Financial Planning and the
Life Underwriters Training Council. Mr. Kjos is the author of
The Poet of Wall Street.
Investment Services. Rupay-Barrington Securities, a
wholly-owned subsidiary of Rupay-Barrington Financial, is the
distributor for this Fund.
Transfer and Dividend Disbursing Agent. Fund Services
Inc. ("FSI") serves the Fund as transfer agent and dividend
disbursing agent. FSI's main office is in Richmond, Virginia
and may be contacted at FSI, P.O. Box 26305, Richmond,
Virginia 23260-6305.
FSI will perform the transfer and dividend disbursing
agent functions as well as: (i) certain stockholder services
for all accounts, for which FSI may be paid fees totaling
approximately $1,000 per month; (ii) and calculation of daily
Share price and maintenance of portfolio and general
accounting records of the Fund, for which Commonwealth Fund
Accounting, Inc. may be paid fees totaling approximately
$1,250 per month.
FUND EXPENSES Fund Expenses. Fund expenses include: the management
AND fee; stockholder servicing fees and expenses; custodian and
MANAGEMENT accounting fees and expenses; legal and auditing fees;expenses
FEES or preparing and printing prospectuses and stockholder
reports; registration fees and expenses; proxy and annual
meeting expenses, if any; and directors' fees and
expenses. In addition, the expenses of organizing,
registering, and qualifying its Shares under federal,
state, and other securities laws will be charged to the
Fund's operations, as an expense, over a period not to
exceed 60 months.
Rupay-Barrington Financial has agreed to bear any
expenses for the Fund's first five years of operations, which
would cause the Fund's ratio of operating expenses to average
net assets to exceed 1.85%. This guarantee is not subject to
later reimbursement.
Management Fee. The Fund pays its Investment Advisor
an investment management fee equal to .80% of the Fund's net
<PAGE>
assets ("Management Fee").
Distribution Plan and Agreement. The Fund has adopted a
Distribution Plan and Agreement (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940. The purpose of
the Plan is to permit the Company to compensate
Rupay-Barrington Securities for services provided and expenses
incurred by it in promoting the sale of Shares of the Fund,
reducing redemptions, and maintaining or improving services
provided to stockholders by Rupay-Barrington Securities or
dealers. The Plan provides for payments by the Fund to
Rupay-Barrington Securities at the annual rate of 0.35% of the
Fund's average net assets subject to the authority of the
Company's Board of Directors to reduce the amount of payments
or to suspend the Plan for such periods as they may determine.
Subject to these limitations, the amount of such payments and
the specific purposes for which they are made shall be
determined from time to time by the Company's Board of
Directors. At present, the Company's Board of Directors has
approved payments under the Plan for the purpose of
compensating Rupay-Barrington Securities for services provided
and reimbursing Rupay-Barrington Securities for expenses
incurred and payments made by it to dealers whose stockholder
accounts with the Fund equal or exceed $500,000, as described
below, subject to the overall limitation that payments under
the Plan shall not exceed a maximum annual rate of 0.35% of
average net assets. The Plan may not be amended to materially
increase the costs which the Fund may bear for distribution
pursuant thereto without stockholder approval.
Dealers whose stockholder accounts with the Fund equal
or exceed $500,000 are paid a continuing trailer fee by
Rupay-Barrington Securities at the annual rate of 0.25% of the
value of the Shares purchased in those stockholder accounts,
as adjusted to reflect redemptions. This fee is paid in order
to promote selling efforts and to compensate dealers for
providing certain services, including processing purchase and
redemption transactions, establishing stockholder accounts and
providing certain information and assistance with respect to
the Fund.
<PAGE>
Information contained herein is subject to completion or amendment. A regis-
tration statement relating to these securities has been filed with the
Securities and Exchange Commision. These securities may not be sold nor may
any offers to buy be accepted prior to the time the registration statement
becomes effective. This Statement of Additional Information does not
constitute a prospectus.
Subject to Completion, dated May 5, 1998
STATEMENT OF ADDITIONAL INFORMATION
Rupay-Barrington Growth Fund
A Series of
RUPAY-BARRINGTON TOTAL RETURN FUND, INC.
1000 Ballpark Way, Suite 302
Arlington, TX 76011
PART B
This Statement of Additional information ("SAI") is not a prospectus but
should be read in conjunction with the Prospectus dated July ______, 1998 for
Rupay-Barrington Growth Fund (the "Fund"), a diversified open-end series of
Rupay- Barrington Total Return Fund, Inc. (the "Company"), a series company and
regis- tered management investment company. Copies of the Fund's Prospectus may
be obtained at no charge from Rupay-Barrington Securities Corporation, 1000
Ballpark Way, Suite 207A, Arlington, TX 76011 or by calling 1-800-628-4077.
The date of this Statement of Additional Information in July _____, 1998.
[The Balance of This Page
Intentionally Left Blank]
<PAGE>
RUPAY-BARRINGTON GROWTH FUND
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES.................................1
Investment Objective........................................1
Investment Program..........................................1
1. Fixed Income Securities................................2
A. U.S. Government Obligations.......................2
B. U.S. Government Agency Securities.................2
C. Bank Obligations..................................2
D. Savings and Loan Obligations......................2
E. Asset-Backed Securities...........................2
F. Mortgage Obligations..............................5
2. Options................................................6
3. Futures Contracts.....................................11
4. Lending of Portfolio Securities.......................16
5. Hybrid Commodity and Security Investments.............17
6. Private Placements (Restricted Securities)............17
7. Repurchase Agreements.................................18
8. When-Issued Securities................................18
RISK FACTORS.....................................................19
General....................................................19
Debt Obligations...........................................20
INVESTMENT RESTRICTIONS..........................................20
Fundamental Policies.......................................20
Operating Policies.........................................21
Redemption in Kind.........................................22
MANAGEMENT OF FUND...............................................22
Compensation of Executive Officers and Directors...........24
PRINCIPAL HOLDERS OF SECURITIES..................................25
INVESTMENT MANAGEMENT SERVICES...................................25
Management Fees............................................25
Limitation on Fund Expenses................................25
DISTRIBUTOR FOR FUND.............................................26
Sales Commission...........................................26
Distribution Plan and Agreement............................27
CUSTODIAN........................................................27
PORTFOLIO TRANSACTIONS...........................................28
PRICING OF SECURITIES............................................29
DIVIDENDS........................................................30
NET ASSET VALUE PER SHARE........................................30
TAX STATUS.......................................................30
Taxation of Foreign Stockholders...........................31
YIELD INFORMATION................................................31
Investment Performance.....................................32
THE COMPANY'S CAPITAL STOCK......................................33
FEDERAL AND STATE REGISTRATION OF SHARES.........................34
LEGAL COUNSEL....................................................34
FINANCIAL STATEMENTS.............................................35
INDEPENDENT AUDITORS.............................................35
RATINGS OF CORPORATE DEBT SECURITIES.............................35
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's
investment objective and policies as described in the Prospectus. Unless
otherwise specified, the investment program, restrictions and operating policies
of the Fund are not fundamental policies and are subject to change by its Board
of Directors without stockholder approval. However, stockholders will be
notified of a material change in the investment program, restrictions or
operating policies. The fundamental policies of the Fund may not be changed
without the approval of at least a majority of the outstanding shares of the
Fund.
Investment Objective.
The Fund invests in a diversified portfolio of equity securities
(typically common stocks and securities which carry the right to buy common
stocks). The Fund is designed for investors primarily seeking potential for
capital appreciation from equity securities.
The Fund's share price will fluctuate with changing market conditions;
therefore, your investment may be worth more or less when redeemed than when
purchased. The Fund should not be relied upon for short-term financial needs,
nor used to play short-term swings in the stock market. The Fund cannot
guarantee it will achieve its investment objective.
Investment Program.
The Fund invests in equity securities.
The Fund is designed for investors primarily seeking the potential for
capital appreciation of common stocks over the long term. The Fund's investment
in common stocks is intended to provide sufficient capital growth to offset the
erosive effects of inflation.
To achieve its investment objective, the Fund will normally invest
substantially all of its assets in equity securities (primarily common stocks).
While this portfolio mix may vary depending on the Investment Advisor's (as
hereinafter defined) short-term and long-term assessments of market conditions,
the Fund will not attempt to time short-term moves in the market. The Fund will
invest at least 65% of its total assets and as much as 100% of its total assets
in equity securities, except for the purpose of effecting temporary defensive
strategies.
The Fund's common stock investments will be concentrated primarily in
established companies which are believed to exhibit good prospects for growth.
The Fund's investment portfolio is managed by Rupay-Barrington Advisors,
Inc. (the "Investment Advisor"). See "Management of Fund."
The Fund also may invest in the securities described below:
<PAGE>
1. Fixed Income Securities. Fixed income securities in which the Fund may invest
include, but are not limited to, those described below.
A. U.S. Government Obligations. Debt securities issued by the U.S. Treasury.
These are direct obligations of the U.S. Government and differ mainly in the
length of their maturities.
B. U.S. Government Agency Securities. Securities issued or guaranteed by U.S.
Government sponsored enterprises and federal agencies. These include securities
issued by the Federal National Mortgage Association, Government National
Mortgage Association, Federal Home Loan Bank, Federal Land Banks, Farmers Home
Administration, Banks for Cooperatives, Federal Intermediate Credit Banks,
Federal Financing Bank, Farm Credit Banks, and the Tennessee Valley Authority.
Some of these securities are supported by the full faith and credit of the U.S.
Treasury, and the remainder are supported only by the credit of the
instrumentality, which may include the right of the issuer to borrow from the
Treasury.
C. Bank Obligations. Certificates of deposit, bankers' acceptances, and other
debt obligations. Certificates of deposit are short-term obligations of
commercial banks. A bankers' acceptance is a time draft drawn on a commercial
bank by a borrower, usually in connection with international commercial
transactions. The Fund will not invest in any security issued by a commercial
bank unless: (i) the bank has total assets of at least $1 billion, or the
equivalent in other currencies, or, in the case of domestic banks which do not
have total assets of at least $1 billion, the aggregate investment made in any
one such bank is limited to $100,000 and the principal amount of such investment
is insured in full by the Federal Deposit Insurance Corporation; (ii) in the
case of U.S. banks, it is a member of the Federal Deposit Insurance Corporation;
and (iii) in the case of foreign banks, the security is, in the opinion of the
Investment Advisor, of an investment quality comparable with other debt
securities which may be purchased by the Fund. These limitations do not prohibit
investments in securities issued by foreign branches of U.S. banks, provided
such branches meet the foregoing requirements.
D. Savings and Loan Obligations. Negotiable certificates of deposit and other
debt obligations of savings and loan associations. The Fund will not invest in
any security issued by a savings and loan association unless: (i) the savings
and loan association has total assets of at least $1 billion, or, in the case of
savings and loan associations which do not have total assets of at least $1
billion, the aggregate investment made in any one savings and loan association
is limited to $100,000 and the principal amount of such investment is insured in
full by the Federal Deposit Insurance Corporation; and (ii) the savings and loan
association issuing the security is a member of the Federal Home Loan Bank
System.
The Fund will not purchase any security of a small bank or savings and
loan association which is not readily marketable if, as a result, more than 10%
of the value of its net assets would be invested in such securities or illiquid
securities, including repurchase agreements maturing in more than seven days.
See "Investment Restrictions".
E. Asset-Backed Securities. As described in the Prospectus, the Fund may
invest a portion of its assets in debt obligations known as "asset-backed
securities" which are rated in one of the two highest rating categories by a
nationally recognized rating agency such as Standard and Poor's Corporation,
Moody's Investors Services, Inc. or Duff & Phelps, or if not so rated, of
equivalent investment quality in the opinion of the Investment Advisor. The
credit quality of most asset-backed securities depends primarily on the credit
quality of the assets underlying such securities, how well the entity issuing
the security is insulated from the credit risk of the originator or any other
affiliated entities and the amount and quality of
<PAGE>
any credit support provided to the securities. The rate of principal payment on
asset-backed securities generally depends on the rate of principal payments
received on the underlying assets which in turn may be affected by a variety of
economic and other factors. As a result, the yield on any asset-backed security
is difficult to predict with precision and actual yield to maturity may be more
or less than the anticipated yield to maturity. Asset-backed securities may be
classified as "pass-through certificates" or "collateralized obligations."
"Pass-through certificates" are asset-backed securities which represent an
undivided fractional ownership interest in an underlying pool of assets.
Pass-through certificates usually provide for payments of principal and interest
received to be passed through to their holders, usually after deduction for
certain costs and expenses incurred in administering the pool. Because
pass-through certificates represent an ownership interest in the underlying
assets, the holders thereof bear directly the risk of any defaults by the
obligors on the underlying assets not covered by any credit support. See "-Types
of Credit Support," below.
"Collateralized obligations" are asset-backed securities issued in the
form of debt instruments and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. The assets collateralizing such asset-backed securities are
pledged to a trustee or custodian for the benefit of the holders thereof. Such
issuers generally hold no assets other than those underlying the asset-backed
securities and any credit support provided. As a result, although payments on
such asset-backed securities are obligations of the issuers, in the event of
defaults on the underlying assets not covered by any credit support, the issuing
entities are unlikely to have sufficient assets to satisfy their obligations on
the related asset-backed securities.
There are various types of credit support for asset-backed securities.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect of failures
by obligors on underlying assets to make payments, such securities may contain
elements of credit support. Such credit support falls into two classes:
liquidity protection and protection against ultimate default by an obligor on
the underlying assets. Liquidity protection refers to providing advances,
generally by the entity administering the pool of assets, to ensure that
scheduled payments on the underlying pool are made in a timely fashion.
Protection against ultimate default ensures ultimate payment of the protection
may be provided through guarantees, insurance policies or letters of credit
obtained from third parties, through various means of structuring the
transaction or through a combination of such approaches. Examples of
asset-backed securities with credit support arising out of the structure of the
transaction include "senior-subordinated securities" (multiple class
asset-backed securities with certain classes subordinate to other classes as to
the payment of principal thereon, with the result that defaults on the
underlying assets are borne first by the holders of the subordinated class) and
asset-backed securities that have "reserve funds" (where cash or investments,
sometimes funded from a portion of the initial payments on the underlying
assets, are held in reserve against future losses) or that have been
"over-collateralized" (where the scheduled payments on, or the principal amount
of, the underlying assets substantially exceeds that required to make payment of
the asset-backed securities and pay any servicing or other fees). The degree of
credit support provided on each issue is based generally on historical
information respecting the level of credit risk associated with such payments.
Delinquency or loss in excess of that anticipated could adversely affect the
return on an investment in an asset-backed security.
While many asset-backed securities are issued with only one class of
security, many asset-backed securities are issued in more than one class, each
with different payment terms. Multiple class asset-backed securities are issued
for two main reasons. First, multiple classes may be used as a method of
providing
<PAGE>
credit support. This is accomplished typically through creation of one or more
classes whose right to payments on the asset-backed security is made subordinate
to the right to such payments of the remaining class or classes. Second,
multiple classes may permit the issuance of securities with payment terms,
interest rates or other characteristics differing both from those of each other
and from those of the underlying assets. Examples include so-called "strips"
(asset-backed securities entitling the holder to disproportionate interests with
respect to the allocation of interest and principal of the assets backing the
security), and securities with class or classes having characteristics which
mimic the characteristics of non-asset-backed securities, such as floating
interest rates (i.e., interest rates which adjust as a specified benchmark
changes) or scheduled amortization of principal.
Asset-backed securities in which the payment streams on the underlying
assets are allocated in a manner different than those described above may be
issued in the future. The Fund may invest in such asset-backed securities if
such investment is otherwise consistent with its investment objective and
policies and with the investment restrictions of the Fund.
"Automobile Receivable Securities" are asset-backed securities backed by
receivables from motor vehicle installment sales contracts or installment loans
secured by motor vehicles ("Automobile Receivable Securities"). Since
installment sales contracts for motor vehicles or installment loans related
thereto ("Automobile Contracts") typically have shorter durations and lower
incidences of prepayment, Automobile Receivable Securities generally will
exhibit a shorter average life and are less susceptible to prepayment risk.
Most entities that issue Automobile Receivable Securities create an
enforceable interest in their respective Automobile Contracts only by filing a
financing statement and by having the servicer of the Automobile Contracts,
which is usually the originator of the Automobile Contracts, take custody
thereof. In such circumstances, if the servicer of the Automobile Contracts were
to sell the same Automobile Contracts to another party, in violation of its
obligation not to do so, there is a risk that such party could acquire an
interest in the Automobile Contracts superior to that of the holders of
Automobile Receivable Securities. Also, although most Automobile Contracts grant
a security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to create an enforceable security interest against competing claims of other
parties. Due to the large number of vehicles involved, however, the certificate
of title to each vehicle financed, pursuant to the Automobile Contracts
underlying the Automobile Receivable Security, usually is not amended to reflect
the assignment of the seller's security interest for the benefit of the holders
of the Automobile Receivable Securities. Therefore, there is the possibility
that recoveries on repossessed collateral may not, in some cases, be available
to support payments on the securities. In addition, various state and federal
securities laws give the motor vehicle owner the right to assert against the
holder of the owner's Automobile Contract certain defenses such owner would have
against the seller of the motor vehicle. The assertion of such defenses could
reduce payments on the Automobile Receivable Securities.
"Credit Card Receivable Securities" are asset-backed securities backed by
receivables from revolving credit card agreements ("Credit Card Receivable
Securities"). Credit balances on revolving credit card agreements ("Accounts")
are generally paid down more rapidly than are Automobile Contracts. Most of the
Credit Card Receivable Securities issued publicly to date have been Pass Through
Certificates. In order to lengthen the maturity of Credit Card Receivable
Securities, most such securities provide for a fixed period during which only
interest payments on the underlying Accounts are passed through to the security
holder and principal payments received on such Accounts are used to fund the
transfer to the pool of assets
<PAGE>
supporting the related Credit Card Receivable Securities of additional credit
card charges made on an Account. The initial fixed period usually may be
shortened upon the occurrence of specified events which signal a potential
deterioration in the quality of the assets backing the security, such as the
imposition of a cap on interest rates. The ability of the issuer to extend the
life of an issue of Credit Card Receivable Securities thus depends upon the
continued generation of additional principal amounts in the underlying accounts
during the initial period and the non-occurrence of specified events. An
acceleration in cardholders' payment rates or any other event which shortens the
period during which additional credit card charges on an Account may be
transferred to the pool of assets supporting the related Credit Card Receivable
Security could shorten the weighted average life and yield of the Credit Card
Receivable Security.
Credit cardholders are entitled to the protection of a number of state and
federal consumer credit laws, many of which give such holder the right to set
off certain amounts against balances owed on the credit card, thereby reducing
amounts paid on Accounts. In addition, unlike most other asset-backed
securities, Accounts are unsecured obligations of the cardholder.
The asset-backed securities backed by assets other than those described
above may be issued in the future. The Fund may invest in such securities in the
future if such investment is otherwise consistent with its investment objective
and policies.
F. Mortgage Obligations. The Fund may invest in mortgage obligations
issued or guaranteed by non-governmental entities as well as the U.S.
Government, its agencies or instrumentalities. Such mortgage obligations may
include, but are not limited to, collateralized mortgage obligations, which are
obligations fully collateralized by a portfolio of mortgages or mortgage-related
securities ("CMOs"), principal obligations ("POs"), interest obligations ("IOs")
and other mortgage-backed securities. Some mortgage-backed securities, such as
GNMA certificates, are backed by the full faith and credit of the U.S. Treasury
while others, such as Freddie Mac certificates, are not. Risks associated with
investment in mortgage obligations include, but are not limited to, principal
volatility, fluctuations in interest rates and prepayment. Payments of principal
and interest on the mortgages are passed through to the holders of the CMOs on
the same schedule as they are received, although certain classes of CMOs have
priority over others with respect to the receipt of prepayments in the
mortgages. Therefore, depending on the type of CMOs in which the Fund invests,
the investment may be subject to a greater or lesser risk of prepayment than
other types of mortgage-related securities, which prepayments could have an
adverse impact on the Fund's overall yield. CMOs may also be less marketable
than other securities. The Fund will not invest in POs and IOs, if, as a result,
more than 5% of the value of the Fund's net assets would be invested in POs and
IOs.
2. Options.
Writing Covered Call Options. The Fund may write (sell) "covered" call
options and purchase options to close out options previously written by the
Fund. In writing covered call options, the Fund expects to generate premium
income which should serve to enhance the Fund's total return and reduce the
effect of any price decline of the security or currency involved in the option.
Covered call options will generally be written on securities or currencies
which, in the Investment Advisor's opinion, are not expected to make any major
price increases or moves in the near future but which, over the long term, are
deemed to be attractive investments for the Fund.
<PAGE>
A call option gives the holder (buyer) the "right to purchase" a security
or currency at a specified price (the exercise price) at any time until a
certain date (the expiration date). So long as the obligation of the writer of a
call option continues, he may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring him to deliver the
underlying security or currency against payment of the exercise price. This
obligation terminates upon the expiration of the call option, or such earlier
time at which the writer effects a closing purchase transaction by repurchasing
an option identical to that previously sold. To secure his obligation to deliver
the underlying security or currency in the case of a call option, a writer is
required to deposit in escrow the underlying security or currency or other
assets in accordance with the rules of a clearing corporation. The Fund will
write only covered call options. This means that the Fund will own the security
or currency subject to the option or an option to purchase the same underlying
security or currency having an exercise price equal to or less than the exercise
price of the "covered" option, or will establish and maintain with its custodian
for the term of the option, an account consisting of cash, U.S. Government
securities or other liquid high grade debt obligations having a value equal to
the fluctuating market value of the option securities or currencies. In order to
comply with the requirements of the securities or currencies laws in several
states, the Fund will not write a covered call option if, as a result, the
aggregate market value of all portfolio securities or currencies covering call
options or put options exceeds 25% of the market value of the Fund's net assets.
Should these state laws change or should the Fund obtain a waiver of their
application, the Fund reserves the right to increase this percentage. In
calculating the 25% limit, the Fund will offset, against the value of assets
covering written calls and puts, the value of purchased calls and puts on
identical securities or currencies with identical maturity dates.
Portfolio securities or currencies on which call options may be written
will be purchased solely on the basis of investment considerations consistent
with the Fund's investment objective. The writing of covered call options is a
conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked or uncovered options, which the Fund will not
do), but capable of enhancing the Fund's total return. When writing a covered
call option, the Fund, in return for the premium, gives up the opportunity for
profit from a price increase in the underlying security or currency above the
exercise price, but conversely retains the risk of loss should the price of the
security or currency decline. Unlike one who owns securities or currencies not
subject to an option, the Fund has no control over when it may be required to
sell the underlying securities or currencies, since it may be assigned an
exercise notice at any time prior to the expiration of its obligation as a
writer. If a call option which the Fund has written expires, the Fund will
realize a gain in the amount of the premium; however, such gain may be offset by
a decline in the market value of the underlying security or currency during the
option period. If the call option is exercised, the Fund will realize a gain or
loss from the sale of the underlying security or currency. The security or
currency covering the call will be maintained in a segregated account of the
Fund's custodian. The Fund does not consider a security or currency covered by a
call to be "pledged" as that term is used in the Fund's policy which limits the
pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium the
Fund will receive from writing a call option will reflect, among other things,
the current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security or currency, and the length of the option
period. Once the decision to write a call option has been made, the Investment
Advisor, in determining whether a particular call option should be written on a
particular security or currency, will consider the reasonableness of the
anticipated premium and the likelihood that a liquid secondary market will exist
for those options. The premium received by the Fund for writing covered call
options will be recorded as a liability of the Fund. This liability will be
adjusted daily to the option's current market value, which will be the latest
sale price at the time at which the net
<PAGE>
asset value per share of the Fund is computed (close of the New York Stock
Exchange), or, in the absence of such sale, the latest asked price. The option
will be terminated upon expiration of the option, the purchase of an identical
option in a closing transaction, or delivery of the underlying security or
currency upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called, or, to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit the Fund to write
another call option on the underlying security or currency with either a
different exercise price or expiration date or both. If the Fund desires to sell
a particular security or currency from its portfolio on which it has written a
call option, or purchased a put option, it will seek to effect a closing
transaction prior to, or concurrently with, the sale of the security or
currency. There is, of course, no assurance that the Fund will be able to effect
such closing transactions at a favorable price. If the Fund cannot enter into
such a transaction, it may be required to hold a security or currency that it
might otherwise have sold. When the Fund writes a covered call option, it runs
the risk of not being able to participate in the appreciation of the underlying
securities or currencies above the exercise price, as well as the risk of being
required to hold on to securities or currencies that are depreciating in value.
This could result in higher transaction costs. The Fund will pay transaction
costs in connection with the writing of options to close out previously written
options. Such transaction costs are normally higher than those applicable to
purchases and sales of portfolio securities.
Call options written by the Fund will normally have expiration dates of
less than nine months from the date written. The exercise price of the options
may be below, equal to, or above the current market values of the underlying
securities or currencies at the time the options are written. From time to time,
the Fund may purchase an underlying security or currency for delivery in
accordance with a exercise notice of a call option assigned to it, rather than
delivering such security or currency from its portfolio. In such cases,
additional costs may be incurred.
The Fund will realize a profit or loss from a closing purchase transaction
if the cost of the transaction is less or more than the premium received from
the writing of the option. Because increases in the market price of a call
option will generally reflect increases in the market price of the underlying
security or currency, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security or currency owned by the Fund.
Writing Covered Put Options. The Fund may write covered put options and
purchase options to close out options previously written by the Fund. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) has the obligation to buy, the underlying security or currency at the
exercise price during the option period. So long as the obligation of the writer
continues, he may be assigned an exercise notice by the broker-dealer through
whom such option was sold, requiring him to make payment of the exercise price
against delivery of the underlying security or currency. The operation of put
options in other respects, including their related risks and rewards, is
substantially identical to that of call options. The Fund would write put
options only on a covered basis, which means that the Fund would maintain in a
segregated account cash, U.S. Government Securities or other liquid high-grade
debt obligations in an amount not less than the exercise price or the Fund will
own an option to sell the underlying security or currency subject to the option
having an exercise price equal to or greater than the exercise price of the
"covered" option at all times while the put option is outstanding. (The rules of
a clearing corporation currently require that such assets be deposited in escrow
to secure payment of the exercise price.) The Fund would generally write covered
put options in circumstances where the Investment Advisor wishes to
<PAGE>
purchase the underlying security or currency for the Fund's portfolio at a price
lower than the current market price of the security or currency. In such event
the Fund would write a put option at an exercise
price which, reduced by the premium received on the option, reflects the lower
price it is willing to pay. Since the Fund would also receive interest on debt
securities or currencies maintained to cover the exercise price of the option,
this technique could be used to enhance the current return during periods of
market uncertainty. The risk in such a transaction would be that the market
price of the underlying security or currency would decline below the exercise
price less the premiums received. Such a decline could be substantial and result
in a significant loss to the Fund. In addition, the Fund, because it does not
own the specific securities or currencies which it may be required to purchase
in the exercise of the put, can not benefit from appreciation, if any, with
respect to such specific securities or currencies.
Purchasing Put Options. The Fund may purchase put options on securities
which give the Fund the right to sell the underlying security or currency at the
exercise price at any time during the option period. The Fund may enter into
closing sale transactions with respect to such options, exercise them or permit
them to expire. The Fund may purchase put options for defensive purposes in
order to protect against an anticipated decline in value of its securities or
currencies. An example of such use of put options is provided below.
The Fund may purchase a put option on an underlying security or currency
(a "protective put") owned by the Fund as a defensive technique in order to
protect against an anticipated decline in the value of the security or currency.
Such hedge protection is provided only during the life of the put option when
the Fund, as the holder of the put option, is able to sell the underlying
security or currency at the put exercise price regardless of any decline in the
underlying security's market price or currency's exchange value. For example, a
put option may be purchased in order to protect unrealized appreciation of a
security or currency where the Investment Advisor deems it desirable to continue
to hold the security or currency because of tax considerations. The premium paid
for the put option and any transaction costs would reduce any capital gain
otherwise available for distribution when the security or currency is eventually
sold.
The Fund may also purchase put options at a time when the Fund does not
own the underlying security or currency. By purchasing put options on a security
or currency it does not own, the Fund seeks to benefit from a decline in the
market price of the underlying security or currency. If the put option is not
sold when it has remaining value, and if the market price of the underlying
security or currency remain equal to or greater than the exercise price during
the life of the put option, the Fund will lose its entire investment in the put
option. In order for the purchase of a put option to be profitable, the market
price of the underlying security or currency must decline sufficiently below the
exercise price to cover the premium and transaction costs, unless the put option
is sold in a closing sale transaction.
To the extent required by the laws of certain states, the Fund may not be
permitted to commit more than 5% of its assets to premiums when purchasing put
and call options. Should these state laws change or should the Fund obtain a
waiver of their application, the Fund may commit more than 5% of its assets to
premiums when purchasing call and put options. The premium paid by the Fund
when purchasing a put option will be recorded as an asset of the Fund. This
asset will be adjusted daily to the option's current market value, which will be
the latest sale price at the time at which the net asset value per share of the
Fund is computed (close of New York Stock Exchange), or, in the absence of such
sale, the latest bid price. This option will be terminated upon expiration of
the option, the selling (writing) of an identical option in a closing
transaction, or the delivery of the underlying security or currency upon the
exercise of the option.
<PAGE>
Purchasing Call Options. The Fund may purchase call options, on various
securities which give the Fund the right to purchase the underlying security or
currency at the exercise price at any time during the option period. The Fund
may enter into closing sale transactions with respect to such options, exercise
them or permit them to expire. The Fund may purchase call options for the
purpose of increasing its current return or avoiding tax consequences which
could reduce its current return. The Fund may also purchase call options in
order to acquire the underlying securities or currencies. Examples of such uses
of call options are provided below.
Call options may be purchased by the Fund for the purpose of acquiring the
underlying securities or currencies for its portfolio. Utilized in this fashion,
the purchase of call options enables the Fund to acquire the securities or
currencies at the exercise price of the call option plus the premium paid. At
times the net cost of acquiring securities or currencies in this manner may be
less than the cost of acquiring the securities or currencies directly. This
technique may also be useful to the Fund in purchasing a large block of
securities that would be more difficult to acquire by direct market purchases.
So long as it holds such a call option rather than the underlying security or
currency itself, the Fund is partially protected from any unexpected decline in
the market price of the underlying security or currency and in such event could
allow the call option to expire, incurring a loss only to the extent of the
premium paid for the option.
To the extent required by the laws of certain states, the Fund may not be
permitted to commit more than 5% of its assets to premiums when purchasing call
and put options. Should these state laws change or should the Fund obtain a
waiver of their application, the Fund may commit more than 5% of its assets to
premiums when purchasing call and put options. The Fund may also purchase call
options on underlying securities or currencies it owns in order to protect
unrealized gains on call options previously written by it. A call option would
be purchased for this purpose where tax considerations make it inadvisable to
realize such gains through a closing purchase transaction. Call options may also
be purchased at times to avoid realizing losses that would result in a reduction
of the Fund's current return. For example, where the Fund has written a call
option on an underlying security or currency having a current market value below
the price at which such security or currency was purchased by the Fund, an
increase in the market price would result in the exercise of the call option
written by the Fund and the realization of a loss on the underlying security or
currency with the same exercise price and expiration date as the option
previously written.
Dealer Options. The Fund may engage in transactions involving dealer
options. Certain risks are specific to dealer options. While the Fund would look
to a clearing corporation to exercise exchange-traded options, if the Fund were
to purchase a dealer option, it would rely on the dealer from whom it purchased
the option to perform if the option were exercised. Failure by the dealer to do
so would result in the loss of the premium paid by the Fund as well as loss of
the expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid market while
dealer options have none. Consequently, the Fund will generally be able to
realize the value of a dealer option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when the Fund writes a
dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to which the Fund originally wrote the option. While the Fund will seek to enter
into dealer options only with dealers who will agree to and which are expected
to be capable of entering into closing transactions with the Fund, there can be
no assurance that the Fund will be able to liquidate a dealer option at a
favorable price at any time prior to expiration. Until the Fund, as a covered
dealer call option writer, is able to effect a closing purchase transaction, it
will not be able to liquidate securities (or other assets) used as cover until
the option expires or is exercised. In the event of insolvency of the contract
<PAGE>
party, the Fund may be unable to liquidate a dealer option. With respect to
options written by the Fund, the inability to enter into a closing transaction
may result in material losses to the Fund. For example, since the Fund must
maintain a secured position with respect to any call option on a security it
writes, the Fund may not sell the asset which it has segregated to secure the
position while it is obligated under the option. This requirement may impair the
Fund's ability to sell portfolio securities at a time when such sale might be
advantageous.
The staff of the Securities and Exchange Commission (the "SEC") has taken
the position that purchased dealer options and the assets used to secure the
written dealer options are illiquid securities. The Fund may treat the cover
used for written OTC options as liquid if the dealer agrees that the Fund may
repurchase the OTC option it has written for a maximum price to be calculated by
a predetermined formula. In such cases, the OTC option would be considered
illiquid only to the extent the maximum repurchase price under the formula
exceeds the intrinsic value of the option. Accordingly, the Fund will treat
dealer options as subject to the Fund's limitation on unmarketable securities.
If the SEC changes its position on the liquidity of dealer options, the Fund
will change its treatment of such instruments accordingly.
Federal Income Tax Treatment of Options. Certain option transactions have
special tax results for the Fund. Listed non-equity options, including options
on currencies will be considered to have been closed out at the end of the
Fund's fiscal year and any gains or losses would be characterized as 60%
long-term capital gain or loss and 40% short-term capital gain or loss
regardless of the holding period of the option. Gains or losses on unlisted
currency options will not be subject to this treatment and will generally result
in ordinary income or loss.
In addition, losses on purchased puts and written covered calls, excluding
"qualified covered call options" on equity securities, to the extent they do not
exceed the unrealized gains on the securities or currencies covering the
options, may be subject to deferral until the securities or currencies covering
the options have been sold. The holding period of the securities covering these
options will be deemed not to begin until the option is terminated. For
securities covering a purchased put, this adjustment of the holding period may
increase the gain from sales of securities held less than three months. The
holding period of the security covering an "in-the-money qualified covered call"
option on an equity security will not include the period of time the option is
outstanding.
Losses on written covered calls and purchased puts on securities,
excluding certain "qualified covered call" options on equity securities, may be
long-term capital losses, if the security covering the option was held for more
than twelve months prior to the writing of the option.
3. Futures Contracts. The Fund may enter into financial futures contracts,
including stock index, interest rate and currency futures ("futures or futures
contracts").
Stock index futures contracts may be used to provide a hedge for a portion
of the Fund's portfolio, as a cash management tool, or as an efficient way for
the Investment Advisor to implement either an increase or decrease in portfolio
market exposure in response to changing market conditions. The Fund may purchase
or sell stock index futures contracts with respect to any stock index whose
movements will, in its judgment, have a significant correlation with movements
in the prices of all or portions of the Fund's portfolio securities.
<PAGE>
Interest rate or currency futures contracts may be used as a hedge against
changes in prevailing levels of interest rates or currency exchange rates in
order to establish more definitely the effective return on securities or
currencies held or intended to be acquired by the Fund. In this regard, the Fund
could sell interest rate futures as an offset against the effect of expected
increases in interest rates or currency exchange rates and purchase such futures
as an offset against the effect of expected declines in interest rates or
currency exchange rates.
The Fund will enter into futures contracts which are traded on national or
foreign futures exchanges and are standardized as to maturity date and
underlying financial instrument. The principal stock index, interest rate and
currency futures exchanges in the United States are the Board of Trade of the
City of Chicago and the Chicago Mercantile Exchange. Futures exchanges and
trading in the United States are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission (the "CFTC"). Futures are traded in
London at the London International Financial Futures Exchange, in Paris at the
MATIF and in Tokyo at the Tokyo Stock Exchange. Although techniques other than
the sale and purchase of futures contracts could be used for these purposes,
futures contracts offer an effective and relatively low cost means of
implementing the Fund's objectives in these areas.
Regulatory Limitations. The Fund will engage in transactions in financial
futures contracts and options thereon only for bona fide hedging, yield
enhancement and risk management purposes, in each case in accordance with the
rules and regulations of the CFTC, and not for speculation.
In accordance with CFTC regulations, as an operating, non-fundamental
policy, the Fund may not purchase or sell futures contracts or options thereon
if immediately thereafter the sum of the amounts of initial margin deposits on
the Fund's existing futures and premiums paid for options on futures would
exceed 5% of the market value of the Fund's total assets; provided, however,
that in the case of an option that is in the money at the time of purchase, the
in the money amount may be excluded in calculating the 5% limitation. In
instances involving the purchase of futures contracts and options thereon (less
any related margin deposits), amounts will be deposited in a segregated account
with the Fund's custodian to cover the position, or alternative cover will be
employed thereby limiting amounts leveraged by the Fund in its use of such
futures contracts and options. The segregated account the Fund maintains with
the custodian to cover its futures or options positions will consist of cash,
U.S. government securities or other liquid high-grade debt securities that, when
added to the amounts or premiums deposited with respect to the futures contract
or option, are equal to the market value of the underlying security not
otherwise covered.
As an alternative to bona fide hedging as defined by the CFTC, the Fund
may comply with a different standard established by CFTC rules with respect to
futures contracts and options thereon purchased by the Fund incidental to the
Fund's activities in the securities markets, under which the value of the assets
underlying such positions will not exceed the sum of: (i) cash set aside in an
identifiable manner or short-term U.S. securities segregated for this purpose;
(ii) cash proceeds on existing investments due within thirty (30) days; and
(iii) accrued profits on the particular futures contract or option thereon.
In addition, CFTC regulations may impose limitations on the Fund's ability
to engage in certain yield enhancement and risk management strategies. If the
CFTC or other regulatory authorities adopt different (including less stringent)
or additional restrictions, the Fund would comply with such new restrictions.
<PAGE>
Trading in Futures. A futures contract provides for the future sale by one
party and purchase by another party of a specified amount of a specific
financial instrument (units of a stock index, debt security or currency) for a
specified price, date, time and place designated at the time the contract is
made. Brokerage fees are incurred when a futures contract is bought or sold and
margin deposits must be maintained. Entering into a contract to buy is commonly
referred to as buying or purchasing a contract or holding a long position;
entering into a contract to sell is commonly referred to as selling a contract
or holding a short position.
For example, one contract in the Financial Times Stock Exchange 100 Index
future is a contract to buy 25 pounds sterling multiplied by the level of the UK
Financial Times 100 Share Index on a given future date. Settlement of a stock
index futures contract may or may not be in the underlying security. If not in
the underlying security, then settlement will be made in cash, equivalent over
time to the difference between the contract price and the actual price of the
underlying asset at the time the stock index futures contract expires.
Unlike when the Fund purchases or sells a security, no price would be paid
or received by the Fund upon the purchase or sale of a futures contract. Upon
entering into a futures contract, and to maintain the Fund's open positions in
futures contracts, the Fund would be required to deposit with its custodian in a
segregated account in the name of the futures broker an amount of cash, U.S.
government securities, suitable money market instruments, or liquid, high-grade
debt securities, known as "initial margin." The margin required for a particular
futures contract is set by the exchange on which the contract is traded, and may
be significantly modified from time to time by the exchange during the term of
the contract. Futures contracts are customarily purchased and sold on margins
that may range upward from less than 5% of the value of the contract being
traded.
If the price of an open futures contract changes (by increase in the case
of a sale or by decrease in the case of a purchase), so that the loss on the
futures contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in the margin. However,
if the value of a position increases because of favorable price changes in the
futures contract so that the margin deposit exceeds the required margin, the
broker will pay the excess to the Fund.
These subsequent payments, called variation margin, to and from the
futures broker, are made on a daily basis as the price of the underlying assets
fluctuates making the long and short positions in the futures contract more or
less valuable, a process known as "marking to the market." The Fund expects to
earn interest income on its margin deposits.
Although interest and currency futures contracts, by their terms,
typically require actual future delivery of and payment for financial
instruments or currencies, while stock index futures settle in cash, in practice
most futures contracts are usually closed out before the delivery date. Closing
out an open futures contract sale or purchase is effected by entering into an
offsetting futures contract purchase or sale, respectively, for the same
aggregate amount of the identical securities and the same delivery date. If the
offsetting purchase price is less than the original sale price, the Fund
realizes a gain; if it is more, the Fund realizes a loss. The transaction costs
also must be included in these calculations. There can be no assurance, however,
that the Fund will be able to enter into an offsetting transactions with respect
to a particular futures contract at a particular time. If the Fund is not able
to enter into an offsetting transaction, the Fund will continue to be required
to maintain the margin deposits on the futures contract; thus, the Fund
<PAGE>
could be required to make daily cash payments of variation margin. In addition,
the inability of the Fund to enter into an offsetting transaction to close out
its position could subject the Fund to substantial losses.
As an example of an offsetting transaction in which the financial
instrument or currency is not delivered, the contractual obligations arising
from the sale of one contract or September Treasury Bills on an exchange may be
fulfilled at any time before delivery of the contract is required (i.e., on a
specified date in September, the "delivery month") by the purchase of one
contract of September Treasury Bills on the same exchange. In such instance, the
difference between the price at which the futures contract was sold and the
price paid for the offsetting purchase, after allowance for transaction costs,
represents the profit or loss to the Fund.
Special Risks of Transactions in Futures Contracts
Volatility and Leverage. The prices of futures contracts are volatile and
are influenced, among other things, by actual and anticipated changes in the
market and interest rates, which in turn are affected by fiscal and monetary
policies and national and international policies and economic events.
Most United States futures exchanges have established limits in the amount
of fluctuation permitted in futures contract prices during a single trading day.
The daily limit establishes the maximum amount that the price of a futures
contract may vary either up or down from the previous day's settlement price at
the end of a trading session. Once the daily limit has been reached in a
particular type of contract, no trades may be made on that day at a price beyond
that limit. The daily limit governs only price movement during a particular
trading day and therefore does not limit potential losses because the limit may
prevent the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss or
gain to the investor. For example, if at the time of purchase, 10% of the value
of the futures contract is deposited as margin, a subsequent 10% decrease in the
value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out. A 15% decrease would result in a loss equal to 150% of the
original margin deposit, if the contract were closed out. Thus, a purchase or
sale of a futures contract may result in losses in excess of the amount invested
in the futures contract. However, the Fund would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying financial instrument and sold it after the decline. Furthermore, in
the case of a futures contract purchase, in order to be certain that the Fund
has sufficient assets to satisfy its obligations under a futures contract, the
Fund earmarks to the futures contract an amount of money market instruments
equal in value to the current value of the underlying instrument, less the
margin deposit.
Liquidity. The Fund may elect to close some or all of its futures
positions at any time prior to their expiration. The Fund would do so to reduce
exposure represented by long futures positions or increase exposure represented
by short futures positions. The Fund may close its positions by taking opposite
positions which would operate to terminate the Fund's position in the futures
contracts. Final determinations of variation margin would then be made,
additional cash would be required to be paid by or released to the Fund, and the
Fund would realize a loss or gain.
<PAGE>
Futures contracts may be closed out only on the exchange or board of trade
where the contracts were initially traded. Although the Fund intends to purchase
or sell futures contracts only on exchanges or boards of trade where there
appears to be an active market, there is no assurance that a liquid market on an
exchange or board of trade will exist for any particular contract at any
particular time. In such event, it might not be possible to close a futures
contract, and in the event of adverse price movements, the Fund would continue
to be required to make daily cash payments of variation margin. However, in the
event futures contracts have been used to hedge portfolio securities or
currencies, the Fund would continue to hold securities or currencies subject to
the hedge until the futures contracts could be terminated. In such
circumstances, an increase in the price of the securities or currencies, if any,
might partially or completely offset losses on the futures contract. However, as
described below, there is no guarantee that the price of the securities or
currencies will, in fact, correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures contract.
Hedging Risk. A decision of whether, when, and how to hedge involves skill
and judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or interest rate trends. There are several
risks in connection with the use by the Fund of futures contracts as a hedging
device. One risk arises because of the imperfect correlation between movements
in the prices of the futures contracts and movements in the prices of securities
or currencies which are the subject of the hedge. The Investment Advisor will,
however, attempt to reduce this risk by entering into futures contracts whose
movements, in its judgment, will have significant correlation with movements in
the prices of the Fund's portfolio securities or currencies sought to be hedged.
Successful use of futures contracts by the Fund for hedging purposes is
also subject to the ability of the Investment Advisor to correctly predict
movements in the direction of the market. It is possible that, when the Fund has
sold futures to hedge its portfolio against a decline in the market, the index
or indices, securities or currencies on which the futures are written might
advance and the value of securities or currencies held in the Fund's portfolio
might decline. If this were to occur, the Fund would lose money on the futures
and also would experience a decline in value in its portfolio securities or
currencies. However, while this might occur to a certain degree, the Investment
Advisor believes that over time the value of the Fund's portfolio will tend to
move in the same direction as the securities or currencies underlying the
futures, which are intended to correlate to the price movements of the portfolio
securities or currencies sought to be hedged. It is also possible that if the
Fund were to hedge against the possibility of a decline in the market (adversely
affecting securities or currencies held in its portfolio) and prices instead
increased, the Fund would lose part or all of the benefit of increased value of
those securities or currencies that it has hedged, because it would have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund had insufficient cash, it might have to sell securities or currencies
to meet daily variation margin requirements. Such sales of securities or
currencies might be, but would not necessarily be, at increased prices (which
would reflect the rising market). The Fund might have to sell securities or
currencies at a time when it would be disadvantageous to do so.
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements in the futures
contract and the portion of the portfolio being hedged, the price movements of
future contracts might not correlate perfectly with price movements in the
underlying stock index, security or currency due to certain market distortions.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors might close futures contracts through offsetting
transactions which could distort the
<PAGE>
normal relationship between the underlying instruments and futures markets.
Second, the margin requirements in the futures market are less onerous than
margin requirement in the securities markets, and as a result the futures market
might attract more speculators than the securities markets do. Increased
participation by speculators in the futures market might also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market and also because of the imperfect correlation between price movements in
the underlying instruments and movements in the prices of futures contracts,
even a correct forecast of general market trends by the Investment Advisor might
not result in a successful hedging transaction over a very short time period.
Options on Futures Contracts. Options on futures are similar to options on
securities or currencies except that options on futures give the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position in the option is a call and a short position if the
option is a put), rather than to purchase or sell the futures contract, at a
specified exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option will be accompanied by the delivery of
the accumulated balance in the writer's futures margin account which represents
the amount by which the market price of the futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the futures contract. Alternatively, settlement
may be made totally in cash. Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of the premium paid.
As an alternative to writing or purchasing call and put options on stock
index futures, the Fund may write or purchase call and put options on stock
indices. Such options would be used in a manner similar to the use of options on
futures contracts.
Special Risks of Transactions in Options on Futures Contracts. The Fund
may seek to close out an option position by writing or buying an offsetting
option covering the same index, securities, currencies or contract and having
the same exercise price and expiration date. The ability to establish and close
out positions on such options will be subject to the maintenance of a liquid
secondary market. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options, or underlying securities or currencies,; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or a clearing corporation may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges could,
for economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that exchange for the options (or in the
class or series of options) would cease to exist, although outstanding options
that had been issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms. There
is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of any
of the clearing corporations inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders.
Federal Tax Treatment of Futures Contracts. Generally, the Fund is
required, for federal income tax purposes, to recognize as income for each
taxable year its net unrealized gains and losses on futures contracts as of the
end of the year as well as those actually realized during the year. Gain or loss
recognized
<PAGE>
with respect to a futures contract will generally be 67% long-term capital gain
or loss and 33% short-term capital gain or loss, without regard to the holding
period of the contract.
Futures contracts which are intended to hedge against a change in the
value of securities or currencies may be classified as "mixed straddles," in
which case the recognition of losses may be deferred to a later year. In
addition, sales of such futures contracts on securities or securities indices
may affect the holding period of the hedged security and, consequently, the
nature of the gain or loss on such security on disposition.
In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or currencies. Pending tax regulations could limit the extent to
which net gain realized from futures contracts on currencies is qualifying
income for purposes of the 90% requirements. In addition, gains realized on the
sale or other disposition of securities, including futures contracts on
securities or securities indices and, in some cases, currencies, including
futures contracts on currencies, held for less than three months, must be
limited to less than 30% of the Fund's annual gross income. In order to avoid
realizing excessive gains on securities or currencies held less than three
months, the Fund may be required to defer the closing out of futures contracts
beyond the time when it would otherwise be advantageous to do so. It is
anticipated that unrealized gains on futures contracts, which have been open for
less than three months as of the end the Fund's fiscal year and which are
recognized for tax purposes, will not be considered gains on securities or
currencies held less than three months for purposes of the 30% test.
The Fund will distribute to stockholders annually any net gains which have
been recognized for federal income tax purposes from futures transactions
(including unrealized gains at the end of the Fund's fiscal year). Such
distributions will be combined with distributions of ordinary income or capital
gains realized on the Fund's other investments. Stockholders will be advised of
the nature of the payments.
Additional Futures Contracts. Although the Fund has no current intention
of engaging in financial futures transactions other than those described above,
it reserves the right to do so. Such futures trading might involve risks which
differ from those involved in the futures and options described above.
4. Lending of Portfolio Securities.
For the purposes of realizing additional income, the Fund may make secured
loans of portfolio securities amounting to not more than 30% of its total
assets. This policy is a fundamental policy. Securities loans will be made to
broker-dealers or institutional investors pursuant to agreements requiring that
the loans be continuously secured by collateral at least equal at all times to
the value of the securities lent market to market on a daily basis. The
collateral received will consist of cash, U.S. government securities, letters of
credit or such other collateral as may be permitted under its investment
program. The cash collateral received by the Fund will be invested only in money
market securities. While the securities are being lent, the Fund will continue
to receive the equivalent of the interest or dividends paid by the issuer on the
securities, as well as interest on the investment of the collateral or a fee
from the borrower. The Fund has a right to call each loan and obtain the
securities on five business days' notice or, in connection with securities
trading on foreign markets, within such longer period of time which coincides
with the normal settlement period for purchases and sales of such securities in
such foreign markets. The Fund will not have the right to vote securities while
they are being lent, but it will call a loan in anticipation of any important
<PAGE>
vote. The risks in lending portfolio securities, as with other extensions of
secured credit, consist of possible delay in receiving additional collateral or
in the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans will only be made to persons deemed
by the Investment Advisor to be of good standing and will not be made unless, in
the judgment of the Investment Advisor, the consideration to be earned from such
loan would justify the risk.
5. Hybrid Commodity and Security Investments.
Recently, instruments have been developed which combine the elements of
futures contracts or options with those of debt, preferred equity or a
depository instrument (hereinafter "Hybrid Instruments"). Often these Hybrid
Instruments are indexed to the price of a commodity or particular currency.
Hybrid Instruments may take a variety of forms, including, but not limited to,
debt instruments with interest or principal payments or redemption terms
determined by reference to the value of a currency or commodity at a future
point in time, preferred stock with dividend rates determined by reference to
the value of a currency, or convertible securities with the conversion terms
related to a particular commodity. Examples of hybrid instruments in which the
Fund may invest include swaps, options on swaps and inverse floaters.
The risks of investing in Hybrid Instruments reflect a combination of the
risks from investing in securities, futures and currencies, including volatility
and lack of liquidity. (See the discussion of risks associated with transactions
in futures contracts beginning on page 13 and forward commitments on page 18).
Further, the prices of the Hybrid Instrument and the related commodity or
currency may not move in the same direction or at the same time. Hybrid
Instruments may bear interest or pay preferred dividends at below market (or
even relatively nominal) rates. In addition, because the purchase and sale of
Hybrid Instruments could take place in an over-the-counter market or in a
private transaction between the Fund and the seller of the Hybrid Instruments,
the creditworthiness of the contra party to the transaction would be a risk
factor which the Fund would have to consider. Because Hybrid Instruments are
illiquid, any investment in such instruments is subject to the Fund's
restriction of investing no more than 10% of its assets in illiquid securities.
Hybrid Instruments also may not be subject to regulation of the CFTC, which
generally regulates the trading of commodity futures by U.S. persons, or the
SEC, which regulates the offer and sale of securities by and to U.S. persons, or
any other governmental regulatory authority.
6. Private Placements (Restricted Securities)).
The Fund may invest in restricted securities (privately placed debt
securities) and other securities without readily available market quotations but
will not acquire illiquid securities, including repurchase agreements which do
not provide for payment within seven days, if as a result they would comprise
more than 10% of the value of the Fund's net assets.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933 as amended (the "1933
Act"). Where registration is required, the Fund may be obligated to pay all or
part of the registration expenses and a considerable period may elapse between
the time of the decision to sell and the time the Fund may be permitted to sell
a securities under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair value as determined in good faith by the Board of
Directors. If through the appreciation of restricted securities or the
depreciation of unrestricted
<PAGE>
securities, the Fund should be in a position where more than 10% of the value of
its net assets are invested in illiquid assets, including restricted securities,
the Fund will take appropriate steps to protect liquidity.
Notwithstanding the above, the Fund may purchase securities which while
privately placed, are eligible for purchase and sale under Rule 144A under the
1933 Act. This rule permits certain qualified institutional buyers, such as the
Fund, to trade in privately placed securities even though such securities are
not registered under the 1933 Act. The Investment Advisor, under the supervision
of the Fund's Board of Directors, will consider whether securities purchased
under Rule 144A are illiquid and thus subject to the Fund's restriction of
investing no more than 10% of its assets in illiquid securities. A determination
of whether a Rule 144A security is liquid or not is a question of fact. In
making this determination, the Investment Advisor will consider trading markets
for the specific security taking into account the unregistered nature of a Rule
144A security. In addition, the Investment Advisor could consider the: (i)
frequency of trades and quotes; (ii) number of dealers and potential purchasers;
(iii) dealer undertakings to make a market; and (iv) the nature of the security
and of marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). The liquidity of
Rule 144A securities would be monitored, and, if as a result of changed
conditions it is determined that a Rule 144A security is no longer liquid, the
Fund's holdings of illiquid securities would be reviewed to determine what, if
any, steps are required to assure that the Fund does not invest more than 10% of
its assets in illiquid securities. Investing in Rule 144A securities could have
the effect of increasing the amount of the Fund's assets invested in illiquid
securities if qualified institutional buyers are unwilling to purchase such
securities. In any event, the Fund will not purchase 144A securities if, as a
result, more than 5% of the value of the Fund's net assets would be invested in
144A securities.
7. Repurchase Agreements.
The Fund may enter into repurchase agreements through which an investor
(such as the Fund) purchases a security (known as the "underlying security")
from a well-established securities dealer or a bank that is a member of the
Federal Reserve System. At that time, the bank or securities dealer agrees to
repurchase the underlying security at the same price, plus specified interest.
Repurchase agreements are generally for a short period of time, often less than
a week. The Fund will not enter into a repurchase agreement which does not
provide for payment within seven days if, as a result, more than 10% of the
value of its net assets would then be invested in such repurchase agreements.
The Fund will only enter into repurchase agreements where: (i) the underlying
securities are of the type (excluding maturity limitations) which the Fund's
investment guidelines would allow it to purchase directly; (ii) the market value
of the underlying security, including interest accrued, will be at all times
equal to or exceed the value of the repurchase agreement; and (iii) payment for
the underlying security is made only upon physical delivery or evidence of
book-entry transfer to the account of the custodian or a bank acting as agent.
In the event of a bankruptcy or other default of a seller of a repurchase
agreement, the Fund could experience both delays in liquidating the underlying
securities and losses, including: (i) possible decline in the value of the
underlying security during the period while the Fund seeks to enforce its rights
thereto; (ii) possible subnormal levels of income and lack of access to income
during this period; and (iii) expenses of enforcing its rights.
8 When-Issued Securities.
The Fund may from time to time purchase securities on a "when-issued"
basis. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made,
<PAGE>
but delivery and payment for the when-issued securities take place at a later
date. Normally, the settlement date occurs within 90 days of the purchase.
During the period between purchase and settlement, no payment is made by the
Fund to the issuer and no interest accrues to the Fund. Forward commitments
involve a risk of loss if the value of the security to be purchased declines
prior to the settlement date, which risk is in addition to the risk of decline
in value of the Fund's other assets. Such when-issued securities may be sold
prior to the settlement date. At the time the Fund makes the commitment to
purchase a security on a when-issued basis, it will record the transaction and
reflect the value of the security in determining its net asset value. The Fund
does not believe that its net asset value or income will be adversely affected
by its purchase of securities on a when-issued basis. The Fund will maintain
(and mark-to-market) liquid assets such as cash, U.S. government securities or
other appropriate high-grade debt obligations equal in value to commitments for
when-issued securities. Such segregated securities either will mature or, if
necessary, be sold on or before the settlement date.
RISK FACTORS
General. Because of its investment policy, the Fund may or may not be a
suitable or appropriate investment for all investors. The Fund is not a money
market fund and is not an appropriate investment for those investors whose
primary objective is principal stability. There is risk in all investment. The
value of the portfolio securities of the Fund will fluctuate based upon market
conditions. Although the Fund seeks to reduce risk by investing in a diversified
portfolio, such diversification does not eliminate all risk. There can, of
course, be no assurance that the Fund will achieve these results. See
"Management of Fund" and "Investment Management Services."
Fluctuations in Net Asset Value. To the extent that a major portion of the
Fund's portfolio is invested in equity securities, it may be expected that its
net asset value will be subject to greater fluctuation than a portfolio
containing mostly fixed-income securities. The U.S. stock market tends to be
cyclical with periods when stock prices generally rise and periods when prices
generally decline. The Fund may invest in small and medium-capitalization stocks
contained in the various technology indices. Small-capitalization stocks are
generally classified as having an aggregate market value of approximately $30
million to $800 million, while medium-capitalization stocks are classified as
having an aggregate market value of approximately $800 million to $5 billion.
Traditonally, such small and medium-capitalization stocks have been more
volatile in price than the large-capitalization stocks. Among the reasons for
the greater price volatility of these securities are the less certain growth
prospects of smaller firms, the lower degree of liquidity in the markets for
such stocks, and the greater sensitivity of small and medium-sized companies to
changing economic conditions. Besides exhibiting greater volatility, small and
medium company stocks, may to a degree, fluctuate independently of larger
company stocks. Small and medium company stocks may decline in price as large
company stocks rise, or rise in price as large company stocks decline.
Debt Obligations. Yields on short, intermediate, and long-term securities
are dependent on a variety of factors, including the general conditions of the
money and bond markets, the size of a particular offering, the maturity of the
obligation, and the rating of the issue. Debt securities with longer maturities
tend to produce higher yields and are generally subject to potentially greater
capital appreciation and depreciation than obligations with shorter maturities
and lower yields. The market prices of debt securities usually vary, depending
upon available yields. An increase in interest rates will generally reduce the
value of portfolio investments, and a decline in interest rates will generally
increase the value of portfolio
<PAGE>
investments. The ability of the Fund to achieve its investment objectives is
also dependent on the continuing ability of the issuers of the debt securities
in which the Fund invests to meet their obligations for the payment of interest
and principal when due.
INVESTMENT RESTRICTIONS
Fundamental policies of the Fund may not be changed without the approval by
the holders of more than 50% of the outstanding shares of the Fund are present
in person or by proxy. Other restrictions, in the form of operating policies,
are subject to change by the Fund's Board of Directors without stockholder
approval. Any investment restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
of securities or assets of, or borrowings by, the Fund. (See also "Fundamental
and Other Investment Policies" in the Prospectus.
Fundamental Policies.
As a matter of fundamental policy, the Fund may not:
1.Borrowing. Borrow money, except the Fund may borrow from banks as a
temporary measure for extraordinary or emergency purposes, and then only
in amounts not exceeding 30% of its total assets valued at market. The
Fund will not borrow in order to increase income (leveraging), but only to
facilitate redemption requests which might otherwise require untimely
disposition of portfolio securities. Interest paid on any such borrowings
will reduce net investment income. The Fund may enter into futures
contracts as set forth in (3) below;
2.Commodities. Purchase or sell commodities or commodity contracts, except
that it may: (i) enter into futures contracts and options on futures
contracts, subject to (3) below; and (ii) invest in instruments which have
the characteristics of both futures contracts and securities;
3.Futures Contracts. Enter into a futures contract or an option thereon,
although the Fund may enter into financial futures contracts or options on
financial futures contracts;
4.Industry Concentration. Purchase the securities of any issuer if, as a
result, 25% or more of the value of the Fund's total assets would be
invested in the securities of issuers having their principal business
activities in the same industry (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities);
5.Loans. Make loans, although the Fund may: (i) purchase money market
securities and enter into repurchase agreements; (ii) acquire
publicly-distributed bonds, debentures, notes and other debt securities
and purchase debt securities in private placements; and (iii) lend
portfolio securities;
6.Margin. Purchase securities on margin, except that the Fund may use
short-term credit necessary for clearance of purchases of portfolio
securities and make margin deposits in connection with futures contracts,
subject to (3) above;
<PAGE>
7.Mortgaging. Mortgage, pledge, hypothecate or, in any manner, transfer any
security owned by the Fund as security for indebtedness except as may be
necessary in connection with permissible borrowings and then such
mortgaging, pledging or hypothecating may not exceed 30% of the Fund's
total assets valued at market at the time of the borrowing;
8.Percent Limit on Assets Invested in Any One Issuer. Purchase a security
if, as a result, more than 5% of the value of the Fund's total assets
would be invested in the securities of a single issuer, except securities
issued or guaranteed by the U.S. Government, or any of its agencies or
instrumentalities;
9.Percent Limit on Share Ownership of Any One Issuer. Purchase a security
if, as a result, with respect to 75% of the value of the Fund's total
assets, more than 10% of the outstanding voting securities of any issuer
would be held by the Fund (other than obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) provided that, as
an operating policy, the Fund will not purchase a security if, as a
result, more than 10% of the outstanding voting securities of any issuer
would be held by the Fund;
10.Real Estate. Purchase or sell real estate or real estate limited
partnerships (although it may purchase securities secured by real estate
or interests therein, or issued by REITs (whether organized as
corporations or as trusts) which invest in real estate or interests
therein);
11.Senior Securities. Issue senior securities;
12.Underwriting. Underwrite securities issued by other persons, except to
the extent that the Fund may be deemed to be an underwriter within the
meaning of the 1933 Act in connection with the purchase and sale of its
portfolio securities in the ordinary course of pursuing its investment
program;
Operating Policies. As a fundamental policy, the Fund may not invest in
companies for the purpose of exercising management or control.
Under the Investment Company Act of 1940, the Fund may not invest in any
securities of any issuer which, in its most recent fiscal year, derived more
than 10% gross revenues from "securities related activities," as defined by
rules of the Investment Company Act of 1940, unless certain conditions are met.
As a result of these restrictions, the Fund may not invest in the securities of
certain banks, broker-dealers and other companies in foreign countries. If the
Fund finds that this restriction prevents it from pursuing its investment
objective, it may apply to the SEC for an order which would permit it to acquire
such securities, but no assurance can be given that any such order will be
granted. It is also possible the law in this area will change, in which case the
Fund could have greater flexibility in the purchase of the securities of foreign
banks, broker-dealers, and other companies.
As a matter of operating policy, the Fund will not, among other things:
(i) purchase securities of an issuer if, as a result, (a) more than 10% of the
value of its net assets would be invested in illiquid securities, including
repurchase agreements which do not provide for payment within seven days, or
other securities which are not readily marketable or (b) more than 5% of the
value of the Fund's total assets would be invested in the securities of
unseasoned issuers which at the time of purchase have been in operation for less
<PAGE>
than three years, including predecessors and unconditional guarantors; (ii)
purchase securities when money borrowed exceeds 5% of the Fund's total assets;
(iii) purchase or hold the securities of other investment companies if, as a
result: (a) the Fund owns, in the aggregate, more than 3% of the total
outstanding voting stock in such investment companies; (b) securities issued by
such investment companies are in excess of 5% of the value of the Fund's total
assets; or (c) more than 10% of the value of the Fund's assets would be invested
in such investment companies; (iv) purchase interests in oil, gas or other
mineral exploration or development programs; (v) purchase warrants, valued at
the lower of cost or market, if, as a result, more than 5% of the value of the
Fund's net assets would be invested in warrants, more than 2% of which are not
listed on the New York Stock Exchange, American Stock Exchange or the Nasdaq
National Market; and (vi) purchase POs and IOs, if, as a result, more than 5% of
the value of the Fund's net assets would be invested in POs and IOs.
Redemption in Kind. In the unlikely event a stockholder were to receive an
in kind redemption of portfolio securities of the Fund, brokerage fees generally
would be incurred by the stockholder in the subsequent sale of such securities.
MANAGEMENT OF FUND
The directors and executive officers of the Company as of March 31, 1998,
are listed below. The address of each of Messrs. Bensler, Mao and Holman is c/o
The Rupay-Barrington Financial Group, Inc., 1000 Ballpark Way, Suite 302,
Arlington, TX 76011 ("Rupay-Barrington Financial"). The addresses of Messsrs.
Newman and Wilkerson and Ms. Champine are 5429 Dana Point Drive, Arlington, TX
76017, 5518 Oak Branch Drive, Arlington, TX 76016 and 3516 Beagle Drive,
Commerce, MI 48382, respectively. In the list below, the Company's directors who
are considered "interested persons" of Rupay-Barrington Financial, as defined
under Section 2(a) (10) of the Investment Company Act of 1940 are noted with an
asterisk(*). These directors are referred to as inside directors by virtue of
their directorship and/or employment with Rupay-Barrington Financial. No family
relationship exists between the persons listed below.
Name Position
Fritz Bensler* President, Treasurer and Director
Larry S. Mao Senior Vice President-- Operations and Secretary
Dixon R. Holman Vice President
Bradley D. Newman Director
Glen Wilkerson Director
Judy A. Champine Director
Fritz Bensler (age 41) is President, Treasurer and a Director of the
Company and President and Portfolio Manager for Rupay-Barrington Advisors, Inc.
a subsidiary of Rupay-Barrington Financial. From November 1995 until joining
Rupay-Barrington Advisors in January 1997, Mr. Bensler was an equity security
analyst and portfolio manager for JPJ Investment Management, Inc. ("JPJ"). From
1993 until joining JPJ, Mr. Bensler was a self-employed consultant. Mr. Bensler
was a financial analyst with Martin Marietta Corp. from 1984 to 1991 where he
analyzed sales and expense data for a division of the company. Mr. Bensler was a
senior accountant for Pryor & Associates, P.C., C.P.A., a public accounting
firm, from
<PAGE>
1980 to 1984. Mr. Bensler received a CPA certificate from the state of
Colorado in 1983. Mr. Bensler received a Masters of Business Administration
degree from Texas Christian University in 1993 and a Bachelor of Science degree
in accounting from the University of Northern Colorado in 1980. Mr. Bensler is a
member of the Denver Society of Security Analysts.
Larry S. Mao (age 53) is Senior Vice President -- Operations and Secretary
of the Company and operations manager of the San Francisco office of
Rupay-Barrington Financial. Mr. Mao was a Senior Vice President of the
California National Bank from January 1993 until joining Rupay-Barrington
Financial in December 1993, where his duties included managing loan portfolios
and marketing financial products. Mr. Mao has been a director of California
National Bank since July 1994. From 1989 until he joined the California National
Bank, he was a Vice President, the Senior Lending Officer, and Chairman of the
Management Loan Committee of America California Bank. Prior to this time, Mr.
Mao served in senior executive positions at Western Federal Savings and Loan,
National American Bank, Bank of Canton, and other financial institutions, where
he managed loan portfolios, developed retail credit card services, and
coordinated corporate strategic planning. Mr. Mao received a Bachelor of Arts
degree in Economics and Mathematics from Park College, Missouri, and continued
his education through the American Institute of Banking and Robert Morris
Associates. Mr. Mao serves as President of his local Lions Club and Merchants
Association and is active in many other civic programs.
Dixon R. Holman (age 37) is Vice President of the Company and Vice
President, Chief Operating Officer and a Director of Rupay-Barrington Financial.
Mr. Holman has served as Vice President of JPJ Investment Management and its
wholly-owned subsidiary, JPJ Asset Group, the majority stockholder of
Rupay-Barrington Financial , since May 1996. Since 1983, and prior to joining
JPJ, Mr. Holman served as a principal and senior officer of three investment
management firms. He has also been active in the real estate investment and
development industries. Mr. Holman's civic activities include services as a
Director of the Arlington, Texas Chamber of Commerce and as an at-large Member
of the Arlington City Council (population approx. 300,000). He also serves as
President of the Arlington Housing Finance Corporation and acting President of
the Tarrant County Junior College Foundation board.
Bradley D. Newman (39) is a Director of the Company. Mr. Newman has been
Property Tax Agent for Union Pacific Resources Group, Fort Worth, TX, since
1986. He is a certified public accountant, and a member of both the Council of
Petroleum Accountant's Society and the Institute of Professionals in Taxation.
Glen Wilkerson (60) is a Director of the Company. Mr. Wilkerson has held
various sales and sales management positions with Hormel Food Corporation,
Austin, MN, for the past 33 years.
Judy A. Champine (51) is a Director of the Company. Ms. Champine has been
Vice President and Co-Owner of Town Center Gallery, Novi, MI, since 1992. From
1991 to 1992, she served as the Graphic Services Manager of the National Board
for Professional Teaching Standards, Detroit, MI.
It is anticipated that an Executive Committee may be established consisting
of two or more Directors. The Executive Committee would likely exercise all
powers of the Directors except for those which require actions by all of the
Directors or independent Directors under the Company's Articles of Amendment and
Restatement as amended, Articles Supplementary or By-Laws or under applicable
law.
<PAGE>
Compensation of Executive Officers and Directors.
The following table sets forth certain information with respect to the
aggregate compensation paid by the Company during the fiscal year ended December
31, 1997 to the executive officers and directors of the Company.
COMPENSATION TABLE
- ---------------------------------------------------------------------------
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Estimated Annual Total Compensation
Position Compensation Retirement Benefits Upon From Fund and Fund
From Fund Benefits Accrued Retirement Complex Paid to
As Part of Directors
Fund Expenses
- ---------------------------------------------------------------------------
Fritz Bensler, * N/A N/A *
President
Frederick A. Wolf,+
Treasurer,
Director * N/A N/A *
Larry S. Mao, Senior
Vice President-Operations,
Secretary * N/A N/A *
Dixon R. Holman,
Vice President * N/A N/A *
Bradley D. Newman,
Director ** N/A N/A **
Glen Wilkerson,
Director ** N/A N/A **
Judy A. Champine,
Director ** N/A N/A **
* Executive officers of the Company and directors of the Company, who are
considered "interested persons" within the meaning of Section 2(a)(19) of
the Investment Company Act of 1940, do not receive compensation from the
Company.
** Directors of the Company, who are not considered "interested persons"
within the meaning of Section 2(a)(19) of the Investment Company Act of
1940 may at sometime in the future receive, a fee for their services as
outside directors of the Fund. As of the date of the registration
statement which includes this SAI, such disinterested directors have
received no compensation for their attendance at meetings of the Board of
Directors.
+ Effective as of March 21,1998, Mr. Wolf resigned from the Company's Board
of Directors and as Treasurer of the Company.
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
As of the date of the Statement of Additional Information, ten shares of
the Fund were issued and outstanding, all of which shares were owned by Rupay-
Barrington Financial. Rupay-Barrington Financial may be deemed to control the
Fund by virtue of its ownership oF more than 25% of the outstanding shares of
the Fund. No officer or director owned shares of the Fund.
INVESTMENT MANAGEMENT SERVICES
The Fund's investment portfolio is managed by the Investment Advisor. The
Investment Advisor is a wholly-owned subsidiary of Rupay-Barrington Financial.
See "Management of Fund."
The Investment Advisor has entered into an Investment Advisory Agreement
with the Company. Under the Investment Advisory Agreement, the Investment
Advisor provides discretionary investment services to the Fund. The Investment
Advisor is responsible for supervising and directing the Fund's investments in
equity and fixed income securities in accordance with the Fund's investment
objectives, and restrictions as provided in the Prospectus and this Statement of
Additional Information. The Investment Advisor also is responsible for effecting
all securities transactions with respect to the Fund's portfolio on behalf of
the Fund, including the negotiation of commissions and the allocation of
principal business and portfolio brokerage. The Investment Advisor must adhere
to the brokerage policies of the Fund in placing all orders, the substance of
which policies are that the Investment Advisor attempts to obtain the best
execution for all securities brokerage transactions. In addition to these
services, the Investment Advisor provides the Fund with certain corporate
administrative services, including: maintaining the Company's corporate
existence, corporate records, and registering and qualifying Fund shares under
federal and state laws; monitoring the financial, accounting, and administrative
functions of the Fund; maintaining liaison with the agents employed by the
Company, such as the Company's custodian and transfer agent; assisting the Fund
in the coordination of such custodian's and transfer agent's activities; and
permitting the Investment Advisor's employees to serve as officers, directors,
and committee members of the Fund without cost to the Fund or the Company. The
Investment Advisory Agreement also provides that the Investment Advisor, its
directors, officers, employees, and certain other persons performing specific
functions for the Fund will only be liable to the Fund for losses resulting from
willful misfeasance, bad faith, gross negligence, or reckless disregard of duty.
Management Fees. The Fund pays the Investment Advisor a management fee
(the "Management Fee") equal to .80% of the Fund's net assets per annum. The
Management Fee is payable monthly on the first business day of the next
succeeding calendar month and is calculated as described below.
The monthly Management Fee is the sum of the daily fund fee accruals
("Daily Fund Fee Accruals") for each month. The Daily Fund Fee Accrual for any
particular day is computed by multiplying the fraction of one (1) over the
number of calendar days in the year by the fund fee rate of .80% and multiplying
this product by the net assets of the Fund for that day, as determined in
accordance with the Fund's Prospectus as of the close of business on the
previous business day on which the Fund was open for business.
Limitation on Fund Expenses. The Investment Advisory Agreement between the
Company and the Investment Advisor provides that the Fund will bear all expenses
of its operations not specifically assumed by the Investment Advisor. In the
interest of limiting the expenses of the Fund during its initial period of
operation, Rupay-Barrington Financial has agreed to bear any expenses for the
Fund's first five years of operations, which would cause the Fund's ratio of
operating expenses to average net assets to exceed 1.85%.
<PAGE>
DISTRIBUTOR FOR FUND
Rupay-Barrington Securities Corporation ("Rupay-Barrington Securities"), a
Nevada corporation formed in 1993 as a wholly-owned subsidiary of
Rupay-Barrington Financial Group, Inc., serves as the distributor of the Fund's
shares. Rupay-Barrington Securities is registered as a broker-dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. The offering of the Fund's shares is continuous.
Rupay-Barrington Securities is located at the same address as the Fund -- 1000
Ballpark Way, Suite 207A, Arlington, TX 76011.
Rupay-Barrington Securities serves as distributor to the Fund pursuant to
an underwriting agreement ("Distribution Agreement"), which provides that the
Fund will pay all fees and expenses in connection with registering and
qualifying its shares under the various state "blue sky" laws, preparing,
setting in type, printing, and mailing its prospectuses and reporting to
stockholders, and issuing its shares, including expenses of confirming purchase
orders.
The Distribution Agreement provides that Rupay-Barrington Securities will
pay all fees and expenses in connection with distributing prospectuses and
reports for use in offering and selling Fund shares, preparing, setting in type,
printing, and mailing all sales literature and advertising, Rupay-Barrington
Securities' federal and state registrations as a broker-dealer, and offering and
selling Fund shares, except for those fees and expenses specifically assumed by
the Fund. Rupay-Barrington Securities' expenses are paid by Rupay-Barrington
Financial to the extent they exceed revenues.
Sales Commission. Rupay-Barrington Securities acts as the agent of the
Fund in connection with the sale of its shares in all states in which the shares
are qualified and in which Rupay-Barrington Securities is qualified as a
broker-dealer. Under the Distribution Agreement, Rupay-Barrington Securities
accepts orders for Fund shares at net asset value. The following sales
commission are paid by investors:
Total Sales Commission*
As a Percentage
As a Percentage of Net Portion
of Offering Asset Value of Total
Amount of Single Sale Price of the of Shares Offering Price
at Offering Price Shares Purchased Purchased Retained by Dealers
Less than $25,000 4.50% 4.71% 3.75%
$ 25,000 but less than $250,000 3.00% 3.09% 2.40%
$250,000 but less than $500,000 2.00% 2.04% 1.55%
$500,000 but less than 1,000,000 1.00% 1.01% 0.75%
$1,000,000 or more none none see below**
- ---------------------
<PAGE>
+ At the discretion of Rupay-Barrington Securities, the entire sales
commission may at times be reallowed to dealers. Rupay-Barrington
Securities also may, at its expense, provide additional promotional
incentives or payments to dealers that sell the Fund's shares. In some
instances, the full reallowance, incentives or payments may be offered
only to certain dealers who have sold or may sell significant amounts of
shares. When 90% or more of the sales commission is reallowed, such
dealers may be deemed to be underwriters as that term is defined in the
1933 Act.
++ The following commissions will be paid by Rupay-Barrington Securities to
dealers who initiate and are responsible for purchases of $1 million or
more and for purchases made at net asset value by certain retirement plans
or organizations with collective retirement plan assets of $10 million or
more: 1.00% on sales of up to $2 million, plus 0.80% on sales of $2
million to $3 million, plus 0.50% on sales of $3 million to $10 million,
plus 0.25% on sales of $10 million to $25 million, plus 0.15% on sales in
excess of $25 million.
A sales commission equal to 4.00% of the offering price (4.17% of the net
asset value) is applicable to all purchases of shares, regardless of
amount, made for any qualified or non-qualified employee benefit plan. Of
the 4.00% sales commission applicable to such purchases, 3.20% of the
offering price will be reallowed to dealers.
Distribution Plan and Agreement. The Fund has adopted a Distribution Plan
and Agreement (the "Plan") pursuant to Rule 12b-1 of the Investment Company Act
of 1940, for the purpose of compensating Rupay-Barrington Securities for
services provided and expenses incurred by it in promoting the sale of shares of
the Fund, reducing redemptions, and maintaining and improving services provided
to stockholders by Rupay-Barrington Securities.
Continuance of the Plan is subject to annual approval by a vote of the
Board of Directors, including a majority of the Directors who are not interested
persons of the Company and the Fund and who have no direct or indirect interest
in the Plan or related arrangements ("Qualified Directors"), cast in person at a
meeting called for that purpose. All material amendments to the Plan must be
likewise approved by the Directors and the Qualified Directors. The Plan may not
be amended to materially increase the costs which the Fund may bear for
distribution pursuant thereto without stockholder approval. The Plan terminates
automatically in the event of its assignment and may be terminated without
penalty, at any time, by a vote of a majority of the Qualified Directors or by
approval of a vote of a majority of the outstanding voting securities of the
Fund.
CUSTODIAN
Star Bank, N.A. ("Star Bank") serves as the custodian for the Fund's
securities and cash, but it does not participate in the Fund's investment
decisions. Portfolio securities purchased in the U.S. are maintained in the
custody of the bank and may be entered into the Federal Reserve Book Entry
System, or the security depository system of the Depository Trust Corporation.
Star Bank's mailing address is as follows: Star Bank, N.A., Mutual Fund Custody,
P.O. Box 1118, Cincinnati, Ohio 45218.
<PAGE>
PORTFOLIO TRANSACTIONS
Decisions with respect to the purchase and sale of portfolio securities on
behalf of the Fund are made by the Investment Advisor. The Investment Advisor is
responsible for implementing these decisions with respect to the Fund's
portfolio, including the allocation of portfolio brokerage and principal
business. For fixed income securities, it is expected that purchases and sales
of portfolio securities will ordinarily be transacted with the issuer or with a
primary market maker acting as principal on a net basis, with no brokerage
commission being paid the Fund.
In purchasing and selling the Fund's portfolio securities, it is the
Investment Advisor's policy to obtain quality execution at the most favorable
prices through responsible broker-dealers and, in the case of agency
transactions, at competitive competition rates. However, under certain
conditions, the Fund may pay higher brokerage commissions in return for
brokerage and research services, although it has no current arrangement to do
so. In selecting broker-dealers, including Rupay-Barrington Securities, to
execute the Fund's portfolio transactions, the Investment Advisor will consider
such factors as the price of the security, the rate of the commission, the size
and difficulty of the order, the reliability, integrity, financial condition,
general execution and operation capabilities of competing broker-dealers, and
the brokerage and research services they provide to the Investment Advisor.
The Investment Advisor may cause the Fund to pay a broker-dealer who
furnishes brokerage and/or research services a commission that is in excess of
the commission another broker-dealer would have received for executing the
transaction if it is determined that such commission is reasonable in relation
to the value of the brokerage and/or research services which would have been
provided. In some cases, research services are generated by third parties, but
are provided to the Investment Advisor by or through broker-dealers.
The Investment Advisor may effect principal transactions on behalf of the
Fund with a broker-dealer who furnishes brokerage and/or research services, or
designate any such broker-dealer to receive selling concessions, discounts or
other allowances, or otherwise deal with any such broker-dealer in connection
with the acquisition of securities in underwritings. Additionally, purchases and
sales of fixed income securities are transacted with the issuer, the issuer's
underwriter, or with a primary market maker acting as principal or agent. The
Fund does not usually pay brokerage commissions for these purchases and sales,
although the price of the securities generally includes compensation which is
not disclosed separately. The prices the Fund pays to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter. Transactions placed through dealers who are serving as primary
market makers reflect the spread between the bid and asked prices.
The Investment Advisor may receive a wide range of research services from
broker-dealers, including information on securities markets, the economy,
individual companies, statistical information, accounting and tax law and
interpretations, technical market action, pricing and appraisal services, and
credit analyses. Research services are received primarily in the form of written
reports, telephone contacts, personal meetings with security analysts, corporate
and industry spokespersons, economists, academicians, government
representatives, and access to various computer-generated data. Research
services received from broker-dealers are supplemental to the Investment
Advisor's own research efforts and, when utilized, are subject to internal
analysis before being incorporated into the investment process.
<PAGE>
The Investment Advisor assesses the contribution of the brokerage and
research services provided by broker-dealers, and allocates a portion of the
brokerage business of its clients on the basis of these assessments. In
addition, broker-dealers sometimes suggest a level of business they would like
to receive in return for the various brokerage and research services they
provide. Actual brokerage business received by any firm may be less than the
suggested allocation, but can (and often does) exceed the suggestions because
total brokerage business is allocated on the basis of all the considerations
described above. In no instance is a broker-dealer excluded from receiving
business because it has not been identified as providing research services.
The Investment Advisor can not readily determine the extent to which net
prices charged by broker-dealers reflect the value of their research services.
In some instances, the Investment Advisor will receive research services it
might otherwise have had to perform for itself. The research services provided
by broker-dealers can be useful to the Investment Advisor in serving its other
clients, but they can also be useful in serving the Fund.
The Fund does not allocate business to any broker-dealer on the basis of
its sales of the Fund's shares. However, this does not mean that broker-dealers
who purchase Fund shares for their clients will not receive business from the
Fund.
As provided in the Investment Advisory Agreement between the Company and
the Investment Advisor, the Investment Advisor is responsible not only for
making decisions with respect to the purchase and sale of the Fund's portfolio
securities, but also for implementing these decisions, including the negotiation
of commissions and the allocation of portfolio brokerage and principal business.
PRICING OF SECURITIES
Securities listed or traded on a national securities exchange are valued
at the last quoted sales prices on the date the valuations are made. Securities
regularly traded in the over-the-counter market are valued at the last quoted
sales price on The Nasdaq National Market. If no sales price is available for a
listed or Nasdaq National Market security, or if the security is not listed on
The Nasdaq National Market, such security is valued at a price equal to the mean
of the latest bid and ask prices. Securities listed or traded on certain foreign
exchanges are valued at the last quoted sales prices on the date the valuations
are made. A security which is listed or traded on more than one exchange is
valued at the quotations on the exchange determined to be the primary market for
such security by the Board of Directors or its delegates.
Fixed income securities are generally traded in the over-the-counter
market and will be valued at a price deemed best to reflect a fair value as
quoted by dealers who make markets in these securities or by an independent
pricing service. Short-term securities (maturing or expiring in 60 days or less)
are valued at their cost in local currency which, when combined with accrued
interest, approximate fair value.
In instances where the price of a security determined by these methods is
deemed not to be representative, the security is valued in the manner prescribed
by the Board to reflect its fair value.
For purposes of determining the Fund's net asset value per share, all
assets and liabilities initially expressed in foreign currencies are converted
to U.S. dollars at the mean of the bid and offer prices of such
<PAGE>
currencies against U.S. dollars quoted by any major bank, as determined from
time to time by the Board of Directors. If such quotations are not available,
the rate of exchange will be determined in accordance with policies established
in good faith by the Board. On an ongoing basis, the Board monitors the Fund's
method of valuation.
DIVIDENDS
Unless you elect otherwise, dividends or distributions will be reinvested
on the reinvestment date using the net asset value per share of the Fund on that
date. The reinvestment date normally precedes the payment date by about 10 days
although the exact timing is subject to change.
NET ASSET VALUE PER SHARE
The purchase and redemption price of the Fund's shares is equal to the net
asset value per share of the Fund or share price of the Fund, plus the
applicable sales commission. The Fund determines its net asset value per share
by subtracting its liabilities from its total assets and dividing the result by
the total number of shares of the Fund outstanding. Among other things, the
Fund's liabilities include accrued expenses and dividends payable and its total
assets include portfolio securities valued at market as well as income accrued
but not yet received. The net asset value per share of the Fund is calculated as
of the close of trading on the New York Stock Exchange ("Exchange") every day
the Exchange is open for trading. The Exchange is closed on the following days:
New Year's Day, Martin Luther King, Jr., Day, Presidents Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
TAX STATUS
The following summarizes certain additional tax considerations generally
affecting the Fund and its stockholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its stockholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning and is based
on tax laws and regulations that are in effect on the date hereof; such laws and
regulations may be changed by legislative, judicial or administrative action.
Investors are advised to consult their tax advisors with specific reference to
their own tax situations. The Fund intends to operate in a manner to qualify as
a "regulated investment company" under Subchapter M of the Code. Each series of
the Company, including the Fund, will be treated as a separate entity under the
Code and intends to qualify or remain qualified as a regulated investment
company. In order to so qualify, each series must elect to be a regulated
investment company or have made such an election for a previous year and must
satisfy, in addition to the distribution requirement described in the
Prospectus, certain requirements with respect to the source of its income for a
taxable year. At least 90% of the gross income of the Fund must be derived from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stocks, securities or foreign currencies and other
securities or currencies. Any income derived by the Fund with respect to the
Fund's business of investing in such stock, securities or currencies only to the
extent that such income is attributable to items of income that would have been
qualifying income if realized by the Fund in the same manner as by the
partnership or trust.
<PAGE>
A portion of the dividends paid by the Fund may be eligible for the
dividends-received deduction for corporate stockholders. For tax purposes, it
does not make any difference whether dividends and capital gain distributions
are paid in cash or in additional shares. The Fund must declare dividends equal
to at least 98% of ordinary income (as of December 31) and capital gains (as of
October 31) in order to avoid a federal excise tax and distribute 100% of
ordinary income and capital gains for the period ending December 31 to avoid
federal income tax.
At the time of your purchase, the Fund's net asset value may reflect
undistributed income, capital gains or net unrealized appreciation of securities
held by the Fund. A subsequent distribution to you of such amounts, although
constituting a return of your investment, would be taxable either as dividends
or capital gain distributions. For federal income tax purposes, the Fund is
permitted to carry forward its net realized capital losses, if any, for eight
years, and realize net capital gains up to the amount of such losses without
being required to pay taxes on, or distribute such gains.
If, in any taxable year, the Fund should not qualify as a regulated
investment company under the Code: (i) the Fund would be taxed at normal
corporate rates on the entire amount of its taxable income without deduction for
dividends or other distributions to stockholders; and (ii) the Fund's
distribution to the extent made out of the Fund's current or accumulated
earnings and profits would be taxable to stockholders as ordinary dividends
(regardless of whether they would otherwise have been considered capital gain
dividends).
Taxation of Foreign Stockholders. The Code provides that dividends from
net income will be subject to U.S. tax. For stockholders who are not engaged in
a business in the U.S., this tax would be imposed at the rate of 31% upon the
gross amount of the dividends in the absence of a Tax Treaty providing for a
reduced rate or exemption from U.S. taxation. Distributions of net long-term
capital gains realized by the Fund are not subject to tax unless the foreign
stockholder is a nonresident alien individual who was physically present in the
U.S. during the tax year for more than 182 days.
YIELD INFORMATION
From time to time, the Fund may advertise a yield figure calculated in the
following manner:
An income factor is calculated for each security in the portfolio, which in
the case of bonds is based upon the security's market value at the beginning of
the period and expected yield-to-maturity, and in the case of stocks is based
upon the stated dividend rate. The income factors are then totaled for all
securities in the portfolio. Next, expenses of the Fund for the period are
deducted from the income to arrive at net income, which is then converted to a
per-share amount by dividing net income by the average number of shares
outstanding during the period. The Fund's net income per share is divided by the
Fund's net asset value on the last day of the period to produce an annualized
yield.
Quoted yield factors are for comparison purposes only, and are not
intended to indicate future performance or forecast the dividend per share of
the Fund.
<PAGE>
Investment Performance
Total Return Performance. The Fund's calculation of total return
performance includes the reinvestment of all capital gains distributed and
income dividends for the period or periods indicated, without regard to tax
consequences to a stockholder in the Fund. Total return is calculated as the
percentage change between the beginning value of a static account in the Fund
and the ending value of that account measured by the Fund's then current net
asset value, including all shares acquired through reinvestment of income and
capital gains dividends. The results shown are historical and should not be
considered indicative of the future performance of the Fund. Each average annual
compound rate of return is derived from the cumulative performance of the Fund
over the time period specified. The annual compound rate of return for the Fund
over any other period of time will vary from the average.
From time to time, in reports and promotional literature, one or more
existing or future Rupay-Barrington funds, including the Fund, may compare its
yield to Overnight Government Repurchase Agreements, Treasury bills, notes, and
bonds, certificates of deposit, and six-month money market certificates.
Performance or yield may also be compared to indices of broad groups of
unmanaged securities considered to be representative of or similar to Fund
portfolio holdings such as:
Lipper Analytical Services, Inc. -- Average of Growth Funds -- a
widely used independent research firm which ranks mutual funds by overall
performance, investment objectives, and assets.
Mutual Fund Values, published by Morningstar, Inc. -- a mutual fund
tracking system which provides a top performer list every two weeks based
on performance and risk management.
Wall Street Journal -- a daily newspaper publication which lists the
yields and current market values on money market instruments, public
corporate debt obligations, public obligations of the U.S. Treasury and
agencies of the U.S. government as well as common stocks, preferred stock,
convertible preferred stocks, options and commodities; in addition to
indices prepared by the research department of such financial
organizations as Merrill Lynch, Pierce, Fenner and Smith, Inc., including
information provided by the Federal Reserve Board.
Performance rankings and ratings periodically in national financial
publications such as MONEY, FORBES, BUSINESS WEEK, BARRON's, etc., will also be
used.
From time to time, in reports and promotions literature: (i) the Fund's
total return performance or P/E ratio may be compared to: (a) the Standard &
Poor's 500 Stock Index and Dow Jones Industrial Average so that you may compare
the Fund's results with those of a group of unmanaged securities widely regarded
by investors as representative of the stock market in general; (b) other groups
of mutual funds tracked by: (1) Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets; or (2) other financial or Business
publications, such as Business Week, Money Magazine, Forbes and Barron's, which
provide similar information; or (c) indices of stock comparable to those in
which the Fund invests; (ii) the Consumer Price Index (the measure for
inflation) may be used to assess the real rate of return from an investment in
the Fund; (iii) other government statistics such as GNP, and import and export
figures derived from governmental publications, e.g., the Survey of Current
Business, may be used to illustrate investment attributes of the Fund or the
general economic, business, investment, or financial environment in which the
Fund operates; (iv) the effect of tax-deferred compounding on the Fund's
investment returns, or on return in
<PAGE>
general, may be illustrated by graphs, charts, etc., where such graphs or charts
would compare, at various points in time, the return from an investment in the
Fund (or returns in general) on a tax-deferred basis (assuming one or more tax
rates) with the return on a taxable basis; and (v) the sectors or industries in
which the Fund invests may be compared to relevant indices or surveys (e.g., S&P
Industry Surveys) in order to evaluate the Fund's historical performance or
current or potential value with respect to the particular industry or sector. In
connection with (iv) above, information derived from the following chart may be
used.
IRA Versus Taxable Return
Assuming 9% annual rate of return, $2,000 annual contribution and 28% tax
bracket.
Year Taxable Tax Deferred (IRA)
10 $ 28,700 $ 33,100
15 52,400 64,000
20 82,500 111,500
25 125,100 184,600
26 183,300 297,200
An IRA is a long-term investment whose objective is to accumulate personal
savings for retirement. Due to the long-term nature of the investment, even
slight differences in performance will result in significantly different assets
at retirement. Mutual funds, with their diversity of choice, can be used for IRA
investments. Generally, individuals may need to adjust their underlying IRA
investment as their time to retirement and tolerance for risk changes.
THE COMPANY'S CAPITAL STOCK
The Fund is a diversified series of the Company, a diversified open-end
investment company organized under Maryland law on January 24, 1994. The
Company's Amended and Restated Articles of Incorporation, as amended (the
"Articles") authorize the Board of Directors to classify and reclassify any and
all shares which are then unissued, including unissued shares of capital stock
into any number of classes or series, each class or series consisting of such
number of shares and having such designations, such powers, preferences, rights,
qualifications, limitations, and restrictions, as shall be determined by the
Board of Directors subject to the Investment Company Act of 1940, and other
applicable law. The shares of any such additional classes or series might
therefore differ from the shares of the present class and series of capital
stock and from each other as to preferences, conversions or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption, subject to applicable law, and might thus be superior
or inferior to the capital stock or to other classes or series in various
characteristics. The Board of Directors may increase or decrease the aggregate
number of shares of stock or the number of shares of stock of any class or
series that the Company has authorized to issue without stockholder approval.
Except to the extent that the Company's Board of Directors might provide
by resolution that holders of shares of a particular class are entitled to vote
as a class on specified matters presented for a vote
<PAGE>
of the holders of all shares entitled to vote on such matters, there would be no
right of class vote unless and to the extent that such a right might be
construed to exist under Maryland law. The Articles contain no provision
entitling the holders of the present class of capital stock to a vote as a class
on any matter. Accordingly, the preferences, rights, and other characteristics
attaching to any class of shares, including the present class of capital stock,
might be altered or eliminated, or the class might be combined with another
class or classes, by action approved by the vote of the holders of a majority of
all the shares of all classes entitled to be voted on the proposal, without any
additional right to vote as a class by the holders of the capital stock or of
another effected class or classes.
Stockholders are entitled to one vote for each full share held (and
fractional votes for fractional shares held) and will vote in the election of or
removal of directors (to the extent hereinafter provided) and on other matters
submitted to the vote of stockholders. There will normally be no meetings of
stockholders for the purpose of electing directors unless and until such time as
less than a majority of the directors holding office have been elected by
stockholders, at which time the directors then in office will call a
stockholders' meeting for the election of directors. Except as set forth above,
the directors shall continue to hold office and may appoint successor directors.
Voting rights are not cumulative, so that the holders of more than 50% of the
shares voting in the election of directors can, if they choose to do so, elect
all the directors of the Company, in which event the holders of the remaining
shares will be unable to elect any person as a director. As set forth in the
By-Laws of the Company, a special meeting of stockholders of the Company shall
be called by the Secretary of the Company on the written request of stockholders
entitled to cast at least 10% of all votes of the Company entitled to be cast at
such meeting. Stockholders requesting such a meeting must pay to the Company the
reasonably estimated costs of preparing and mailing the notice of the meeting.
The Company, however, will otherwise assist the stockholders seeking to hold the
special meeting in communicating to the other stockholders of the Fund to the
extent required by Section 16(c) of the Investment Company Act of 1940.
In the event of a liquidation or dissolution of the Company or an
individual series, such as the Fund, stockholders of a particular series would
be entitled to receive the assets available for distribution belonging to such
series. Stockholders of a series are entitled to participate equally in the net
distributable assets of the particular series involved on liquidation, based on
the number of shares of the series that are held by each stockholder. If any
assets, income, earnings, proceeds, funds or payments are not readily
identifiable as belonging to any particular series, the Board of Directors shall
allocate them among any one or more series as they, in their sole discretion,
deem fair and equitable.
FEDERAL AND STATE REGISTRATION OF SHARES
The Fund's shares are registered for sale under the 1933 Act, and the Fund
or its shares are registered under the laws of all jurisdictions requiring
registration in which it intends to sell its shares.
LEGAL COUNSEL
Sachnoff & Weaver, Ltd., whose address is 30 South Wacker Drive, 29th
Floor, Chicago, Illinois, 60606-7484, is legal counsel to the Fund.
<PAGE>
FINANCIAL STATEMENTS
The Financial Statements of the Fund will be audited at least once each
year by independent public accountants. Stockholders will receive annual audited
and semiannual (unaudited) reports when published, and will receive written
confirmation of all confirmable transactions in their account. A copy of the
Annual Report will accompany the SAI whenever the SAI is requested by a
stockholder or prospective investor.
INDEPENDENT AUDITORS
Tait, Weller & Baker, whose address is Two Penn Center Plaza, Suite 700,
Philadelphia, PA 19102- 1707, are independent auditors to the Fund.
RATINGS OF CORPORATE DEBT SECURITIES
Moody's Investors Services, Inc. (Moody's)
Aaa -- Bonds rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged."
Aa -- Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds.
A -- Bonds rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations.
Baa -- Bonds rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Standard & Poor's Corporation (S&P) or Duff & Phelps Investor Services.
AAA -- This is the highest rating assigned to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA -- Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong.
A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
<PAGE>
Information contained herein is subject to completion or amendment. A regis-
tration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
any offers to buy be accepted prior to the time the registration statement
becomes effective. This Statement of Additional Information does not
constitute a prospectus.
Subject to Completion, dated May 5, 1998
STATEMENT OF ADDITIONAL INFORMATION
Rupay-Barrington Value Equity Fund
A Series of
RUPAY-BARRINGTON TOTAL RETURN FUND, INC.
1000 Ballpark Way, Suite 302
Arlington, Texas 76011
Part B
This Statement of Additional Information ("SAI") is not a prospectus but
should be read in conjunction with the Prospectus dated July __, 1998 for
Rupay-Barrington Value Equity Fund (the "Fund"), a diversified open-end series
of Rupay-Barrington Total Return Fund, Inc. (the "Company"), a series company
and registered management investment company. Copies of the Fund's Prospectus
may be obtained at no charge from Rupay-Barrington Securities Corporation, 1000
Ballpark Way, Suite 207A, Arlington, Texas 76011 or by calling 1-800-628-4077.
The date of this Statement of Additional Information is July __, 1998.
[The balance of This Page
Intentionally Left Blank]
<PAGE>
RUPAY-BARRINGTON VALUE EQUITY FUND
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES................................1
Investment Objective.......................................1
Investment Program.........................................1
1 Fixed Income Securities..............................2
A U.S. Government Obligations.....................2
B U.S. Government Agency Securities...............2
C Bank Obligations................................2
D Savings and Loan Obligations....................2
E Asset-Backed Securities.........................3
F Mortgage Obligations............................5
2 Options.............................................5
3 Futures Contracts...................................8
4 Lending of Portfolio Securities....................15
5 Foreign Securities.................................15
6 Foreign Currency Transactions......................15
7 Repurchase Agreements..............................17
RISK FACTORS...................................................18
General.............................................18
Fluctuations in Net Asset Value.....................18
Debt Obligations....................................18
Foreign Investing...................................18
INVESTMENT RESTRICTIONS........................................19
Fundamental Policies................................19
Operating Policies..................................20
Redemption in Kind..................................21
MANAGEMENT OF FUND.............................................21
Compensation of Executive Officers and Directors....23
PRINCIPAL HOLDERS OF SECURITIES................................24
INVESTMENT MANAGEMENT SERVICES.................................24
Management Fees....................................24
Limitation on Fund Expenses........................24
DISTRIBUTOR FOR FUND...........................................25
Sales Commission...................................25
Distribution Plan and Agreement....................26
CUSTODIAN......................................................26
PORTFOLIO TRANSACTIONS.........................................27
PRICING OF SECURITIES..........................................28
DIVIDENDS......................................................29
NET ASSET VALUE PER SHARE......................................29
TAX STATUS.....................................................29
Taxation of Foreign Stockholders...................30
Foreign Currency Gains and Losses..................30
YIELD INFORMATION..............................................30
Investment Performance.............................31
THE COMPANY'S CAPITAL STOCK....................................32
FEDERAL AND STATE REGISTRATION OF SHARES.......................33
LEGAL COUNSEL..................................................33
FINANCIAL STATEMENTS...........................................34
INDEPENDENT AUDITORS...........................................34
RATINGS OF CORPORATE DEBT SECURITIES...........................34
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's
investment objective and policies as described in the Prospectus. Unless
otherwise specified, the investment program, restrictions and operating policies
of the Fund are not fundamental policies and are subject to change by its Board
of Directors without stockholder approval. However, stockholders will be
notified of a material change in the investment program, restrictions or
operating policies. The fundamental policies of the Fund may not be changed
without the approval of at least a majority of the outstanding shares of the
Fund.
Investment Objective.
The Fund invests in a diversified portfolio of equity securities (typically
common stocks and securities which carry the right to buy common stocks), which
the Investment Adviser (defined below) believes have strong fundamentals and low
prices relative to their prior price histories. The Fund is designed for
investors primarily seeking potential for capital appreciation and income from
equity securities.
The Fund's share price will fluctuate with changing market conditions;
therefore, your investment may be worth more or less when redeemed than when
purchased. The Fund should not be relied upon for short-term financial needs,
nor used to play short-term swings in the stock market. The Fund cannot
guarantee it will achieve its investment objective.
Investment Program.
The Fund invests in equity securities. The Fund's investment philosophy is
to invest by using a value and contrarian approach. Value investing means
selecting stock with strong fundamentals and low prices relative to past price
history. Contrarian investing means selecting troubled industries and companies
when out of favor and when the level of downside risk is at perceived minimum.
The Fund is designed for investors primarily seeking the potential for
capital appreciation and income of common stocks over the long term. The Fund's
investment in common stocks is intended to provide sufficient capital growth to
offset the erosive effects of inflation.
To achieve its investment objective, the Fund will normally invest
substantially all of its assets in equity securities (primarily common stocks).
While this portfolio mix may vary depending on the Investment Advisor's (as
hereinafter defined) short-term and long-term assessments of market conditions,
the Fund will not attempt to time short-term moves in the market. The Fund will
invest at least 60% of its total assets and as much as 100% of its total assets
in equity securities, except for the purpose of effecting temporary defensive
strategies.
The Fund's common stock investments will be concentrated primarily in
established companies which are believed to exhibit good prospects for capital
appreciation and income.
The Fund's investment portfolio is managed by Rupay-Barrrington
Advisors, Inc. (the "Investment Advisor"). See "Management of Fund."
<PAGE>
Up to 15% of the Fund's assets may be invested in foreign securities,
including sponsored American Depository Receipts ("ADRs"). The international
component of the Fund's investment program is intended to increase
diversification and provide the potential for higher returns with lower overall
volatility.
The Fund also may invest in the securities described below:
1. Fixed Income Securities. Fixed income securities in which the Fund may invest
include, but are not limited to, those described below.
A. U.S. Government Obligations. Debt securities issued by the U.S.
Treasury. These are direct obligations of the U.S. Government and differ
mainly in the length of their maturities.
B. U.S. Government Agency Securities. Securities issued or guaranteed by U.S.
Government sponsored enterprises and federal agencies. These include securities
issued by the Federal National Mortgage Association, Government National
Mortgage Association, Federal Home Loan Bank, Federal Land Banks, Farmers Home
Administration, Banks for Cooperatives, Federal Intermediate Credit Banks,
Federal Financing Bank, Farm Credit Banks, and the Tennessee Valley Authority.
Some of these securities are supported by the full faith and credit of the U.S.
Treasury, and the remainder are supported only by the credit of the
instrumentality, which may include the right of the issuer to borrow from the
Treasury.
C. Bank Obligations. Certificates of deposit, bankers' acceptances, and other
debt obligations. Certificates of deposit are short-term obligations of
commercial banks. A bankers' acceptance is a time draft drawn on a commercial
bank by a borrower, usually in connection with international commercial
transactions. The Fund will not invest in any security issued by a commercial
bank unless: (i) the bank has total assets of at least $1 billion, or the
equivalent in other currencies, or, in the case of domestic banks which do not
have total assets of at least $1 billion, the aggregate investment made in any
one such bank is limited to $100,000 and the principal amount of such investment
is insured in full by the Federal Deposit Insurance Corporation; (ii) in the
case of U.S. banks, it is a member of the Federal Deposit Insurance Corporation;
and (iii) in the case of foreign banks, the security is, in the opinion of the
Investment Advisor, of an investment quality comparable with other debt
securities which may be purchased by the Fund. These limitations do not prohibit
investments in securities issued by foreign branches of U.S. banks, provided
such branches meet the foregoing requirements.
D.Savings and Loan Obligations. Negotiable certificates of deposit and other
oebt obligations of savings and loan associations. The Fund will not invest in
any security issued by a savings and loan association unless: (i) the savings
and loan association has total assets of at least $1 billion, or, in the case of
savings and loan associations which do not have total assets of at least $1
billion, the aggregate investment made in any one savings and loan association
is limited to $100,000 and the principal amount of such investment is insured in
full by the Federal Deposit Insurance Corporation; and (ii) the savings and loan
association issuing the security is a member of the Federal Home Loan Bank
System.
The Fund will not purchase any security of a small bank or savings and
loan association which is not readily marketable if, as a result, more than 10%
of the value of its net assets would be invested in such securities or illiquid
securities, including repurchase agreements maturing in more than seven days.
See "Investment Restrictions".
<PAGE>
E. Asset-Backed Securities. As described in the Prospectus, the Fund may
invest a portion of its assets in debt obligations known as "asset-backed
securities" which are rated in one of the two highest rating categories by a
nationally recognized rating agency such as Standard and Poor's Corporation,
Moody's Investors Services, Inc. or Duff & Phelps, or if not so rated, of
equivalent investment quality in the opinion of the Investment Advisor. The
credit quality of most asset-backed securities depends primarily on the credit
quality of the assets underlying such securities, how well the entity issuing
the security is insulated from the credit risk of the originator or any other
affiliated entities and the amount and quality of any credit support provided to
the securities. The rate of principal payment on asset-backed securities
generally depends on the rate of principal payments received on the underlying
assets which in turn may be affected by a variety of economic and other factors.
As a result, the yield on any asset-backed security is difficult to predict with
precision and actual yield to maturity may be more or less than the anticipated
yield to maturity. Asset-backed securities may be classified as "pass-through
certificates" or "collateralized obligations."
"Pass-through certificates" are asset-backed securities which represent an
undivided fractional ownership interest in an underlying pool of assets.
Pass-through certificates usually provide for payments of principal and interest
received to be passed through to their holders, usually after deduction for
certain costs and expenses incurred in administering the pool. Because
pass-through certificates represent an ownership interest in the underlying
assets, the holders thereof bear directly the risk of any defaults by the
obligors on the underlying assets not covered by any credit support. See "-Types
of Credit Support," below.
"Collateralized obligations" are asset-backed securities issued in the
form of debt instruments and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. The assets collateralizing such asset-backed securities are
pledged to a trustee or custodian for the benefit of the holders thereof. Such
issuers generally hold no assets other than those underlying the asset-backed
securities and any credit support provided. As a result, although payments on
such asset-backed securities are obligations of the issuers, in the event of
defaults on the underlying assets not covered by any credit support, the issuing
entities are unlikely to have sufficient assets to satisfy their obligations on
the related asset-backed securities.
There are various types of credit support for asset-backed securities.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect of failures
by obligors on underlying assets to make payments, such securities may contain
elements of credit support. Such credit support falls into two classes:
liquidity protection and protection against ultimate default by an obligor on
the underlying assets. Liquidity protection refers to providing advances,
generally by the entity administering the pool of assets, to ensure that
scheduled payments on the underlying pool are made in a timely fashion.
Protection against ultimate default ensures ultimate payment of the protection
may be provided through guarantees, insurance policies or letters of credit
obtained from third parties, through various means of structuring the
transaction or through a combination of such approaches. Examples of
asset-backed securities with credit support arising out of the structure of the
transaction include "senior-subordinated securities" (multiple class
asset-backed securities with certain classes subordinate to other classes as to
the payment of principal thereon, with the result that defaults on the
underlying assets are borne first by the holders of the subordinated class) and
asset-backed securities that have "reserve funds" (where cash or investments,
sometimes funded from a portion of the initial payments on the underlying
assets, are held in reserve against future losses) or that have been
"over-collateralized" (where the scheduled payments on, or the principal amount
of, the underlying assets
<PAGE>
substantially exceeds that required to make payment of the asset-backed
securities and pay any servicing or other fees). The degree of credit support
provided on each issue is based generally on historical information respecting
the level of credit risk associated with such payments. Delinquency or loss in
excess of that anticipated could adversely affect the return on an investment in
an asset-backed security.
While many asset-backed securities are issued with only one class of
security, many asset-backed securities are issued in more than one class, each
with different payment terms. Multiple class asset-backed securities are issued
for two main reasons. First, multiple classes may be used as a method of
providing credit support. This is accomplished typically through creation of one
or more classes whose right to payments on the asset-backed security is made
subordinate to the right to such payments of the remaining class or classes.
Second, multiple classes may permit the issuance of securities with payment
terms, interest rates or other characteristics differing both from those of each
other and from those of the underlying assets. Examples include so-called
"strips" (asset-backed securities entitling the holder to disproportionate
interests with respect to the allocation of interest and principal of the assets
backing the security), and securities with class or classes having
characteristics which mimic the characteristics of non-asset-backed securities,
such as floating interest rates (i.e., interest rates which adjust as a
specified benchmark changes) or scheduled amortization of principal.
Asset-backed securities in which the payment streams on the underlying
assets are allocated in a manner different than those described above may be
issued in the future. The Fund may invest in such asset-backed securities if
such investment is otherwise consistent with its investment objective and
policies and with the investment restrictions of the Fund.
"Automobile Receivable Securities" are asset-backed securities backed by
receivables from motor vehicle installment sales contracts or installment loans
secured by motor vehicles ("Automobile Receivable Securities"). Since
installment sales contracts for motor vehicles or installment loans related
thereto ("Automobile Contracts") typically have shorter durations and lower
incidences of prepayment, Automobile Receivable Securities generally will
exhibit a shorter average life and are less susceptible to prepayment risk.
Most entities that issue Automobile Receivable Securities create an
enforceable interest in their respective Automobile Contracts only by filing a
financing statement and by having the servicer of the Automobile Contracts,
which is usually the originator of the Automobile Contracts, take custody
thereof. In such circumstances, if the servicer of the Automobile Contracts were
to sell the same Automobile Contracts to another party, in violation of its
obligation not to do so, there is a risk that such party could acquire an
interest in the Automobile Contracts superior to that of the holders of
Automobile Receivable Securities. Also, although most Automobile Contracts grant
a security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to create an enforceable security interest against competing claims of other
parties. Due to the large number of vehicles involved, however, the certificate
of title to each vehicle financed, pursuant to the Automobile Contracts
underlying the Automobile Receivable Security, usually is not amended to reflect
the assignment of the seller's security interest for the benefit of the holders
of the Automobile Receivable Securities. Therefore, there is the possibility
that recoveries on repossessed collateral may not, in some cases, be available
to support payments on the securities. In addition, various state and federal
securities laws give the motor vehicle owner the right to assert against the
holder of the owner's Automobile Contract certain defenses such owner would have
against the seller of the motor vehicle. The assertion of such defenses could
reduce payments on the Automobile Receivable Securities.
<PAGE>
"Credit Card Receivable Securities" are asset-backed securities backed by
receivables from revolving credit card agreements ("Credit Card Receivable
Securities"). Credit balances on revolving credit card agreements ("Accounts")
are generally paid down more rapidly than are Automobile Contracts. Most of the
Credit Card Receivable Securities issued publicly to date have been Pass Through
Certificates. In order to lengthen the maturity of Credit Card Receivable
Securities, most such securities provide for a fixed period during which only
interest payments on the underlying Accounts are passed through to the security
holder and principal payments received on such Accounts are used to fund the
transfer to the pool of assets supporting the related Credit Card Receivable
Securities of additional credit card charges made on an Account. The initial
fixed period usually may be shortened upon the occurrence of specified events
which signal a potential deterioration in the quality of the assets backing the
security, such as the imposition of a cap on interest rates. The ability of the
issuer to extend the life of an issue of Credit Card Receivable Securities thus
depends upon the continued generation of additional principal amounts in the
underlying accounts during the initial period and the non-occurrence of
specified events. An acceleration in cardholders' payment rates or any other
event which shortens the period during which additional credit card charges on
an Account may be transferred to the pool of assets supporting the related
Credit Card Receivable Security could shorten the weighted average life and
yield of the Credit Card Receivable Security. Credit cardholders are entitled to
the protection of a number of state and federal consumer credit laws, many of
which give such holder the right to set off certain amounts against balances
owed on the credit card, thereby reducing amounts paid on Accounts. In addition,
unlike most other asset-backed securities, Accounts are unsecured obligations of
the cardholder.
The asset-backed securities backed by assets other than those described
above may be issued in the future. The Fund may invest in such securities in the
future if such investment is otherwise consistent with its investment objective
and policies.
F. Mortgage Obligations. The Fund may invest in mortgage obligations issued
or guaranteed by non-governmental entities as well as the U.S. Government, its
agencies or instrumentalities. Such mortgage obligations may include, but are
not limited to, collateralized mortgage obligations, which are obligations fully
collateralized by a portfolio of mortgages or mortgage-related securities
("CMOs"), principal obligations ("POs"), interest obligations ("IOs") and other
mortgage-backed securities. Some mortgage-backed securities, such as GNMA
certificates, are backed by the full faith and credit of the U.S. Treasury while
others, such as Freddie Mac certificates, are not. Risks associated with
investment in mortgage obligations include, but are not limited to, principal
volatility, fluctuations in interest rates and prepayment. Payments of principal
and interest on the mortgages are passed through to the holders of the CMOs on
the same schedule as they are received, although certain classes of CMOs have
priority over others with respect to the receipt of prepayments in the
mortgages. Therefore, depending on the type of CMOs in which the Fund invests,
the investment may be subject to a greater or lesser risk of prepayment than
other types of mortgage-related securities, which prepayments could have an
adverse impact on the Fund's overall yield. CMOs may also be less marketable
than other securities. The Fund will not invest in POs and IOs, if, as a result,
more than 5% of the value of the Fund's net assets would be invested in POs and
IOs.
2. Options
Writing Covered Call Options. The Fund may write (sell) "covered" call
options and purchase options to close out options previously written by the
Fund. In writing covered call options, the Fund
<PAGE>
expects to generate premium income which should serve to enhance the Fund's
total return and reduce the effect of any price decline of the security or
currency involved in the option. Covered call options will generally be written
on securities or currencies which, in the Investment Advisor's opinion, are not
expected to make any major price increases or moves in the near future but
which, over the long term, are deemed to be attractive investments for the Fund.
A call option gives the holder (buyer) the "right to purchase" a security
or currency at a specified price (the exercise price) at any time until a
certain date (the expiration date). So long as the obligation of the writer of a
call option continues, he may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring him to deliver the
underlying security or currency against payment of the exercise price. This
obligation terminates upon the expiration of the call option, or such earlier
time at which the writer effects a closing purchase transaction by repurchasing
an option identical to that previously sold. To secure his obligation to deliver
the underlying security or currency in the case of a call option, a writer is
required to deposit in escrow the underlying security or currency or other
assets in accordance with the rules of a clearing corporation. The Fund will
write only covered call options. This means that the Fund will own the security
or currency subject to the option or an option to purchase the same underlying
security or currency having an exercise price equal to or less than the exercise
price of the "covered" option, or will establish and maintain with its custodian
for the term of the option, an account consisting of cash, U.S. Government
securities or other liquid high grade debt obligations having a value equal to
the fluctuating market value of the option securities or currencies. In order to
comply with the requirements of the securities or currencies laws in several
states, the Fund will not write a covered call option if, as a result, the
aggregate market value of all portfolio securities or currencies covering call
options or put options exceeds 25% of the market value of the Fund's net assets.
Should these state laws change or should the Fund obtain a waiver of their
application, the Fund reserves the right to increase this percentage. In
calculating the 25% limit, the Fund will offset, against the value of assets
covering written calls and puts, the value of purchased calls and puts on
identical securities or currencies with identical maturity dates.
Portfolio securities or currencies on which call options may be written
will be purchased solely on the basis of investment considerations consistent
with the Fund's investment objective. The writing of covered call options is a
conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked or uncovered options, which the Fund will not
do), but capable of enhancing the Fund's total return. When writing a covered
call option, the Fund, in return for the premium, gives up the opportunity for
profit from a price increase in the underlying security or currency above the
exercise price, but conversely retains the risk of loss should the price of the
security or currency decline. Unlike one who owns securities or currencies not
subject to an option, the Fund has no control over when it may be required to
sell the underlying securities or currencies, since it may be assigned an
exercise notice at any time prior to the expiration of its obligation as a
writer. If a call option which the Fund has written expires, the Fund will
realize a gain in the amount of the premium; however, such gain may be offset by
a decline in the market value of the underlying security or currency during the
option period. If the call option is exercised, the Fund will realize a gain or
loss from the sale of the underlying security or currency. The security or
currency covering the call will be maintained in a segregated account of the
Fund's custodian. The Fund does not consider a security or currency covered by a
call to be "pledged" as that term is used in the Fund's policy which limits the
pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium the
Fund will receive from writing a call option will reflect, among other things,
the current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the historical price
volatility of the
<PAGE>
underlying security or currency, and the length of the option period. Once the
decision to write a call option has been made, the Investment Advisor, in
determining whether a particular call option should be written on a particular
security or currency, will consider the reasonableness of the anticipated
premium and the likelihood that a liquid secondary market will exist for those
options. The premium received by the Fund for writing covered call options will
be recorded as a liability of the Fund. This liability will be adjusted daily to
the option's current market value, which will be the latest sale price at the
time at which the net asset value per share of the Fund is computed (close of
the New York Stock Exchange), or, in the absence of such sale, the latest asked
price. The option will be terminated upon expiration of the option, the purchase
of an identical option in a closing transaction, or delivery of the underlying
security or currency upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called, or, to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit the Fund to write
another call option on the underlying security or currency with either a
different exercise price or expiration date or both. If the Fund desires to sell
a particular security or currency from its portfolio on which it has written a
call option, or purchased a put option, it will seek to effect a closing
transaction prior to, or concurrently with, the sale of the security or
currency. There is, of course, no assurance that the Fund will be able to effect
such closing transactions at a favorable price. If the Fund cannot enter into
such a transaction, it may be required to hold a security or currency that it
might otherwise have sold. When the Fund writes a covered call option, it runs
the risk of not being able to participate in the appreciation of the underlying
securities or currencies above the exercise price, as well as the risk of being
required to hold on to securities or currencies that are depreciating in value.
This could result in higher transaction costs. The Fund will pay transaction
costs in connection with the writing of options to close out previously written
options. Such transaction costs are normally higher than those applicable to
purchases and sales of portfolio securities.
Call options written by the Fund will normally have expiration dates of
less than nine months from the date written. The exercise price of the options
may be below, equal to, or above the current market values of the underlying
securities or currencies at the time the options are written. From time to time,
the Fund may purchase an underlying security or currency for delivery in
accordance with a exercise notice of a call option assigned to it, rather than
delivering such security or currency from its portfolio. In such cases,
additional costs may be incurred.
The Fund will realize a profit or loss from a closing purchase transaction
if the cost of the transaction is less or more than the premium received from
the writing of the option. Because increases in the market price of a call
option will generally reflect increases in the market price of the underlying
security or currency, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security or currency owned by the Fund.
Writing Covered Put Options. The Fund may write covered put options and
purchase options to close out options previously written by the Fund. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) has the obligation to buy, the underlying security or currency at the
exercise price during the option period. So long as the obligation of the writer
continues, he may be assigned an exercise notice by the broker-dealer through
whom such option was sold, requiring him to make payment of the exercise price
against delivery of the underlying security or currency. The operation of put
options in other respects, including their related risks and rewards, is
substantially identical to that of call options. The Fund would write put
options only on a covered basis, which means that the Fund would maintain in a
<PAGE>
segregated account cash, U.S. Government Securities or other liquid high-grade
debt obligations in an amount not less than the exercise price or the Fund will
own an option to sell the underlying security or currency subject to the option
having an exercise price equal to or greater than the exercise price of the
"covered" option at all times while the put option is outstanding. (The rules of
a clearing corporation currently require that such assets be deposited in escrow
to secure payment of the exercise price.) The Fund would generally write covered
put options in circumstances where the Investment Advisor wishes to purchase the
underlying security or currency for the Fund's portfolio at a price lower than
the current market price of the security or currency. In such event the Fund
would write a put option at an exercise price which, reduced by the premium
received on the option, reflects the lower price it is willing to pay. Since the
Fund would also receive interest on debt securities or currencies maintained to
cover the exercise price of the option, this technique could be used to enhance
the current return during periods of market uncertainty. The risk in such a
transaction would be that the market price of the underlying security or
currency would decline below the exercise price less the premiums received. Such
a decline could be substantial and result in a significant loss to the Fund. In
addition, the Fund, because it does not own the specific securities or
currencies which it may be required to purchase in the exercise of the put, can
not benefit from appreciation, if any, with respect to such specific securities
or currencies.
Federal Income Tax Treatment of Options. Certain option transactions have
special tax results for the Fund. Listed non-equity options, including options
on currencies will be considered to have been closed out at the end of the
Fund's fiscal year and any gains or losses would be characterized as 60%
long-term capital gain or loss and 40% short-term capital gain or loss
regardless of the holding period of the option. Gains or losses on unlisted
currency options will not be subject to this treatment and will generally result
in ordinary income or loss.
In addition, losses on purchased puts and written covered calls, excluding
"qualified covered call options" on equity securities, to the extent they do not
exceed the unrealized gains on the securities or currencies covering the
options, may be subject to deferral until the securities or currencies covering
the options have been sold. The holding period of the securities covering these
option will be deemed not to begin until the option is terminated. For
securities covering a purchased put, this adjustment of the holding period may
increase the gain from sales of securities held less than three months. The
holding period of the security covering an "in-the-money qualified covered call"
option on an equity security will not include the period of time the option is
outstanding.
Losses on written covered calls and purchased puts on securities,
excluding certain "qualified covered call" options on equity securities, may be
long-term capital losses, if the security covering the option was held for more
than twelve months prior to the writing of the option.
3. Futures Contracts. The Fund may enter into financial futures contracts,
including stock index, interest rate and currency futures ("futures or futures
contracts").
Stock index futures contracts may be used to provide a hedge for a portion
of the Fund's portfolio, as a cash management tool, or as an efficient way for
the Investment Advisor to implement either an increase or decrease in portfolio
market exposure in response to changing market conditions. The Fund may purchase
or sell stock index futures contracts with respect to any stock index whose
movements will, in its judgment, have a significant correlation with movements
in the prices of all or portions of the Fund's portfolio securities.
<PAGE>
Interest rate or currency futures contracts may be used as a hedge against
changes in prevailing levels of interest rates or currency exchange rates in
order to establish more definitely the effective return on securities or
currencies held or intended to be acquired by the Fund. In this regard, the Fund
could sell interest rate futures as an offset against the effect of expected
increases in interest rates or currency exchange rates and purchase such futures
as an offset against the effect of expected declines in interest rates or
currency exchange rates.
The Fund will enter into futures contracts which are traded on national or
foreign futures exchanges and are standardized as to maturity date and
underlying financial instrument. The principal stock index, interest rate and
currency futures exchanges in the United States are the Board of Trade of the
City of Chicago and the Chicago Mercantile Exchange. Futures exchanges and
trading in the United States are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission (the "CFTC"). Futures are traded in
London at the London International Financial Futures Exchange, in Paris at the
MATIF and in Tokyo at the Tokyo Stock Exchange. Although techniques other than
the sale and purchase of futures contracts could be used for these purposes,
futures contracts offer an effective and relatively low cost means of
implementing the Fund's objectives in these areas.
Regulatory Limitations. The Fund will engage in transactions in financial
futures contracts and options thereon only for bona fide hedging, yield
enhancement and risk management purposes, in each case in accordance with the
rules and regulations of the CFTC, and not for speculation.
In accordance with CFTC regulations, as an operating, non-fundamental
policy, the Fund may not purchase or sell futures contracts or options thereon
if immediately thereafter the sum of the amounts of initial margin deposits on
the Fund's existing futures and premiums paid for options on futures would
exceed 5% of the market value of the Fund's total assets; provided, however,
that in the case of an option that is in the money at the time of purchase, the
in the money amount may be excluded in calculating the 5% limitation. In
instances involving the purchase of futures contracts and options thereon (less
any related margin deposits), amounts will be deposited in a segregated account
with the Fund's custodian to cover the position, or alternative cover will be
employed thereby limiting amounts leveraged by the Fund in its use of such
futures contracts and options. The segregated account the Fund maintains with
the custodian to cover its futures or options positions will consist of cash,
U.S. government securities or other liquid high-grade debt securities that, when
added to the amounts or premiums deposited with respect to the futures contract
or option, are equal to the market value of the underlying security not
otherwise covered.
As an alternative to bona fide hedging as defined by the CFTC, the Fund
may comply with a different standard established by CFTC rules with respect to
futures contracts and options thereon purchased by the Fund incidental to the
Fund's activities in the securities markets, under which the value of the assets
underlying such positions will not exceed the sum of: (i) cash set aside in an
identifiable manner or short-term U.S. securities segregated for this purpose;
(ii) cash proceeds on existing investments due within thirty (30) days; and
(iii) accrued profits on the particular futures contract or option thereon.
In addition, CFTC regulations may impose limitations on the Fund's ability
to engage in certain yield enhancement and risk management strategies. If the
CFTC or other regulatory authorities adopt different (including less stringent)
or additional restrictions, the Fund would comply with such new restrictions.
<PAGE>
Trading in Futures. A futures contract provides for the future sale by one
party and purchase by another party of a specified amount of a specific
financial instrument (units of a stock index, debt security or currency) for a
specified price, date, time and place designated at the time the contract is
made. Brokerage fees are incurred when a futures contract is bought or sold and
margin deposits must be maintained. Entering into a contract to buy is commonly
referred to as buying or purchasing a contract or holding a long position;
entering into a contract to sell is commonly referred to as selling a contract
or holding a short position.
For example, one contract in the Financial Times Stock Exchange 100 Index
future is a contract to buy 25 pounds sterling multiplied by the level of the UK
Financial Times 100 Share Index on a given future date. Settlement of a stock
index futures contract may or may not be in the underlying security. If not in
the underlying security, then settlement will be made in cash, equivalent over
time to the difference between the contract price and the actual price of the
underlying asset at the time the stock index futures contract expires.
Unlike when the Fund purchases or sells a security, no price would be paid
or received by the Fund upon the purchase or sale of a futures contract. Upon
entering into a futures contract, and to maintain the Fund's open positions in
futures contracts, the Fund would be required to deposit with its custodian in a
segregated account in the name of the futures broker an amount of cash, U.S.
government securities, suitable money market instruments, or liquid, high-grade
debt securities, known as "initial margin." The margin required for a particular
futures contract is set by the exchange on which the contract is traded, and may
be significantly modified from time to time by the exchange during the term of
the contract. Futures contracts are customarily purchased and sold on margins
that may range upward from less than 5% of the value of the contract being
traded.
If the price of an open futures contract changes (by increase in the case
of a sale or by decrease in the case of a purchase), so that the loss on the
futures contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in the margin. However,
if the value of a position increases because of favorable price changes in the
futures contract so that the margin deposit exceeds the required margin, the
broker will pay the excess to the Fund.
These subsequent payments, called variation margin, to and from the
futures broker, are made on a daily basis as the price of the underlying assets
fluctuates making the long and short positions in the futures contract more or
less valuable, a process known as "marking to the market." The Fund expects to
earn interest income on its margin deposits.
Although interest and currency futures contracts, by their terms,
typically require actual future delivery of and payment for financial
instruments or currencies, while stock index futures settle in cash, in practice
most futures contracts are usually closed out before the delivery date. Closing
out an open futures contract sale or purchase is effected by entering into an
offsetting futures contract purchase or sale, respectively, for the same
aggregate amount of the identical securities and the same delivery date. If the
offsetting purchase price is less than the original sale price, the Fund
realizes a gain; if it is more, the Fund realizes a loss. The transaction costs
also must be included in these calculations. There can be no assurance, however,
that the Fund will be able to enter into an offsetting transactions with respect
to a particular futures contract at a particular time. If the Fund is not able
to enter into an offsetting transaction, the Fund will continue to be required
to maintain the margin deposits on the futures contract; thus, the Fund
<PAGE>
could be required to make daily cash payments of variation margin. In addition,
the inability of the Fund to enter into an offsetting transaction to close out
its position could subject the Fund to substantial losses.
As an example of an offsetting transaction in which the financial
instrument or currency is not delivered, the contractual obligations arising
from the sale of one contract or September Treasury Bills on an exchange may be
fulfilled at any time before delivery of the contract is required (i.e., on a
specified date in September, the "delivery month") by the purchase of one
contract of September Treasury Bills on the same exchange. In such instance, the
difference between the price at which the futures contract was sold and the
price paid for the offsetting purchase, after allowance for transaction costs,
represents the profit or loss to the Fund.
Special Risks of Transactions in Futures Contracts
Volatility and Leverage. The prices of futures contracts are volatile and
are influenced, among other things, by actual and anticipated changes in the
market and interest rates, which in turn are affected by fiscal and monetary
policies and national and international policies and economic events.
Most United States futures exchanges have established limits in the amount
of fluctuation permitted in futures contract prices during a single trading day.
The daily limit establishes the maximum amount that the price of a futures
contract may vary either up or down from the previous day's settlement price at
the end of a trading session. Once the daily limit has been reached in a
particular type of contract, no trades may be made on that day at a price beyond
that limit. The daily limit governs only price movement during a particular
trading day and therefore does not limit potential losses because the limit may
prevent the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss or
gain to the investor. For example, if at the time of purchase, 10% of the value
of the futures contract is deposited as margin, a subsequent 10% decrease in the
value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out. A 15% decrease would result in a loss equal to 150% of the
original margin deposit, if the contract were closed out. Thus, a purchase or
sale of a futures contract may result in losses in excess of the amount invested
in the futures contract. However, the Fund would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying financial instrument and sold it after the decline. Furthermore, in
the case of a futures contract purchase, in order to be certain that the Fund
has sufficient assets to satisfy its obligations under a futures contract, the
Fund earmarks to the futures contract an amount of money market instruments
equal in value to the current value of the underlying instrument, less the
margin deposit.
Liquidity. The Fund may elect to close some or all of its futures
positions at any time prior to their expiration. The Fund would do so to reduce
exposure represented by long futures positions or increase exposure represented
by short futures positions. The Fund may close its positions by taking opposite
positions which would operate to terminate the Fund's position in the futures
contracts. Final determinations of variation margin would then be made,
additional cash would be required to be paid by or released to the Fund, and the
Fund would realize a loss or gain.
<PAGE>
Futures contracts may be closed out only on the exchange or board of trade
where the contracts were initially traded. Although the Fund intends to purchase
or sell futures contracts only on exchanges or boards of trade where there
appears to be an active market, there is no assurance that a liquid market on an
exchange or board of trade will exist for any particular contract at any
particular time. In such event, it might not be possible to close a futures
contract, and in the event of adverse price movements, the Fund would continue
to be required to make daily cash payments of variation margin. However, in the
event futures contracts have been used to hedge portfolio securities or
currencies, the Fund would continue to hold securities or currencies subject to
the hedge until the futures contracts could be terminated. In such
circumstances, an increase in the price of the securities or currencies, if any,
might partially or completely offset losses on the futures contract. However, as
described below, there is no guarantee that the price of the securities or
currencies will, in fact, correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures contract.
Hedging Risk. A decision of whether, when, and how to hedge involves skill
and judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or interest rate trends. There are several
risks in connection with the use by the Fund of futures contracts as a hedging
device. One risk arises because of the imperfect correlation between movements
in the prices of the futures contracts and movements in the prices of securities
or currencies which are the subject of the hedge. The Investment Advisor will,
however, attempt to reduce this risk by entering into futures contracts whose
movements, in its or their judgment, will have significant correlation with
movements in the prices of the Fund's portfolio securities or currencies sought
to be hedged.
Successful use of futures contracts by the Fund for hedging purposes is
also subject to the ability of the Investment Advisor to correctly predict
movements in the direction of the market. It is possible that, when the Fund has
sold futures to hedge its portfolio against a decline in the market, the index
or indices, securities or currencies on which the futures are written might
advance and the value of securities or currencies held in the Fund's portfolio
might decline. If this were to occur, the Fund would lose money on the futures
and also would experience a decline in value in its portfolio securities or
currencies. However, while this might occur to a certain degree, the Investment
Advisor believes that over time the value of the Fund's portfolio will tend to
move in the same direction as the securities or currencies underlying the
futures, which are intended to correlate to the price movements of the portfolio
securities or currencies sought to be hedged. It is also possible that if the
Fund were to hedge against the possibility of a decline in the market (adversely
affecting securities or currencies held in its portfolio) and prices instead
increased, the Fund would lose part of all of the benefit of increased value of
those securities or currencies that it has hedged, because it would have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund had insufficient cash, it might have to sell securities or currencies
to meet daily variation margin requirements. Such sales of securities or
currencies might be, but would not necessarily be, at increased prices (which
would reflect the rising market). The Fund might have to sell securities or
currencies at a time when it would be disadvantageous to do so.
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements in the futures
contract and the portion of the portfolio being hedged, the price movements of
future contracts might not correlate perfectly with price movements in the
underlying stock index, security or currency due to certain market distortions.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors might close futures contracts through offsetting
transactions which could distort the
<PAGE>
normal relationship between the underlying instruments and futures markets.
Second, the margin requirements in the futures market are less onerous than
margin requirement in the securities markets, and as a result the futures market
might attract more speculators than the securities markets do. Increased
participation by speculators in the futures market might also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market and also because of the imperfect correlation between price movements in
the underlying instruments and movements in the prices of futures contracts,
even a correct forecast of general market trends by the Investment Advisor might
not result in a successful hedging transaction over a very short time period.
Options on Futures Contracts. Options on futures are similar to options on
securities or currencies except that options on futures give the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position in the option is a call and a short position if the
option is a put), rather than to purchase or sell the futures contract, at a
specified exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option will be accompanied by the delivery of
the accumulated balance in the writer's futures margin account which represents
the amount by which the market price of the futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the futures contract. Alternatively, settlement
may be made totally in cash. Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of the premium paid.
As an alternative to writing or purchasing call and put options on stock
index futures, the Fund may write or purchase call and put options on stock
indices. Such options would be used in a manner similar to the use of options on
futures contracts.
Special Risks of Transactions in Options on Futures Contracts. The Fund
may seek to close out an option position by writing or buying an offsetting
option covering the same index, securities, currencies or contract and having
the same exercise price and expiration date. The ability to establish and close
out positions on such options will be subject to the maintenance of a liquid
secondary market. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options, or underlying securities or currencies,; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or a clearing corporation may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges could,
for economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that exchange for the options (or in the
class or series of options) would cease to exist, although outstanding options
that had been issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms. There
is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of any
of the clearing corporations inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders.
Federal Tax Treatment of Futures Contracts. Generally, the Fund is
required, for federal income tax purposes, to recognize as income for each
taxable year its net unrealized gains and losses on futures contracts as of the
end of the year as well as those actually realized during the year. Gain or loss
recognized
<PAGE>
with respect to a futures contract will generally be 67% long-term capital gain
or loss and 33% short-term capital gain or loss, without regard to the holding
period of the contract.
Futures contracts which are intended to hedge against a change in the
value of securities or currencies may be classified as "mixed straddles," in
which case the recognition of losses may be deferred to a later year. In
addition, sales of such futures contracts on securities or securities indices
may affect the holding period of the hedged security and, consequently, the
nature of the gain or loss on such security on disposition.
In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or currencies. Pending tax regulations could limit the extent to
which net gain realized from futures contracts on currencies is qualifying
income for purposes of the 90% requirements. In addition, gains realized on the
sale or other disposition of securities, including futures contracts on
securities or securities indices and, in some cases, currencies, including
futures contracts on currencies, held for less than three months, must be
limited to less than 30% of the Fund's annual gross income. In order to avoid
realizing excessive gains on securities or currencies held less than three
months, the Fund may be required to defer the closing out of futures contracts
beyond the time when it would other wise be advantageous to do so. It is
anticipated that unrealized gains on futures contracts, which have been open for
less than three months as of the end the Fund's fiscal year and which are
recognized for tax purposes, will not be considered gains on securities or
currencies held less than three months for purposes of the 30% test.
The Fund will distribute to stockholders annually any net gains which have
been recognized for federal income tax purposes from futures transactions
(including unrealized gains at the end of the Fund's fiscal year). Such
distributions will be combined with distributions of ordinary income or capital
gains realized on the Fund's other investments. Stockholders will be advised of
the nature of the payments.
Foreign Futures and Options. Participation in foreign futures and foreign
options transactions involves the execution and clearing of trades on or subject
to the rules of foreign board of trade. Neither the National Futures Associates
nor any domestic exchange regulates activities of any foreign board of trade,
including the execution, delivery and clearing of transactions, or has the power
to compel enforcement of the rules of a foreign board of trade or any applicable
foreign law. This is true even if the exchange is formally linked to a domestic
market so that a position taken on the market may be liquidated by a transaction
on another market. Moreover, such laws or regulations will vary depending on the
foreign country in which the foreign futures or foreign options transaction
occurs. For these reasons, customers who trade foreign futures or foreign
options contracts may not be afforded certain of the protective measures
provided by the Commodity Exchange Act, the CFTC's regulations and the rules of
the National Futures Association and any domestic exchange, including the right
to use reparations proceedings before the Commission and arbitration proceedings
provided by the National Futures Association or any domestic futures exchange.
In particular, funds received from customers for foreign futures or foreign
options transactions may not be provided the same protections as funds received
in respect of transactions on United States futures exchanges. In addition, the
price of any foreign futures or foreign options contract and, therefore, the
potential profit and loss thereon may be affected by any variance in the foreign
exchange rate between the time your order is placed and the time it is
liquidated, offset or exercised.
<PAGE>
Additional Futures Contracts. Although the Fund has no current intention
of engaging in financial futures transactions other than those described above,
it reserves the right to do so. Such futures trading might involve risks which
differ from those involved in the futures and options described above.
4. Lending of Portfolio Securities.
For the purposes of realizing additional income, the Fund may make secured
loans of portfolio securities amounting to not more than 30% of its total
assets. This policy is a fundamental policy. Securities loans will be made to
broker-dealers or institutional investors pursuant to agreements requiring that
the loans be continuously secured by collateral at least equal at all times to
the value of the securities lent market to market on a daily basis. The
collateral received will consist of cash, U.S. government securities, letters of
credit or such other collateral as may be permitted under its investment
program. The cash collateral received by the Fund will be invested only in money
market securities. While the securities are being lent, the Fund will continue
to receive the equivalent of the interest or dividends paid by the issuer on the
securities, as well as interest on the investment of the collateral or a fee
from the borrower. The Fund has a right to call each loan and obtain the
securities on five business days' notice or, in connection with securities
trading on foreign markets, within such longer period of time which coincides
with the normal settlement period for purchases and sales of such securities in
such foreign markets. The Fund will not have the right to vote securities while
they are being lent, but it will call a loan in anticipation of any important
vote. The risks in lending portfolio securities, as with other extensions of
secured credit, consist of possible delay in receiving additional collateral or
in the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans will only be made to persons deemed
by the Investment Advisor to be of good standing and will not be made unless, in
the judgment of the Investment Advisor, the consideration to be earned from such
loan would justify the risk.
5. Foreign Securities.
The Fund may invest up to 15% of its total assets in U.S.
dollar-denominated and non U.S. dollar-denominated securities issued by foreign
issuers. While investments in foreign securities are intended to reduce risk by
providing further diversification, such investments involve sovereign risk in
addition to credit and market risks. Sovereign risk includes local political or
economic developments, potential nationalization, withholding taxes on dividend
or interest payments, and currency blockage (which would prevent cash from being
brought back to the United States). Foreign investments may be affected
favorably or unfavorably by changes in currency rates and exchange control
regulations. Foreign companies may have less public or less reliable information
available about them and may be subject to less governmental regulation than
U.S. companies. Securities of foreign companies may be less liquid or more
volatile than securities of U.S. companies.
6. Foreign Currency Transactions.
A forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are principally traded in
the interbank market conducted directly between currency traders (usually large,
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
<PAGE>
The Fund will generally enter into forward foreign currency exchange
contracts under two circumstances. First, when the Fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency, it may
desire to "lock in" the U.S. dollar price of the security. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying security transactions, the
Fund will be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date the security is purchased or
sold and the date on which payment is made or received.
Second, when the management of the Fund believes that the currency of a
particular foreign country may suffer or enjoy a substantial movement against
another currency, including the U.S. dollar, it may enter into forward contract
to sell or buy the amount of the former foreign currency, approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency. Alternatively, where appropriate, the Fund may hedge all or
part of its foreign currency exposure through the use of a basket of currencies
or a proxy currency where such currency or currencies act as an effective proxy
for other currencies. In such a case, the Fund may enter into a forward contract
where the amount of the foreign currency to be sold exceeds the value of the
securities denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into separate
forward contracts for each currency held in the Fund. The precise matching of
the forward contract amounts and the value of the securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of short-term currency market movement is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Other than as set forth above, the Fund will also
not enter into such forward contracts or maintain a net exposure to such
contracts where the consummation of the contracts would obligate the Fund to
deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated in to the longer term investment decisions made with regard to
overall diversification strategies. However, management of the Fund believes
that it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of the Fund will be served.
At the maturity of a forward contract, the Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of the foreign currency.
As indicated above, it is impossible to forecast with absolute precision
the market value of portfolio securities at the expiration of the forward
contract. Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security is less than the amount of foreign currency the
Fund is obligated to deliver and if a decision is made to sell the security and
make delivery of the foreign currency. Conversely, it may be necessary to sell
on the spot market some of the foreign currency received upon the same of the
portfolio security if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract
<PAGE>
prices. If the Fund engages in an offsetting transaction, it may subsequently
enter into a new forward contract to sell the foreign currency. Should forward
prices decline during the period between the Fund's entering into a forward
contract for sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Fund will
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund will suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The Fund's dealings in forward foreign currency exchange contracts will
generally be limited to the transactions described above. However, the Fund
reserves the right to enter into forward foreign currency contracts for
different purposes and under different circumstances. In instances involving the
purchase of forward foreign currency exchange contracts, amounts will be
deposited in a segregated account with the Fund's custodian to cover the
position, or alternative cover will be employed, thereby limiting amounts
leveraged by the Fund in its use of such forward contracts. Of course, the Fund
is not required to enter into forward contracts with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate by
the Investment Advisor. It also should be realized that this method of hedging
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange at a future risk of loss due to a decline in the value of the hedged
currency, and, at the same time, tends to limit any potential gain which might
result from an increase in the value of that currency.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. It will do so from time to time, and investors should be aware
of the cost of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resale that currency to the dealer.
7. Repurchase Agreements.
The Fund may enter into repurchase agreements through which an investor
(such as the Fund) purchases a security (known as the "underlying security")
from a well-established securities dealer or a bank that is a member of the
Federal Reserve System. At that time, the bank or securities dealer agrees to
repurchase the underlying security at the same price, plus specified interest.
Repurchase agreements are generally for a short period of time, often less than
a week. The Fund will not enter into a repurchase agreement which does not
provide for payment within seven days if, as a result, more than 10% of the
value of its net assets would then be invested in such repurchase agreements.
The Fund will only enter into repurchase agreements where: (i) the underlying
securities are of the type (excluding maturity limitations) which the Fund's
investment guidelines would allow it to purchase directly; (ii) the market value
of the underlying security, including interest accrued, will be at all times
equal to or exceed the value of the repurchase agreement; and (iii) payment for
the underlying security is made only upon physical delivery or evidence of
book-entry transfer to the account of the custodian or a bank acting as agent.
In the event of a bankruptcy or other default of a seller of a repurchase
agreement, the Fund could experience both delays in liquidating the underlying
securities and losses, including: (i) possible decline in the value of the
underlying security during the period while the Fund seeks to enforce its rights
thereto; (ii) possible
<PAGE>
subnormal levels of income and lack of access to income during this period; and
(iii) expenses of enforcing its rights.
RISK FACTORS
General. Because of its investment policy, the Fund may or may not be a
suitable or appropriate investment for all investors. The Fund is not a money
market fund and is not an appropriate investment for those investors whose
primary objective is principal stability. There is risk in all investment. The
value of the portfolio securities of the Fund will fluctuate based upon market
conditions. Although the Fund seeks to reduce risk by investing in a diversified
portfolio, such diversification does not eliminate all risk. There can, of
course, be no assurance that the Fund will achieve these results. See
"Management of Fund" and "Investment Management Services."
Fluctuations in Net Asset Value. As a major portion of the Fund's
portfolio is invested in equity securities, it may be expected that its net
asset value will be subject to greater fluctuation than a portfolio containing
mostly fixed-income securities. The U.S. stock market tends to be cyclical with
periods when stock prices generally rise and periods when prices generally
decline. The Fund may invest in small and medium-capitalization stocks.
Small-capitalization stocks are generally classified as having an aggregate
market value of approximately $30 million to $800 million, while
medium-capitalization stocks are classified as having an aggregate market value
of approximately $800 million to $5 billion. Traditionally, such small and
medium-capitalization stocks have been more volatile in price than the
large-capitalization stocks. Among the reasons for the greater price volatility
of these securities are the less certain growth prospects of smaller firms, the
lower degree of liquidity in the markets for such stocks, and the greater
sensitivity of small and medium-sized companies to changing economic conditions.
Besides exhibiting greater volatility, small and medium company stocks, may to a
degree, fluctuate independently of larger company stocks. Small and medium
company stocks may decline in price as large company stocks rise, or rise in
price as large company stocks decline.
Debt Obligations. Yields on short, intermediate, and long-term securities
are dependent on a variety of factors, including the general conditions of the
money and bond markets, the size of a particular offering, the maturity of the
obligation, and the rating of the issue. Debt securities with longer maturities
tend to produce higher yields and are generally subject to potentially greater
capital appreciation and depreciation than obligations with shorter maturities
and lower yields. The market prices of debt securities usually vary, depending
upon available yields. An increase in interest rates will generally reduce the
value of portfolio investments, and a decline in interest rates will generally
increase the value of portfolio investments. The ability of the Fund to achieve
its investment objectives is also dependent on the continuing ability of the
issuers of the debt securities in which the Fund invests to meet their
obligations for the payment of interest and principal when due.
Foreign Investing. The Fund may invest in the securities of foreign
issuers, but intends to limit any such investments to not more than 15% of its
assets. Because the Fund may invest in foreign securities, investment in the
Fund involves risks that are different in some respects from an investment in a
fund which invests only in securities of U.S. domestic issues. Foreign
investments may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations. There may be less publicly available
information about a foreign company than about a U.S. company, and foreign
companies may not be subject to accounting, auditing, and financial reporting
standards and requirements comparable
<PAGE>
to those applicable to U.S. companies. Securities of some foreign companies are
less liquid or more volatile than securities of U.S. companies, and foreign
broker commissions and custodian fees are generally higher than in the United
States. Investments in foreign securities may also be subject to other risks
different from those affecting U.S. investment, including local political or
economic developments, expropriation or nationalization of assets, imposition of
withholding taxes on dividend or interest payments, and currency blockage (which
would prevent cash from being brought back to the United States).
INVESTMENT RESTRICTIONS
Fundamental policies of the Fund may not be changed without the approval by
the holders of more than 50% of the outstanding shares of the Fund. Other
restrictions, in the form of operating policies, are subject to change by the
Fund's Board of Directors without stockholder approval. Any investment
restriction which involves a maximum percentage of securities or assets shall
not be considered to be violated unless an excess over the percentage occurs
immediately after, and is caused by, an acquisition of securities or assets of,
or borrowings by, the Fund. See also "Fundamental and Other Investment
Policies" in the Prospectus.
Fundamental Policies.
As a matter of fundamental policy, the Fund may not:
1.Borrowing. Borrow money, except the Fund may borrow from banks as a
temporary measure for extraordinary or emergency purposes, and then only
in amounts not exceeding 30% of its total assets valued at market. The
Fund will not borrow in order to increase income (leveraging), but only to
facilitate redemption requests which might otherwise require untimely
disposition of portfolio securities. Interest paid on any such borrowings
will reduce net investment income. The Fund may enter into futures
contracts as set forth in (3) below;
2.Futures Contracts. Enter into a futures contract or an option thereon,
although the Fund may enter into financial futures contracts or options
on financial futures contracts;
3.Industry Concentration. Purchase the securities of any issuer if, as a
result, 25% or more of the value of the Fund's total assets would be
invested in the securities of issuers having their principal business
activities in the same industry (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities);
4.Loans. Make loans, although the Fund may: (i) purchase money market
securities and enter into repurchase agreements; (ii) acquire
publicly-distributed bonds, debentures, notes and other debt securities
and purchase debt securities in private placements; and (iii) lend
portfolio securities;
5.Margin. Purchase securities on margin, except that the Fund may use
short-term credit necessary for clearance of purchases of portfolio
securities and make margin deposits in connection with futures contracts,
subject to (2) above;
<PAGE>
6.Mortgaging. Mortgage, pledge, hypothecate or, in any manner, transfer any
security owned by the Fund as security for indebtedness except as may be
necessary in connection with permissible borrowings and then such
mortgaging, pledging or hypothecating may not exceed 30% of the Fund's
total assets valued at market at the time of the borrowing;
7.Percent Limit on Assets Invested in Any One Issuer. Purchase a security
if, as a result, more than 5% of the value of the Fund's total assets
would be invested in the securities of a single issuer, except securities
issued or guaranteed by the U.S. Government, or any of its agencies or
instrumentalities;
8.Percent Limit on Share Ownership of Any One Issuer. Purchase a security
if, as a result, with respect to 75% of the value of the Fund's total
assets, more than 10% of the outstanding voting securities of any issuer
would be held by the Fund (other than obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) provided that, as
an operating policy, the Fund will not purchase a security if, as a
result, more than 10% of the outstanding voting securities of any issuer
would be held by the Fund;
9.Senior Securities. Issue senior securities;
10.Underwriting. Underwrite securities issued by other persons, except to
the extent that the Fund may be deemed to be an underwriter within the
meaning of the 1933 Act in connection with the purchase and sale of its
portfolio securities in the ordinary course of pursuing its investment
program;
Operating Policies. As a fundamental policy, the Fund may not invest in
companies for the purpose of exercising management or control.
Under the Investment Company Act of 1940, the Fund may not invest in any
securities of any issuer which, in its most recent fiscal year, derived more
than 10% gross revenues from "securities related activities," as defined by
rules of the Investment Company Act of 1940, unless certain conditions are met.
As a result of these restrictions, the Fund may not invest in the securities of
certain banks, broker-dealers and other companies in foreign countries. If the
Fund finds that this restriction prevents it from pursuing its investment
objective, it may apply to the SEC for an order which would permit it to acquire
such securities, but no assurance can be given that any such order will be
granted. It is also possible the law in this area will change, in which case the
Fund could have greater flexibility in the purchase of the securities of foreign
banks, broker-dealers, and other companies.
As a matter of operating policy, the Fund will not, among other things:
(i) purchase securities of an issuer if, as a result, (a) more than 10% of the
value of its net assets would be invested in illiquid securities, including
repurchase agreements which do not provide for payment within seven days, or
other securities which are not readily marketable or (b) more than 5% of the
value of the Fund's total assets would be invested in the securities of
unseasoned issuers which at the time of purchase have been in operation for less
than three years, including predecessors and unconditional guarantors; (ii)
purchase securities when money borrowed exceeds 5% of the Fund's total assets;
(iii) purchase or hold the securities of other investment companies if, as a
result: (a) the Fund owns, in the aggregate, more than 3% of the total
outstanding voting stock in such investment companies; (b) securities issued by
such investment companies are in excess of 5% of the value of the Fund's total
assets; or (c) more than 10% of the value of the Fund's assets would be
<PAGE>
invested in such investment companies; (iv) purchase interests in oil, gas or
other mineral exploration or development programs; (v) purchase warrants, valued
at the lower of cost or market, if, as a result, more than 5% of the value of
the Fund's net assets would be invested in warrants, more than 2% of which are
not listed on the New York Stock Exchange, American Stock Exchange or the Nasdaq
National Market; and (vi) purchase POs and IOs, if, as a result, more than 5% of
the value of the Fund's net assets would be invested in POs and IOs.
Redemption in Kind. In the unlikely event a stockholder were to receive an
in kind redemption of portfolio securities of the Fund, brokerage fees generally
would be incurred by the stockholder in the subsequent sale of such securities.
MANAGEMENT OF FUND
The directors and executive officers of the Company, as of March 31, 1998,
are listed below. The address of each of Messrs. Bensler, Mao and Holman is c/o
Rupay-Barrington Financial Services, Inc., 1000 Ballpark Way, Suite 302,
Arlington, Texas 76011 ("Rupay-Barrington Financial"). The addresses of Messrs.
Newman and Wilkerson and Ms. Champine are 5429 Dana Point Drive, Arlington, TX
76017, 5518 Oak Branch Drive, Arlington, TX 76016 and 3516 Beagle Drive,
Commerce, MI 48382, respectively. In the list below, the Company's directors who
are considered "interested persons" of Rupay-Barrington Financial, as defined
under Section 2(a) (10) of the Investment Company Act of 1940 are noted with an
asterisk(*). These directors are referred to as inside directors by virtue of
their directorship and/or employment with Rupay-Barrington Financial. No family
relationship exists between the persons listed below.
Name Position
Fritz Bensler President, Treasurer and Director
Larry S. Mao Senior Vice President-- Operations and Secretary
Dixon R. Holman Vice President
Bradley D. Newman Director
Glen Wilkerson Director
Judy A. Champine Director
Fritz Bensler (age 41) is President, Treasurer and a Director of the
Company and President and Portfolio Manager for Rupay-Barrington Advisors, Inc.
a subsidiary of Rupay-Barrington Financial. From November 1995 until joining
Rupay-Barrington Advisors in January 1997, Mr. Bensler was an equity security
analyst and portfolio manager for JPJ Investment Management, Inc. ("JPJ"). From
1993 until joining JPJ, Mr. Bensler was a self-employed consultant. Mr. Bensler
was a financial analyst with Martin Marietta Corp. from 1984 to 1991 where he
analyzed sales and expense data for a division of the company. Mr. Bensler was a
senior accountant for Pryor & Associates, P.C., C.P.A., a public accounting
firm, from 1980 to 1984. Mr. Bensler received a CPA certificate from the state
of Colorado in 1983. Mr. Bensler received a Masters of Business Administration
degree from Texas Christian University in 1993 and a Bachelor of Science degree
in accounting from the University of Northern Colorado in 1980. Mr. Bensler is a
member of the Denver Society of Security Analysts.
<PAGE>
Larry S. Mao (age 53) is a Senior Vice President -- Operations and
Secretary of the Company and operations manager of the San Francisco office of
Rupay-Barrington Financial. Mr. Mao was a Senior Vice President of the
California National Bank from January 1993 until joining Rupay-Barrington
Financial in December 1993, where his duties included managing loan portfolios
and marketing financial products. Mr. Mao has been a director of California
National Bank since July 1994. From 1989 until he joined the California National
Bank, he was a Vice President, the Senior Lending Officer, and Chairman of the
Management Loan Committee of America California Bank. Prior to this time, Mr.
Mao served in senior executive positions at Western Federal Savings and Loan,
National American Bank, Bank of Canton, and other financial institutions, where
he managed loan portfolios, developed retail credit card services, and
coordinated corporate strategic planning. Mr. Mao received a Bachelor of Arts
degree in Economics and Mathematics from Park College, Missouri, and continued
his education through the American Institute of Banking and Robert Morris
Associates. Mr. Mao serves as President of his local Lions Club and Merchants
Association and is active in many other civic programs.
Dixon R. Holman (age 37) is Vice President of the Company and Vice
President, Chief Operating Officer and Director of Rupay-Barrington Financial.
Mr. Holman has served as Vice President of JPJ Investment Management and its
wholly-owned subsidiary, JPJ Asset Group, the majority stockholder of
Rupay-Barrington Financial, since May of 1996. Since 1983, and prior to joining
JPJ, Mr. Holman served as a principal and senior officer of three investment
management firms. He has also been active in the real estate investment and
development industries. Mr. Holman's civic activities include services as a
Director of the Arlington, Texas Chamber of Commerce and as an at-large Member
of the Arlington City Council (population approx. 300,000). He also serves as
President of the Arlington Housing Finance Corporation and acting President of
the Tarrant County Junior College Foundation board.
Bradley D. Newman (39) is a Director of the Company. Mr. Newman has been
Property Tax Agent for Union Pacific Resources Group, Fort Worth, TX, since
1986. He is a certified public accountant, and a member of both the Council of
Petroleum Accountant's Society and the Institute of Professionals in Taxation.
Glen Wilkerson (60) is a Director of the Company. Mr. Wilkerson has held
various sales and sales management positions with Hormel Food Corporation,
Austin, MN, for the past 33 years.
Judy A. Champine (51) is a Director of the Company. Ms. Champine has been
Vice President and Co-Owner of Town Center Gallery, Novi, MI, since 1992. From
1991 to 1992, she served as the Graphic Services Manager of the National Board
for Professional Teaching Standards, Detroit, MI.
It is anticipated that an Executive Committee may be established consisting
of two or more Directors. The Executive Committee would likely exercise all
powers of the Directors except for those which require actions by all of the
Directors or independent Directors under the Company's Articles of Amendment and
Restatement as amended, Articles Supplementary or By-Laws or under applicable
law.
<PAGE>
Compensation of Executive Officers and Directors.
The following table sets forth certain information with respect to the
aggregate compensation paid by the Company during the fiscal year ended December
31, 1997 to the executive officers and directors of the Company.
COMPENSATION TABLE
- ---------------------------------------------------------------------------
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Estimated Annual Total Compensation
Position Compensation Retirement Benefits Upon From Fund and Fund
From Fund Benefits Accrued Retirement Complex Paid to
As Part of Directors
Fund Expenses
- ---------------------------------------------------------------------------
Fritz Bensler,
President * N/A N/A *
Frederick A. Wolf+,
Treasurer, Director * N/A N/A *
Larry S. Mao, Senior
Vice President-Operations,
Secretary * N/A N/A *
Dixon R. Holman,
Vice President * N/A N/A *
Bradley D. Newman,
Director ** N/A N/A **
Glen Wilkerson,
Director ** N/A N/A **
Judy A. Champine,
Director ** N/A N/A **
* Executive officers of the Company and directors of the Company, who are
considered "interested persons" within the meaning of Section 2(a)(19) of
the Investment Company Act of 1940, do not receive compensation from the
Company.
** Directors of the Company, who are not considered "interested persons"
within the meaning of Section 2(a)(19) of the Investment Company Act of
1940 may at sometime in the future receive, a fee for their services as
outside directors of the Fund. As of the date of the registration
statement which includes this SAI, such disinterested directors have
received no compensation for their attendance at meetings of the Board of
Directors.
+ Effective as of March 21, 1998, Mr. Wolf resigned from the Board of
Directors and as Treasurer of the Company.
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
As of the date of the Statement of Additional Information, ten shares of
the Fund were issued and outstanding, all of which shares were owned by Rupay-
Barrington Financial. Rupay-Barrington Financial may be deemed to control the
Fund by virtue of its ownership of more than 25% of the shares of the Fund. No
officer or director owned shares of the Fund.
INVESTMENT MANAGEMENT SERVICES
The Fund's investment portfolio is managed by the Investment Advisor. The
Investment Advisor is a wholly-owned subsidiary of Rupay-Barrington Financial.
See "Management of Fund."
The Investment Advisor has entered into Investment Advisory Agreement with
the Company. Under the Investment Advisory Agreement, the Investment Advisor
provides discretionary investment services to the Fund. The Investment Advisor
is responsible for supervising and directing the Fund's investments in equity
and fixed income securities in accordance with the Fund's investment objectives,
and restrictions as provided in the Prospectus and this Statement of Additional
Information. The Investment Advisor also is responsible for effecting all
securities transactions with respect to the Fund's portfolio on behalf of the
Fund, including the negotiation of commissions and the allocation of principal
business and portfolio brokerage. The Investment Advisor must adhere to the
brokerage policies of the Fund in placing all orders, the substance of which
policies are that the Investment Advisor attempts to obtain the best execution
for all securities brokerage transactions. In addition to these services, the
Investment Advisor provides the Fund with certain corporate administrative
services, including: maintaining the Company's corporate existence, corporate
records, and registering and qualifying Fund shares under federal and state
laws; monitoring the financial, accounting, and administrative functions of the
Fund; maintaining liaison with the agents employed by the Company, such as the
Company's custodian and transfer agent; assisting the Fund in the coordination
of such custodian's and transfer agent's activities; and permitting the
Investment Advisor's employees to serve as officers, directors, and committee
members of the Fund without cost to the Fund or the Company. The Investment
Advisory Agreement also provides that the Investment Advisor, its directors,
officers, employees, and certain other persons performing specific functions for
the Fund will only be liable to the Fund for losses resulting from willful
misfeasance, bad faith, gross negligence, or reckless disregard of duty.
Management Fees. The Fund pays the Investment Advisor a management fee
(the "Management Fee") equal to .80% of the Fund's net assets per annum. The
Management Fee is payable monthly on the first business day of the next
succeeding calendar month and is calculated as described below.
The monthly Management Fee is the sum of the daily fund fee accruals
("Daily Fund Fee Accruals") for each month. The Daily Fund Fee Accrual for any
particular day is computed by multiplying the fraction of one (1) over the
number of calendar days in the year by the fund fee rate of .80% and multiplying
this product by the net assets of the Fund for that day, as determined in
accordance with the Fund's Prospectus as of the close of business on the
previous business day on which the Fund was open for business.
Limitation on Fund Expenses. The Investment Advisory Agreement between the
Company and the Investment Advisor provides that the Fund will bear all expenses
of its operations not specifically assumed by the Investment Advisor. In the
interest of limiting the expenses of the Fund during its initial period of
operation, Rupay-Barrington Financial has agreed to bear any expenses for the
Fund's first five years of operations, which would cause the Fund's ratio of
operating expenses to average net assets to exceed 1.85%.
<PAGE>
DISTRIBUTOR FOR FUND
Rupay-Barrington Securities Corporation ("Rupay-Barrington Securities"), a
Nevada corporation formed in 1993 as a wholly-owned subsidiary of
Rupay-Barrington Financial Group, Inc., serves as the distributor of the Fund's
shares. Rupay-Barrington Securities is registered as a broker-dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. The offering of the Fund's shares is continuous.
Rupay-Barrington Securities is located at the same address as the Fund -- 1000
Ballpark Way, Suite 207A, Arlington, Texas 76011.
Rupay-Barrington Securities serves as distributor to the Fund pursuant to
an underwriting agreement ("Distribution Agreement"), which provides that the
Fund will pay all fees and expenses in connection with registering and
qualifying its shares under the various state "blue sky" laws, preparing,
setting in type, printing, and mailing its prospectuses and reporting to
stockholders, and issuing its shares, including expenses of confirming purchase
orders.
The Distribution Agreement provides that Rupay-Barrington Securities will
pay all fees and expenses in connection with distributing prospectuses and
reports for use in offering and selling Fund shares, preparing, setting in type,
printing, and mailing all sales literature and advertising, Rupay-Barrington
Securities' federal and state registrations as a broker-dealer, and offering and
selling Fund shares, except for those fees and expenses specifically assumed by
the Fund. Rupay-Barrington Securities' expenses are paid by Rupay-Barrington
Financial to the extent they exceed revenues.
Sales Commission. Rupay-Barrington Securities acts as the agent of the
Fund in connection with the sale of its shares in all states in which the shares
are qualified and in which Rupay-Barrington Securities is qualified as a
broker-dealer. Under the Distribution Agreement, Rupay-Barrington Securities
accepts orders for Fund shares at net asset value. The following sales
commission are paid by investors:
Total Sales Commission*
As a
As a Percentage Percentage of Portion
of Offering Net Asset of Total
Amount of Single Sale Price of the Value of Offering Price
at Offering Price Shares Purchased Shares Retained by Dealers
Purchased
Less than $25,000 4.50% 4.71% 3.75%
$25,000 but less than $250,000 3.00% 3.09% 2.40%
$250,000 but less than $500,000 2.00% 2.04% 1.55%
$500,000 but less than $1,000,000 1.00% 1.01% 0.75%
$1,000,000 or more none none see below**
- ---------------------
+ At the discretion of Rupay-Barrington Securities, the entire sales
commission may at times be reallowed to dealers. Rupay-Barrington
Securities also may, at its expense, provide additional promotional
incentives or payments to dealers that sell the Fund's shares. In some
instances, the full reallowance, incentives or payments may be offered
only to certain dealers who have sold or may sell significant amounts of
shares. When 90% or more of the sales commission is reallowed, such
dealers may be deemed to be underwriters as that term is defined in the
1933 Act.
<PAGE>
++ The following commissions will be paid by Rupay-Barrington Securities
to dealers who initiate and are responsible for purchases of $1 million or
more and for purchases made at net asset value by certain retirement plans
or organizations with collective retirement plan assets of $10 million or
more: 1.00% on sales of up to $2 million, plus 0.80% on sales of $2
million to $3 million, plus 0.50% on sales of $3 million to $10 million,
plus 0.25% on sales of $10 million to $25 million, plus 0.15% on sales in
excess of $25 million.
A sales commission equal to 4.00% of the offering price (4.17% of the net
asset value) is applicable to all purchases of shares, regardless of
amount, made for any qualified or non-qualified employee benefit plan. Of
the 4.00% sales commission applicable to such purchases, 3.20% of the
offering price will be reallowed to dealers.
Distribution Plan and Agreement. The Fund has adopted a Distribution Plan
and Agreement (the "Plan") pursuant to Rule 12b-1 of the Investment Company Act
of 1940, for the purpose of compensating Rupay-Barrington Securities for
services provided and expenses incurred by it in promoting the sale of shares of
the Fund, reducing redemptions, and maintaining and improving services provided
to stockholders by Rupay-Barrington Securities.
Continuance of the Plan is subject to annual approval by a vote of the
Board of Directors, including a majority of the Directors who are not interested
persons of the Company and the Fund and who have no direct or indirect interest
in the Plan or related arrangements ("Qualified Directors"), cast in person at a
meeting called for that purpose. All material amendments to the Plan must be
likewise approved by the Directors and the Qualified Directors. The Plan may not
be amended to materially increase the costs which the Fund may bear for
distribution pursuant thereto without stockholder approval. The Plan terminates
automatically in the event of its assignment and may be terminated without
penalty, at any time, by a vote of a majority of the Qualified Directors or by
approval of a vote of a majority of the outstanding voting securities of the
Fund.
CUSTODIAN
Star Bank, N.A. ("Star Bank") serves as the custodian for the Fund's
securities and cash, but it does not participate in the Fund's investment
decisions. Portfolio securities purchased in the U.S. are maintained in the
custody of the bank and may be entered into the Federal Reserve Book Entry
System, or the security depository system of the Depository Trust Corporation.
Star Bank's mailing address is as follows: Star Bank, N.A., Mutual Fund Custody,
P.O. Box 1118, Cincinnati, Ohio 45218.
PORTFOLIO TRANSACTIONS
Decisions with respect to the purchase and sale of portfolio securities on
behalf of the Fund are made by the Investment Advisor. The Investment Advisor is
responsible for implementing these decisions with respect to the Fund's
portfolio, including the allocation of portfolio brokerage and principal
business. For fixed income securities, it is expected that purchases and sales
of portfolio securities will ordinarily be transacted with the issuer or with a
primary market maker acting as principal on a net basis, with no brokerage
commission being paid the Fund.
<PAGE>
In purchasing and selling the Fund's portfolio securities, it is the
Investment Advisor's policy to obtain quality execution at the most favorable
prices through responsible broker-dealers and, in the case of agency
transactions, at competitive competition rates. However, under certain
conditions, the Fund may pay higher brokerage commissions in return for
brokerage and research services, although it has no current arrangement to do
so. In selecting broker-dealers, including Rupay-Barrington Securities, to
execute the Fund's portfolio transactions, the Investment Advisor will consider
such factors as the price of the security, the rate of the commission, the size
and difficulty of the order, the reliability, integrity, financial condition,
general execution and operation capabilities of competing broker-dealers, and
the brokerage and research services they provide to the Investment Advisor.
The Investment Advisor may cause the Fund to pay a broker-dealer who
furnishes brokerage and/or research services a commission that is in excess of
the commission another broker-dealer would have received for executing the
transaction if it is determined that such commission is reasonable in relation
to the value of the brokerage and/or research services which would have been
provided. In some cases, research services are generated by third parties, but
are provided to the Investment Advisor by or through broker-dealers.
The Investment Advisor may effect principal transactions on behalf of the
Fund with a broker-dealer who furnishes brokerage and/or research services, or
designate any such broker-dealer to receive selling concessions, discounts or
other allowances, or otherwise deal with any such broker-dealer in connection
with the acquisition of securities in underwritings. Additionally, purchases and
sales of fixed income securities are transacted with the issuer, the issuer's
underwriter, or with a primary market maker acting as principal or agent. The
Fund does not usually pay brokerage commissions for these purchases and sales,
although the price of the securities generally includes compensation which is
not disclosed separately. The prices the Fund pays to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter. Transactions placed through dealers who are serving as primary
market makers reflect the spread between the bid and asked prices.
The Investment Advisor may receive a wide range of research services from
broker-dealers, including information on securities markets, the economy,
individual companies, statistical information, accounting and tax law and
interpretations, technical market action, pricing and appraisal services, and
credit analyses. Research services are received primarily in the form of written
reports, telephone contacts, personal meetings with security analysts, corporate
and industry spokespersons, economists, academicians, government
representatives, and access to various computer-generated data. Research
services received from broker-dealers are supplemental to the Investment
Advisor's own research efforts and, when utilized, are subject to internal
analysis before being incorporated into the investment process.
The Investment Advisor assesses the contribution of the brokerage and
research services provided by broker-dealers, and allocates a portion of the
brokerage business of its clients on the basis of these assessments. In
addition, broker-dealers sometimes suggest a level of business they would like
to receive in return for the various brokerage and research services they
provide. Actual brokerage business received by any firm may be less than the
suggested allocation, but can (and often does) exceed the suggestions because
total brokerage business is allocated on the basis of all the considerations
described above. In no instance is a broker-dealer excluded from receiving
business because it has not been identified as providing research services.
<PAGE>
The Investment Advisor can not readily determine the extent to which net
prices charged by broker-dealers reflect the value of their research services.
In some instances, the Investment Advisor will receive research services it
might otherwise have had to perform for itself. The research services provided
by broker-dealers can be useful to the Investment Advisor in serving its other
clients, but they can also be useful in serving the Fund.
The Fund does not allocate business to any broker-dealer on the basis of
its sales of the Fund's shares. However, this does not mean that broker-dealers
who purchase Fund shares for their clients will not receive business from the
Fund.
As provided in the Investment Advisory Agreement between the Company and
the Investment Advisor, the Investment Advisor is responsible not only for
making decisions with respect to the purchase and sale of the Fund's portfolio
securities, but also for implementing these decisions, including the negotiation
of commissions and the allocation of portfolio brokerage and principal business.
PRICING OF SECURITIES
Securities listed or traded on a national securities exchange are valued
at the last quoted sales prices on the date the valuations are made. Securities
regularly traded in the over-the-counter market are valued at the last quoted
sales price on The Nasdaq National Market. If no sales price is available for a
listed or Nasdaq National Market security, or if the security is not listed on
The Nasdaq National Market, such security is valued at a price equal to the mean
of the latest bid and ask prices. Securities listed or traded on certain foreign
exchanges are valued at the last quoted sales prices on the date the valuations
are made. A security which is listed or traded on more than one exchange is
valued at the quotations on the exchange determined to be the primary market for
such security by the Board of Directors or its delegates.
Fixed income securities are generally traded in the over-the-counter
market and will be valued at a price deemed best to reflect a fair value as
quoted by dealers who make markets in these securities or by an independent
pricing service. Short-term securities (maturing or expiring in 60 days or less)
are valued at their cost in local currency which, when combined with accrued
interest, approximate fair value.
In instances where the price of a security determined by these methods is
deemed not to be representative, the security is valued in the manner prescribed
by the Board to reflect its fair value.
For purposes of determining the Fund's net asset value per share, all
assets and liabilities initially expressed in foreign currencies are converted
to U.S. dollars at the mean of the bid and offer prices of such currencies
against U.S. dollars quoted by any major bank, as determined from time to time
by the Board of Directors. If such quotations are not available, the rate of
exchange will be determined in accordance with policies established in good
faith by the Board. On an ongoing basis, the Board monitors the Fund's method of
valuation.
<PAGE>
DIVIDENDS
Unless you elect otherwise, dividends or distributions will be reinvested
on the reinvestment date using the net asset value per share of the Fund on that
date. The reinvestment date normally precedes the payment date by about 10 days
although the exact timing is subject to change.
NET ASSET VALUE PER SHARE
The purchase and redemption price of the Fund's shares is equal to the net
asset value per share of the Fund or share price of the Fund, plus the
applicable sales commission. The Fund determines its net asset value per share
by subtracting its liabilities from its total assets and dividing the result by
the total number of shares outstanding. Among other things, the Fund's
liabilities include accrued expenses and dividends payable and its total assets
include portfolio securities valued at market as well as income accrued but not
yet received. The net asset value per share of the Fund is calculated as of the
close of trading on the New York Stock Exchange ("Exchange") every day the
Exchange is open for trading. The Exchange is closed on the following days: New
Year's Day, Martin Luther King, Jr., Day, Presidents Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
TAX STATUS
The following summarizes certain additional tax considerations generally
affecting the Fund and its stockholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its stockholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning and is based
on tax laws and regulations that are in effect on the date hereof; such laws and
regulations may be changed by legislative, judicial or administrative action.
Investors are advised to consult their tax advisors with specific reference to
their own tax situations. The Fund intends to operate in a manner to qualify as
a "regulated investment company" under Subchapter M of the Code. Each series of
the Company, including the Fund, will be treated as a separate entity under the
Code and intends to qualify or remain qualified as a regulated investment
company. In order to so qualify, each series must elect to be a regulated
investment company or have made such an election for a previous year and must
satisfy, in addition to the distribution requirement described in the
Prospectus, certain requirements with respect to the source of its income for a
taxable year. At least 90% of the gross income of the Fund must be derived from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stocks, securities or foreign currencies and other
securities or currencies. Any income derived by the Fund with respect to the
Fund's business of investing in such stock, securities or currencies only to the
extent that such income is attributable to items of income that would have been
qualifying income if realized by the Fund in the same manner as by the
partnership or trust.
A portion of the dividends paid by the Fund may be eligible for the
dividends-received deduction for corporate stockholders. For tax purposes, it
does not make any difference whether dividends and capital gain distributions
are paid in cash or in additional shares. The Fund must declare dividends equal
to at least 98% of ordinary income (as of December 31) and capital gains (as of
October 31) in order to avoid a federal excise tax and distribute 100% of
ordinary income and capital gains for the period ending December 31 to avoid
federal income tax.
<PAGE>
At the time of your purchase, the Fund's net asset value may reflect
undistributed income, capital gains or net unrealized appreciation of securities
held by the Fund. A subsequent distribution to you of such amounts, although
constituting a return of your investment, would be taxable either as dividends
or capital gain distributions. For federal income tax purposes, the Fund is
permitted to carry forward its net realized capital losses, if any, for eight
years, and realize net capital gains up to the amount of such losses without
being required to pay taxes on, or distribute such gains.
If, in any taxable year, the Fund should not qualify as a regulated
investment company under the Code: (i) the Fund would be taxed at normal
corporate rates on the entire amount of its taxable income without deduction for
dividends or other distributions to stockholders; and (ii) the Fund's
distribution to the extent made out of the Fund's current or accumulated
earnings and profits would be taxable to stockholders as ordinary dividends
(regardless of whether they would otherwise have been considered capital gain
dividends).
Taxation of Foreign Stockholders. The Code provides that dividends from
net income will be subject to U.S. tax. For stockholders who are not engaged in
a business in the U.S., this tax would be imposed at the rate of 31% upon the
gross amount of the dividends in the absence of a Tax Treaty providing for a
reduced rate or exemption from U.S. taxation. Distributions of net long-term
capital gains realized by the Fund are not subject to tax unless the foreign
stockholder is a nonresident alien individual who was physically present in the
U.S. during the tax year for more than 182 days.
To the extent the Fund invests in foreign securities, the following would
apply:
Foreign Currency Gains and Losses. Foreign currency gains and losses,
including the portion of gain or loss on the sale of debt securities
attributable to foreign exchange rate fluctuations are taxable as ordinary
income. If the net effect of these transactions is a gain, the dividend paid by
the Fund will be increased; if the result is a loss, the income dividend paid by
the Fund will be decreased. Adjustments to reflect these gains and losses will
be made at the end of the Fund's taxable year.
YIELD INFORMATION
From time to time, the Fund may advertise a yield figure calculated in the
following manner:
An income factor is calculated for each security in the portfolio, which in
the case of bonds is based upon the security's market value at the beginning of
the period and expected yield-to-maturity, and in the case of stocks is based
upon the stated dividend rate. The income factors are then totaled for all
securities in the portfolio. Next, expenses of the Fund for the period are
deducted from the income to arrive at net income, which is then converted to a
per-share amount by dividing net income by the average number of shares
outstanding during the period. The Fund's net income per share is divided by the
Fund's net asset value on the last day of the period to produce an annualized
yield.
Quoted yield factors are for comparison purposes only, and are not
intended to indicate future performance or forecast the dividend per share of
the Fund.
<PAGE>
Investment Performance
Total Return Performance. The Fund's calculation of total return
performance includes the reinvestment of all capital gains distributed and
income dividends for the period or periods indicated, without regard to tax
consequences to a stockholder in the Fund. Total return is calculated as the
percentage change between the beginning value of a static account in the Fund
and the ending value of that account measured by the Fund's then current net
asset value, including all shares acquired through reinvestment of income and
capital gains dividends. The results shown are historical and should not be
considered indicative of the future performance of the Fund. Each average annual
compound rate of return is derived from the cumulative performance of the Fund
over the time period specified. The annual compound rate of return for the Fund
over any other period of time will vary from the average.
From time to time, in reports and promotional literature, one or more
existing or future Rupay-Barrington funds, including the Fund, may compare its
yield to Overnight Government Repurchase Agreements, Treasury bills, notes, and
bonds, certificates of deposit, and six-month money market certificates.
Performance or yield may also be compared to indices of broad groups of
unmanaged securities considered to be representative of or similar to Fund
portfolio holdings such as:
Lipper Analytical Services, Inc. -- Average of Value Funds -- a widely
used independent research firm which ranks mutual funds by overall
performance, investment objectives, and assets.
Mutual Fund Values, published by Morningstar, Inc. -- a mutual fund
tracking system which provides a top performer list every two weeks based
on performance and risk management.
Wall Street Journal -- a daily newspaper publication which lists the
yields and current market values on money market instruments, public
corporate debt obligations, public obligations of the U.S. Treasury and
agencies of the U.S. government as well as common stocks, preferred stock,
convertible preferred stocks, options and commodities; in addition to
indices prepared by the research department of such financial
organizations as Merrill Lynch, Pierce, Fenner and Smith, Inc., including
information provided by the Federal Reserve Board.
Performance rankings and ratings periodically in national financial
publications such as MONEY, FORBES, BUSINESS WEEK, BARRON's, etc., will also be
used.
From time to time, in reports and promotions literature: (i) the Fund's
total return performance or P/E ratio may be compared to: (a) the Standard &
Poor's 500 Stock Index and Dow Jones Industrial Average so that you may compare
the Fund's results with those of a group of unmanaged securities widely regarded
by investors as representative of the stock market in general; (b) other groups
of mutual funds tracked by: (1) Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets; or (2) other financial or Business
publications, such as Business Week, Money Magazine, Forbes and Barron's, which
provide similar information; or (c) indices of stock comparable to those in
which the Fund invests; (ii) the Consumer Price Index (the measure for
inflation) may be used to assess the real rate of return from an investment in
the Fund; (iii) other government statistics such as GNP, and import and export
figures derived from governmental publications, e.g., the Survey of Current
Business, may be used to illustrate investment attributes of the Fund or the
general economic, business, investment, or financial environment in which the
Fund operates; (iv) the effect of tax-deferred compounding on the Fund's
investment returns, or on return in
<PAGE>
general, may be illustrated by graphs, charts, etc., where such graphs or charts
would compare, at various points in time, the return from an investment in the
Fund (or returns in general) on a tax-deferred basis (assuming one or more tax
rates) with the return on a taxable basis; and (v) the sectors or industries in
which the Fund invests may be compared to relevant indices or surveys (e.g., S&P
Industry Surveys) in order to evaluate the Fund's historical performance or
current or potential value with respect to the particular industry or sector. In
connection with (iv) above, information derived from the following chart may be
used.
IRA Versus Taxable Return
Assuming 9% annual rate of return, $2,000 annual contribution and 28% tax
bracket.
Year Taxable Tax Deferred (IRA)
10 $ 28,700 $ 33,100
15 52,400 64,000
20 82,500 111,500
25 125,100 184,600
26 183,300 297,200
An IRA is a long-term investment whose objective is to accumulate personal
savings for retirement. Due to the long-term nature of the investment, even
slight differences in performance will result in significantly different assets
at retirement. Mutual funds, with their diversity of choice, can be used for IRA
investments. Generally, individuals may need to adjust their underlying IRA
investment as their time to retirement and tolerance for risk changes.
THE COMPANY'S CAPITAL STOCK
The Fund is a diversified series of the Company, a diversified, open-end
investment company organized under Maryland law on January 24, 1994. The
Company's Amended and Restated Articles of Incorporation, as amended (the
"Articles") authorize the Board of Directors to classify and reclassify any and
all shares which are then unissued, including unissued shares of capital stock
into any number of classes or series, each class or series consisting of such
number of shares and having such designations, such powers, preferences, rights,
qualifications, limitations, and restrictions, as shall be determined by the
Board of Directors subject to the Investment Company Act of 1940, and other
applicable law. The shares of any such additional classes or series might
therefore differ from the shares of the present class and series of capital
stock and from each other as to preferences, conversions or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption, subject to applicable law, and might thus be superior
or inferior to the capital stock or to other classes or series in various
characteristics. The Board of Directors may increase or decrease the aggregate
number of shares of stock or the number of shares of stock of any class or
series that the Company has authorized to issue without stockholder approval.
Except to the extent that the Company's Board of Directors might provide
by resolution that holders of shares of a particular class are entitled to vote
as a class on specified matters presented for a vote
<PAGE>
of the holders of all shares entitled to vote on such matters, there would be no
right of class vote unless and to the extent that such a right might be
construed to exist under Maryland law. The Articles contain no provision
entitling the holders of the present class of capital stock to a vote as a class
on any matter. Accordingly, the preferences, rights, and other characteristics
attaching to any class of shares, including the present class of capital stock,
might be altered or eliminated, or the class might be combined with another
class or classes, by action approved by the vote of the holders of a majority of
all the shares of all classes entitled to be voted on the proposal, without any
additional right to vote as a class by the holders of the capital stock or of
another effected class or classes.
Stockholders are entitled to one vote for each full share held (and
fractional votes for fractional shares held) and will vote in the election of or
removal of directors (to the extent hereinafter provided) and on other matters
submitted to the vote of stockholders. There will normally be no meetings of
stockholders for the purpose of electing directors unless and until such time as
less than a majority of the directors holding office have been elected by
stockholders, at which time the directors then in office will call a
stockholders' meeting for the election of directors. Except as set forth above,
the directors shall continue to hold office and may appoint successor directors.
Voting rights are not cumulative, so that the holders of more than 50% of the
shares voting in the election of directors can, if they choose to do so, elect
all the directors of the Fund, in which event the holders of the remaining
shares will be unable to elect any person as a director. As set forth in the
By-Laws of the Fund, a special meeting of stockholders of the Fund shall be
called by the Secretary of the Fund on the written request of stockholders
entitled to cast at least 10% of all votes of the Company entitled to be cast at
such meeting. Stockholders requesting such a meeting must pay to the Fund the
reasonably estimated costs of preparing and mailing the notice of the meeting.
The Company, however, will otherwise assist the stockholders seeking to hold the
special meeting in communicating to the other stockholders of the Fund to the
extent required by Section 16(c) of the Investment Company Act of 1940.
In the event of a liquidation or dissolution of the Company or an
individual series, such as the Fund, stockholders of a particular series would
be entitled to receive the assets available for distribution belonging to such
series. Stockholders of a series are entitled to participation equally in the
net distributable assets of the particular series involved on liquidation, based
on the number of shares of the series that are held by each stockholder. If any
assets, income, earnings, proceeds, funds or payments are not readily
identifiable as belonging to any particular series, the Trustees shall allocate
them among any one or more series as they, in their sole discretion, deem fair
and equitable.
FEDERAL AND STATE REGISTRATION OF SHARES
The Fund's shares are registered for sale under the 1933 Act, and the Fund
or its shares are registered under the laws of all jurisdictions requiring
registration in which it intends to sell its shares.
LEGAL COUNSEL
Sachnoff & Weaver, Ltd., whose address is 30 South Wacker Drive, 29th
Floor, Chicago, Illinois, 60606-7484, is legal counsel to the Fund.
<PAGE>
FINANCIAL STATEMENTS
The Financial Statements of the Fund will be audited at least once each
year by independent public accountants. Stockholders will receive annual audited
and semiannual (unaudited) reports when published, and will receive written
confirmation of all confirmable transactions in their account. A copy of the
Annual Report will accompany the SAI whenever the SAI is requested by a
stockholder or prospective investor.
INDEPENDENT AUDITORS
Tait, Weller & Baker, whose address is 2 Penn Center Plaza, Suite 700,
Philadelphia, PA 19102- 1707, are independent auditors to the Fund.
RATINGS OF CORPORATE DEBT SECURITIES
Moody's Investors Services, Inc. (Moody's)
Aaa -- Bonds rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged."
Aa -- Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds.
A -- Bonds rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations.
Baa -- Bonds rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Standard & Poor's Corporation (S&P) or Duff & Phelps Investor Services.
AAA -- This is the highest rating assigned to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA -- Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong.
A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
st be maintained. Entering into a contract to buy is commonly
referred to as buying or purchasing a contract or holding a long position;
entering into a contract to sell is commonly referred to as selling a contract
or holding a short position.
<PAGE>
PAGE>
PART C
Other Information
Item. 24. Financial Statements and Exhibits
Total Return Fund, Inc.
(a) Condensed Financial Information (Financial Highlights table) is
included in Part A of the Company's Registration Statement on
Form N-1A (No. 33-79068) as filed with the SEC on March 12,
1998.
Schedule of Portfolio Investments, Statements of Assets and
Liabilities December 31, 1997, Statement of Operations for the
Year Ended December 31,1997, Statement of Changes in Net Assets
for the Years Ended December 31, 1996 and 1997, Financial
Highlights for a Share Outstanding Throughout each Period for
the Years ended December 31, 1995, 1996 and 1997 and Notes to
the Financial Statements is included in Part B of the Company's
Registration Statement on Form N-1A (No. 33-79068) as filed with
the SEC on March 12, 1998.
Growth Fund
Not Applicable
Value Equity Fund
Not Applicable
(b) Exhibits.
(1)a) Articles of Amendment and Restatement of the Registrant
(Exhibit (1) to the Company's Registration Statement on
Form N-1A (No. 33-79068) as filed with the SEC on May 16,
1994)*
(b) Articles of Amendment of the Registrant (Exhibit (1)(b) to
the Company's Registration Statement on Form N-1A (No.
33-79068) as filed with the SEC on March 12, 1998)*
(c) Articles Supplementary of the Registrant (filed herewith)
(2) By-Laws of the Registrant, dated January 20, 1994 (Exhibit
(2) to the Company's Registration Statement on Form N-1A
(No. 33-79068)) as filed with the SEC on May 16, 1994)*
(3) Inapplicable
- --------
* These exhibits are incorporated herein by reference to the
registration statement referenced after each exhibit next to
which an asterisk appears.
<PAGE>
(4) See Article V, Capital Stock of the Company's Articles of
Amendment and Restatement; Article II, Shareholders; and
Article VIII, Capital Stock of the Company's By-Laws and
Articles Supplementary of the Company, filed as Exhibits to
this Registration Statement
(5)(a) Investment Management Agreement between Registrant and
Valley Forge Advisors, Inc.(Exhibit (5)(a) to the Company's
Registration Statement on Form N-1A (No. 33-79068) as filed
with the SEC on March 1, 1995)*
(b) Investment Management Agreement between Registrant and The
Marshall Plan, L.P. *,**
(c) Amended and Restated Investment Advisory Agreement for the
Rupay-Barrington Total Return Fund between Registrant and
Rupay-Barrington Advisors, Inc. dated _________,
1998 (filed herewith)
(d) Investment Advisory Agreement for the Rupay-Barrington
Growth Fund between Registrant and Rupay-Barrington
Advisors, Inc. dated ____________, 1998 (filed herewith)
(e) Investment Advisory Agreement for the Rupay-Barrington
Value Equity Fund between Registrant and Rupay-Barrington
Advisors, Inc. dated _______________, 1998 (filed herewith)
(6)(a) Distribution Agreement between Registrant and Valley Forge
Distributors, Inc. (Exhibit (6)(a) to the Company's
Registration Statement on Form N-1A (No. 33-79068) as
filed with the SEC on March 1, 1995)*
(b) Selected Dealer Agreement of Valley Forge Distributors,
Inc. (Exhibit (6)(b) to the Company's Registration
Statement on Form N-1A (No. 33-79068) as filed with the SEC
on March 1, 1995)*
(c) Amendment to Distribution Agreement between Registrant and
Rupay-Barrington Securities Corporation dated
_____________, 1998 (filed herewith)
(d) Selected Dealer Agreement of Rupay-Barrington Securities
Corporation (filed herewith)
(7) Inapplicable
(8)(a) Custodian Services Agreement between Registrant and PNC
Bank, N.A. *,***
- --------
** This Agreement was terminated effective March 31, 1996.
*** This Agreement was terminated effective October 31, 1996.
<PAGE>
(b) Custody Agreement between the Registrant and Star Bank,
N.A. (Exhibit (8)(b) to the Company's Registration
Statement on Form N-1A (No. 33-79068) as filed with the SEC
on April 28, 1997)*
(c) Custody Agreement between the Registrant and Star Bank,
N.A. dated ___________________, 1998 (filed herewith)
(9)(a) Transfer Agency Services Agreement, between Registrant and
PFPC, Inc. *,***
(b) Administration and Accounting Services Agreement*,***
(c) Expense Limitation Agreement between Registrant and Valley
Forge Capital Holding Inc. (Exhibit (9)(c) to the Company's
Registration Statement on Form N-1A (No. 33-79068) as filed
with the SEC on March 1, 1995)*
(d) Transfer Agent Agreement between the Registrant and Fund
Services, Inc.(Exhibit (9)(d) to the Company's Registration
Statement on Form N-1A (No. 33-79068) as filed with the SEC
on April 28, 1997)*
(e) Administrative Services Agreement between the Registrant
and Commonwealth Shareholder Services, Inc. (Exhibit (9)(e)
to the Company's Registration Statement on Form N-1A (No.
33-79068) as filed with the SEC on April 28, 1997)*
(f) Accounting Services Agreement between the Registrant and
Commonwealth Fund Accounting, Inc. (Exhibit (9)(f) to the
Company's Registration Statement on Form N-1A (No.33-79068)
as filed with the SEC on April 28, 1997)*
(g) Administrative Services Agreement between the Registrant
and Commonwealth Shareholder Services, Inc. dated
__________________, 1998 (filed herewith)
(h) Amendment to Expense Limitation Agreement between
Registrant and The Rupay-Barrington Financial Group, Inc.
dated ___________, 1998 (filed herewith)
(i) Amendment to Accounting Services Agreement between the
Registrant and Commonwealth Fund Accounting, Inc. dated
________, 1998 (filed herewith)
(10) Opinion of Sachnoff & Weaver, Ltd. (filed herewith)
(11) Consent of Tait, Weller & Baker (filed herewith)
(12) Inapplicable
<PAGE>
(13) Initial Capitalization Agreement between Registrant and
Valley Forge Capital Holdings Inc. (Exhibit (13) to the
Company's Registration Statement on Form N-1A (No.
33-79068) as filed with the SEC on March 1, 1995)*
(14) Inapplicable
(15)(a) Distribution Plan and Agreement between the Registrant and
Valley Forge Distributors (Exhibit (15) to the Company's
Registration Statement on Form N-1A (No. 33-79068) as filed
with the SEC on March 1, 1995)*
(b) Amended Distribution Plan and Agreement for the Rupay-
Barrington Total Return Fund between the Registrant and
Rupay-Barrington Securities Corporation dated
________, 1998 (filed herewith)
(c) Distribution Plan and Agreement for the Rupay-Barrington
Growth Fund between the Registrant and Rupay-Barrington
Securities Corporation dated ________, 1998 (filed
herewith)
(d) Distribution Plan and Agreement for the Rupay-Barrington
Value Equity Fund between the Registrant Rupay-Barrington
Securities Corporation dated ________, 1998 (filed
herewith)
(16) Inapplicable
(17) Financial Data Schedule
(18) Inapplicable
Item 25. Persons Controlled by or Under Common Control with Registrant
The Registrant is not controlled by or under common control with any
person.
Item 26. Number of Holders of Securities
Number of record holders of each class of securities of the
Registrant as of March 31, 1998:
Rupay-Barrington Rupay-Barrington Rupay-Barrington
Total Return Fund Growth Fund Value Equity Fund
Number of
Record Holders 123 0 0
Item 27. Indemnification
The Registrant does not presently have an Officers and Directors
insurance policy for the benefit of its officers and directors.
Article X, Section 10.01 of the Registrant's By-Laws provides as
follows:
<PAGE>
Section 10.01. Indemnification and Payment of Expenses in Advance:
The Corporation shall indemnify any individual ("Indemnitee") who is
a present or former director, officer, employee, or agent of the
Corporation, or who is or has been serving at the request of the
Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust or other enterprise,
who, by reason of his position was, is, or is threatened to be made a
party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(hereinafter collectively referred to as a "Proceeding") against any
judgments, penalties, fines, settlements, and reasonable expenses
(including attorneys' fees) incurred by such Indemnitee in connection
with any Proceeding, to the fullest extent that such indemnification
may be lawful under Maryland law. The Corporation shall pay any
reasonable expenses so incurred by such Indemnitee in defending a
Proceeding in advance of the final disposition thereof to the fullest
extent that such advance payment may be lawful under Maryland law.
Subject to any applicable limitations and requirements set forth in
the Corporation's Articles of Incorporation and in these By-Laws, any
payment of indemnification or advance of expenses shall be made in
accordance with the procedures set forth in Maryland law.
Notwithstanding the foregoing, nothing herein shall protect or
purport to protect any Indemnitee against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved
in the conduct of his office ("Disabling Conduct").
Anything in this Article X to the contrary notwithstanding, no
indemnification shall be made by the Corporation to any Indemnitee
unless:
(a) there is a final decision on the merits by a court or other
body before whom the Proceeding was brought that the
Indemnitee was not liable by reason of Disabling Conduct;or
(b) in the absence of such a decision, there is a reasonable
determination, based upon a review of the facts, that the
Indemnitee was not liable by reason of Disabling Conduct,
which determination shall be made by:
(i) the vote of a majority of a quorum of directors who
are neither "interested persons" of the Corporation as
defined in Section 2(a)(19) of the Investment Company
Act of 1940, nor parties to the Proceeding; or
(ii) an independent legal counsel in a written opinion.
Anything in this Article X to the contrary notwithstanding, any
advance of expenses by the Corporation to any Indemnitee shall be
made only upon the undertaking by such Indemnitee to repay the
advance unless it is ultimately determined that such Indemnitee is
entitled to indemnification as above provided, and only if one of the
following conditions is met:
(a) the Indemnitee provides security for his undertaking; or
<PAGE>
(b) the Corporation shall be insured against losses arising by
reason of any lawful advances; or
(c) there is a determination, based on a review of readily
available facts, that there is reason to believe that the
Indemnitee will ultimately be found entitled to
indemnification, which determination shall be made by:
(i) a majority of a quorum of directors who are neither
"interested persons" of the Corporation as defined in
Section 2(a)(19) of the Investment Company Act, nor
parties to the Proceeding; or
(ii) an independent legal counsel in a written opinion.
Article X, Section 10.02 of the Registrant's By-Laws provides as
follows:
Section 10.02. Insurance of Officers, Directors, Employees and
Agents: To the fullest extent permitted by applicable Maryland Law
and by Section 17(h) of the Investment Company Act, as from time
to time amended, the Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee, or agent of the Corporation, or who is or was serving at
the request of the Corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture,
trust or other enterprise, against any liability asserted against
him and incurred by him in or arising out of his position, whether
or not the Corporation would have the power to indemnify him
against such liability.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of Investment Advisor.
Rupay-Barrington Advisors, Inc.("Rupay-Barrington Advisors"), a wholly
owned subsidiary of Rupay-Barrington Financial, is the investment advisor to
each series of the Registrant. Rupay-Barrington Advisors is not currently
substantially employed other than as investment advisor to the Registrant.
Set forth below are the officers and directors of Rupay-Barrington
Advisors who have other substantial businesses, professions, vocations, or
employment aside from that of director or officer of the Rupay-Barrington
Advisors:
Fritz Bensler (age 41) has served as President, Secretary and sole
director of, and a Portfolio Manager for, Rupay-Barrington Advisors
since January 1997. Mr. Bensler has also served as President of the
Registrant since January 1997. From November 1995 until
joining Rupay-Barrington Advisors in January 1997, Mr. Bensler
was an equity security analyst and portfolio manager for JPJ
Investment Management, Inc.
Certain directors and officers of the Rupay-Barrington Advisors also
may, in the future, serve as officers and/or directors of one or more of other
mutual funds sponsored by Rupay-Barrington Financial and/or one or more of the
affiliated entities listed herein. See also "Management of Fund," in
Registrant's Statement of Additional Information.
Item 29. Principal Underwriters.
The principal underwriter for the Registrant is Rupay-Barrington
Securities Corporation ("Rupay-Barrington Securities"). Rupay-Barrington
Securities may serve, in the future, as the principal underwriter for one or
more other funds. Rupay-Barrington Securities is a wholly-owned subsidiary of
Rupay-Barrington Financial, is registered as a broker-dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. Rupay-Barrington Securities will receive commissions or
other compensation for acting as principal underwriter.
The address of each of the directors and officers of Rupay-Barrington
Securities listed below is 1000 Ballpark Way, Suite 207A, Arlington, TX 76011.
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
Don Watkins President, Director None
Judy Rupay Director None
Dixon R. Holman Director Vice President
Carol Aeyung Vice President None
Jon D. Willingham Vice President None
Item 30. Location of Accounts and Records.
All accounts, books, and other documents required to be maintained by
the Registrant under Section 31(a) of the Investment Company Act of 1940 and the
rules thereunder will be maintained by the Registrant at its offices at 1000
Ballpark Way, Suite 302, Arlington, TX 76011. Its transfer, dividend disbursing,
and stockholder service activities are performed by Fund Services Inc., P.O. Box
26305, Richmond, Virginia 23260-6305. Custodian activities for the Registrant
are performed at Star Bank, N.A., Mutual Fund Custody, P.O. Box 1118,
Cincinnati, Ohio 45201. Although the Registrant does not presently intend to
purchase portfolio securities outside of the United States, at such time as it
determines to make such purchases, appropriate service providers will be
retained to perform such services as are necessary.
Item 31. Management Services.
Registrant is not a party to any management related service contract,
other than as set forth in the Prospectus.
<PAGE>
Item 32. Undertakings.
(a) Not Applicable
(b) The Growth Fund and the Value Equity Fund will file, within four
to six months after the effective date of their Registration
Statement, a post-effective amendment using financial statements
which need not be certified.
(c) Upon request, the Registrant will furnish, without charge, a
copy of the Registrant's latest annual report to stockholders
and the most recent semi-annual report succeeding the annual
report, when available, to each person to whom a prospectus is
delivered.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it meets all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Denver and State of Colorado, this 4th day of May, 1998.
RUPAY-BARRINGTON TOTAL RETURN FUND, INC.
By:/s/ Fritz Bensler
-------------------
Fritz Bensler, President, Treasurer and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
Signature Title Date
President (Principal Executive Of April 30, 1998
/s/ Fritz Bensler Treasurer (Chief Financial Officer)
_________________ and Director
* Director April 30 1998
- ----------------------
Bradley L. Newman
* Director April 30, 1998
- ----------------------
Glen Wilkerson
* Director April 30, 1998
- ----------------------
Judy A. Champine
*By:/s/Fritz Bensler
Fritz Bensler
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
1. (c) Articles Supplementary of the Registrant
5. (c) Amended and Restated Investment Advisory Agreement for the
Rupay-Barrington Total Return Fund between Registrant and
Rupay-Barrington Advisors, Inc. dated _________________, 1998.
5. (d) Investment Advisory Agreement for the Rupay-Barrington Growth
Fund between Registrant and Rupay-Barrington Advisors, Inc.
dated ____________________, 1998.
5. (e) Investment Advisory Agreement for the Rupay-Barrington Value
Equity Fund between Registrant and Rupay-Barrington Advisors,
Inc. dated ____________________, 1998.
6. (c) Amendment to Distribution Agreement between Registrant and
Rupay-Barrington Securities Corporation dated ______________,
1998.
6. (d) Selected Dealer Agreement of Rupay-Barrington Securities
Corporations
8. (c) Custody Agreement between the Registrant and Star Bank, N.A.
dated ____________________, 1998.
9. (g) Administrative Services Agreement between the Registrant and
Commonwealth Shareholder Securities, Inc. dated _____________,
1998.
9. (h) Amendment to Expense Limitation Agreement between Registrant
and the Rupay-Barrington Financial Group, Inc. dated ________,
1998.
9 (i) Amendment to Accounting Services Agreement between the
Registrant and Commonwealth Fund Accounting, Inc. dated
________, 1998 (filed herewith)
10. Opinions of Sachnoff & Weaver, Ltd.
11. Consent of Tait, Weller & Baker.
15. (b) Amendment to Distribution Plan and Agreement for the Rupay-
Barrington Total Return Fund between the Registrant and Rupay-
Barrington Securities Corporation dated ________________, 1998.
15. (c) Distribution Plan and Agreement for the Rupay-Barrington Growth
Fund between the Registrant and Rupay-Barrington Securities
Corporation dated ____________________, 1998.
15. (d) Distribution Plan and Agreement for the Rupay-Barrington Value
Equity Fund between the Registrant and Rupay-Barrington
Securities Corporation dated ____________________, 1998.
<PAGE>
Exhibit 1(c)
RUPAY-BARRINGTON TOTAL RETURN FUND, INC.
ARTICLES SUPPLEMENTARY
RUPAY-BARRINGTON TOTAL RETURN FUND
RUPAY-BARRINGTON GROWTH FUND, AND
RUPAY-BARRINGTON VALUE EQUITY FUND
Rupay-Barrington Total Return Fund, Inc., a Maryland corporation,
having its principal office in Arlington, Texas, (the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by Article V of the Articles of Amendment and
Restatement of the Corporation (the "Articles"), the Board of Directors has (i)
duly classified a number of shares of common stock of the Corporation, par value
$.01 per share (the "Common Stock"), as determined in connection with the SECOND
paragraph below, and (ii) reclassified all of the then issued and outstanding
shares of Common Stock into a new series of common stock to be designated the
Rupay-Barrington Total Return Fund.
SECOND: After giving effect to the foregoing classification, the
Board of Directors has heretofore duly divided and classified an aggregate of
1,000,000,000 shares of Common Stock, which amount includes all of the then
issued and outstanding shares of Common Stock, into the following series:
Rupay-Barrington Total Return Fund, the Rupay-Barrington Growth Fund and the
Rupay-Barrington Value Equity Fund (each a "Series"). Each Series shall
consist, until further changed, of the lesser of (x) 1,000,000,000 shares or (y)
the number of shares which could be issued by issuing all of the shares of any
series currently or hereafter classified less the total number of shares then
issued and outstanding in all of such series. All shares of each Series have the
powers, preferences, other special rights, qualifications, restrictions, and
limitations set forth in the Articles. Any matter affecting a particular Series,
including without limitation, matters affecting the investment advisory
arrangements or investment policies or restrictions of a Series, shall be deemed
effective when approved by the required vote of the shareholders of such Series.
THIRD: The Common Stock has been classified by the Board of
Directors under authority contained in the Articles.
IN WITNESS WHEREOF, Rupay-Barrington Total Return Fund, Inc. has
caused these Articles Supplementary to be signed in its name and on its behalf
by its President and witnessed by its Secretary on ________, 1998.
WITNESS: RUPAY-BARRINGTON TOTAL
RETURN FUND, INC.
By:_____________________
Secretary Fritz Bensler, President
<PAGE>
THE UNDERSIGNED, President of Rupay-Barrington Total Return Fund,
Inc., who executed on behalf of the Corporation Articles Supplementary of which
this Certificate is made a part, hereby acknowledges in the name and on behalf
of said Corporation the foregoing Articles Supplementary to be the corporate act
of said Corporation and hereby certifies that the matters and facts set forth
herein with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
_______________________
Fritz Bensler, President
<PAGE>
Exhibit 5(c)
AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
This AMENDED AND RESTATED AGREEMENT made this ___ day of _____ 1998, by
and between Rupay-Barrington Total Return Fund, Inc. a Maryland corporation (the
"Corporation"), and Rupay-Barrington Advisors, Inc., a Nevada corporation (the
"Advisor").
W I T N E S S E T H:
WHEREAS, the Corporation was formed to engage in business as a diversified
open-end series company and a registered management investment company under
the Investment Company Act of 1940, as amended (the "Investment Company Act");
WHEREAS, the Corporation is authorized to issue shares of capital stock
of the Corporation in the Rupay-Barrington Total Return Fund (the "Fund"), a
separate series of the Corporation, the shares of which represent interests in
separate portfolio of securities and other assets ("Fund Shares");
WHEREAS, the Advisor is engaged principally in the business of rendering
advisory services and is registered as an investment advisor under the
Investment Advisors Act of 1940, as amended;
WHEREAS, the Corporation desires to retain the Advisor to render
investment supervisory and corporate administrative services to the Fund in the
manner and on the terms hereinafter set forth; and
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the parties hereby agree as follows:
ARTICLE 1.
Duties of the Advisor
The Corporation hereby employs the Advisor to act as the investment
advisor to, and manager of, the Fund and to manage the investment and
reinvestment of the assets of the Fund and to administer its affairs, subject to
the supervision of the Board of Directors of the Corporation, on the terms and
conditions set forth in this Amended and Restated Agreement and the statements
relating to the Fund's investment objective, investment policies and investment
restrictions as the same are set forth in the currently effective prospectus of
the Fund (the "Prospectus"). The Advisor hereby accepts such employment and
agrees during such period, at its own expense, to render the services and to
assume the obligations herein set forth for the compensation provided for
herein.
<PAGE>
The Advisor shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
(a) Investment Advisory Services. In acting as investment advisor to the
Fund, the Advisor shall regularly provide the Fund with such investment
research, advice and supervision as the latter may from time to time consider
necessary for the proper supervision of the Fund and shall furnish continuously
an investment program and shall determine from time to time what securities
shall be purchased, sold or exchanged and what portion of the assets of the Fund
shall be held in the various securities in which it may invest, subject to the
restrictions set forth in the Corporation's Articles of Incorporation and
By-Laws, as amended from time to time, the Articles Supplementary, the
provisions of the Investment Company Act, and the statements relating to the
Fund's investment objectives, investment policies and investment restrictions as
the same are set forth in the Prospectus. Should the Board of Directors of the
Corporation at any time, however, make any definite determinations as to
investment policy and notify the Advisor thereof, the Advisor shall be bound by
such determination for the period, if any, specified in such notice or until
similarly notified that such determination has been revoked. The Advisor shall
take, on behalf of the Fund, all actions which it deems necessary to implement
the investment policies, as such policies relate to the Advisor, determined as
provided above, and in particular to place all orders for the purchase or sale
of securities for the Fund with brokers or dealers selected by it. In connection
with the selection of such brokers or dealers and the placing of such orders,
except as otherwise expressly set forth herein, the Advisor is directed at all
times to seek to obtain for the Fund the most favorable net results for the Fund
as determined by the Board of Directors and set forth in the Prospectus. Subject
to this requirement and the provisions of the Investment Company Act, the
Securities Exchange Act of 1934 (the "1934 Act"), and other applicable
provisions of law, nothing shall prohibit the Advisor from selecting brokers or
dealers with which it or the Fund is affiliated, including, without limitation,
Rupay-Barrington Securities, Inc. This determination may be viewed in terms of
either that particular transaction or the overall responsibilities which the
Advisor and its affiliates have with respect to accounts over which they
exercise investment discretion. The Board of Directors of the Corporation shall
periodically review the commissions paid by the Fund to determine if the
commissions paid over representative periods of time were reasonable in relation
to the benefits to the Fund.
(b) Brokerage. Subject to the approval of the Board of Directors, the
Advisor, in carrying out its duties under Paragraph 1(a), may cause the
Corporation, with respect to the Fund, to pay a broker-dealer which furnishes
brokerage or research services (as such services are defined under Section 28(e)
of the 1934 Act, a higher commission than that which might be charged by another
broker-dealer which does not furnish brokerage or research services or which
furnishes brokerage or research services deemed to be of lesser value, if such
commission is deemed reasonable in relation to the brokerage and research
services provided by the broker-dealer, viewed in terms of either that
particular transaction or the overall responsibilities of the Advisor with
respect to the accounts as to which it exercises investment discretion (as such
term is defined under Section 3(a)(35) of the 1934 Act). This determination may
be viewed in terms of either that particular transaction or the overall
responsibilities which the Advisor and its affiliates have with respect to
accounts over which they exercise investment discretion.
<PAGE>
(c) Advisor's Use of the Services of Others. The Advisor may (at its cost)
employ, retain or otherwise avail itself of the services or facilities of other
persons or organizations for the purpose of providing the Advisor or the
Corporation or the Fund, as appropriate, with such statistical and other factual
information, such advice regarding economic factors and trends, such advice as
to occasional transactions in specific securities or such other information,
advice or assistance as the Advisor may deem necessary, appropriate or
convenient for the discharge of its obligations hereunder or otherwise helpful
to the Corporation or the Fund, as appropriate, or in the discharge of the
Advisor's overall responsibilities with respect to the other accounts which it
serves as investment advisor.
(d) Ownership of Records. All records required to be maintained and
preserved by the Corporation or the Fund pursuant to the provisions of rules or
regulations of the Securities and Exchange Commission under Section 31(a) of the
Securities Act of 1933 and maintained and preserved by the Advisor on behalf of
the Corporation or the Fund, as appropriate, are the property of the Corporation
or the Fund, as appropriate, and will be surrendered by the Advisor promptly on
request by the Corporation or the Fund, as appropriate.
(e) Reports to the Advisor. The Corporation or the Fund, as appropriate,
shall furnish or otherwise make available to the Advisor such prospectuses,
financial statements, proxy statements, reports, and other information relating
to the business and affairs of the Corporation or the Fund, as appropriate, as
the Advisor may, at any time or from time to time, reasonably require in order
to discharge its obligations under this Amended and Restated Agreement.
(f) Administrative Services. In addition to the performance of investment
advisory services, the Advisor shall perform, or supervise the performance of,
administrative services in connection with the management of the Fund. In this
connection, the Advisor agrees to: (i) assist in supervising all aspects of the
Fund's operations, including the co-ordination of all matters relating to the
functions of the Corporation's custodian, transfer agent, administrative and
accounting servicer, other shareholder service agents, accountants, attorneys
and other parties performing services or operational functions for the Fund or
the Corporation; (ii) maintain the corporate existence and records of the
Corporation; (iii) provide the Fund, at the Advisor's expense, with services of
persons competent to perform such administrative and clerical functions as are
necessary in order to provide effective administration of the Fund, including
duties in connection with shareholder relations, redemption requests and account
adjustments and the maintenance of certain books and records of the Fund; (iv)
prepare all general shareholder communications, including shareholder reports
for the Fund; (v) during such times as shares are publicly offered, maintain the
registration and qualification of the Fund Shares under federal and state law;
(vi) provide the Fund, at the Advisor's expense, with adequate office space and
related services necessary for its operations as contemplated in this Amended
and Restated Agreement; (vii) investigate the development of and develop and
implement, if appropriate, management and shareholder services designed to
enhance the value or convenience of the Fund as an investment vehicle; (viii)
permit the Advisor's employees to serve as officers, directors and committee
members of the Corporation, without cost to the Corporation; and (ix) reimburse
the Fund for any loss incurred as a result of the Fund's receipt of NSF checks
from investors if said funds cannot be recovered from the investors.
<PAGE>
ARTICLE 2.
Compensation of the Advisor
(a) Investment Advisory Fee. For the services rendered hereunder, the Fund
shall pay to the Advisor monthly on the first business day of the next
succeeding calendar month a fee based upon the average daily value of the
aggregate net assets of the Fund, as determined and computed in accordance with
the description of the method of determination of net asset value contained in
the Prospectus, at the annual rate of 0.80% of the average daily value of the
aggregate net assets of the Fund, less the amounts described below.
The Advisor shall pay, from the investment advisory fee as calculated
in the manner described above, certain expenses, the amount of which expenses
shall be determined in accordance with the provisions set forth in paragraphs
(b) and (c) below.
(b) Expenses. The Fund assumes and shall pay all expenses of the operation
of the Fund, unless any of such expenses are specifically assumed by The
Rupay-Barrington Financial Group, Inc. ("RPFG") pursuant to that certain
agreement between the Fund and RPFG or assumed by the Advisor, including,
without limitation: costs relating to the organization of the Fund, insurance,
taxes, expenses for legal and auditing services, costs of printing proxies,
stock certificates, shareholder reports and prospectuses (except to the extent
paid by the Distributor, Rupay-Barrington Securities, Inc.), charges of the
Custodian, Transfer Agent and the Administrative and Accounting Services,
expenses of redemption of shares, expenses and fees associated with registering
the shares under Federal and state securities laws, fees and expenses of
directors who are not affiliated persons of RPFG or its subsidiaries, accounting
and pricing costs (including the daily calculation of net asset value),
interest, brokerage costs, litigation and other extraordinary or non-recurring
expenses, and any other expenses properly payable by the Fund or the
Corporation.
(c) Expense Limitations. In the event the operating expenses of the Fund,
including the investment advisory fee payable to the Advisor for any fiscal year
ending on a date on which this Amended and Restated Agreement is in effect
exceed, after payment to RPFG of amounts due under that certain agreement
referenced in paragraph (b) hereof, the expense limitations under state
securities laws or regulations thereunder, as such limitations may be raised or
lowered from time to time, the Advisor shall reduce its investment advisory fee
by the extent of such excess and, if required under any such laws or
regulations, will reimburse the Fund in the amount of such excess; provided,
however, to the extent permitted by law, the Advisor shall be reimbursed for any
such excess payments made to the Fund in subsequent years. For purposes of
determining whether the Fund is entitled to reimbursement, the expenses of the
Fund are calculated on a monthly basis, and the Fund's distribution plan
expenses are excluded. Whenever the expenses of the Fund exceed the applicable
annual expense limitations, the estimated amounts of reimbursement under such
limitations shall be applicable as an offset against the monthly payment of the
advisory fee due to the Advisor.
<PAGE>
ARTICLE 3.
Limitation of Liability of the Advisor
The Advisor and its directors, officers or employees shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with any investment policy or the purchase, sale or redemption of
any securities on the recommendation of the Advisor. Nothing herein contained
shall be construed to protect the Advisor against any liability to the Fund or
its security holders to which the Advisor shall otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence in the performance of its
duties on behalf of the Fund, reckless disregard of the Advisor's obligations
and duties under this Amended and Restated Agreement or the violation of any
applicable law.
ARTICLE 4.
Activities of the Advisor
The services of the Advisor under this Amended and Restated Agreement are
not to be deemed exclusive, and the Advisor shall be free to render similar
services to others so long as its services hereunder are not impaired thereby.
It is understood that directors, officers, employees and shareholders of the
Fund have, or may acquire, interests in the Advisor, as directors, officers,
employees or shareholders or otherwise and that directors, officers, employees
or shareholders of the Advisor have, or may acquire, similar interests in the
Fund, and that the Advisor has, or may acquire, interests in the Fund as a
shareholder or otherwise.
ARTICLE 5.
Duration and Termination of this Amended and Restated Agreement
This Amended and Restated Agreement shall become effective as of the date
first above written and, unless sooner terminated as hereinafter provided, shall
remain in force until December 31, 1999 and thereafter shall continue in effect
from year to year, but only so long as such continuance is specifically approved
at least annually by: (a) the Board of Directors of the Corporation or by vote
of a majority of the outstanding voting securities of the Fund and, concurrently
with such approval by the Board of Directors or prior to such approval by the
holders of the outstanding voting securities of the Fund, as the case may be, by
the vote, cast in person at a meeting called for the purpose of voting on such
approval, of a majority of the directors of the Corporation, with respect to the
Fund, who are not parties to this Amended and Restated Agreement or interested
persons of any such party; and (b) the Advisor shall not have notified the
Corporation, in writing, at least 60 days prior to December 31, 1999 or prior to
December 31st of any year thereafter, that it does not desire such continuation.
The Advisor shall furnish to the Corporation, promptly upon its request, such
information as may reasonably be necessary to evaluate the terms of this Amended
and Restated Agreement or any extension, renewal or amendment hereof.
This Amended and Restated Agreement may be terminated by either party
hereto, without the payment of any penalty, on sixty days' prior written notice
to the other party; provided, that in the case of termination by the
Corporation, with respect to the Fund, such action shall have been authorized
<PAGE>
by resolution of a majority of the directors of the Corporation who are not
parties to this Amended and Restated Agreement or interested persons of any such
party, or by a vote of a majority of the outstanding voting security of the
Fund. This Amended and Restated Agreement shall automatically terminate in the
event of its assignment.
ARTICLE 6.
Definitions
The terms "assignment," "affiliated person" and "interested person," when
used in this Amended and Restated Agreement, shall have the respective meanings
specified in the Investment Company Act. As used with respect to the Corporation
or any of its Funds, the term "majority of the outstanding voting securities"
means the lesser of: (i) 67% of the shares represented at a meeting at which
more than 50% of the outstanding shares are represented; or (ii) more than 50%
of the outstanding voting securities.
ARTICLE 7.
Amendments of this Amended and Restated Agreement
This Amended and Restated Agreement may be amended by the parties only if
such amendment is specifically approved by: (i) the Board of Directors of the
Corporation, or by the vote of a majority of outstanding shares of the Fund; and
(ii) a majority of those directors of the Corporation who are not parties to
this Amended and Restated Agreement or interested persons of any such party cast
in person at a meeting called for the purpose of voting on such approval.
ARTICLE 8.
Notices
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given: (i) when mailed by
registered or certified mail, return receipt requested, postage prepaid; (ii)
when telecopied, provided that a copy of such notice is mailed by registered or
certified mail, return receipt requested, postage prepaid, within one business
day following transmission of the telecopy; or (iii) when hand delivered to the
party to whom it is to be given at the address of such party set forth below, as
follows:
If to the Fund: Rupay-Barrington Total Return Fund, Inc.
1000 Ballpark Way
Suite 302
Arlington, TX 76011
If to the Advisor:Rupay-Barrington Advisors, Inc.
3551 S. Monaco Parkway, #116
Denver, CO 80237
<PAGE>
ARTICLE 9.
Governing Law
The provisions of this Amended and Restated Agreement shall be construed
and interpreted in accordance with the laws of the State of Texas as at the time
in effect and the applicable provisions of the Investment Company Act. To the
extent that the applicable law of the State of Texas or any of the provisions
herein, conflict with the applicable provisions of the Investment Company Act,
the latter shall control.
ARTICLE 10.
Miscellaneous
(a) Captions. The captions in this Amended and Restated Agreement are
included for convenience of reference only and in no way define or delineate any
of the provisions hereof or otherwise affect their construction or effect.
(b) Interpretation. Nothing herein contained shall be deemed to require
the Corporation to take any action contrary to its Articles of Incorporation or
By-Laws, as amended from time to time, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve or
deprive the Board of Directors of the Corporation of its responsibility for and
control of the conduct of the affairs of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Agreement to be duly executed by their duly authorized officers and
their respective corporate seals to be hereunto duly affixed and attested.
RUPAY-BARRINGTON TOTAL RETURN
FUND, INC.
By:
--------------------------------
Attest: Authorized Signatory
- -----------------------------
Secretary
RUPAY-BARRINGTON ADVISORS, INC.
By:
--------------------------------
Attest: Authorized Signatory
- -----------------------------
Secretary
<PAGE>
Exhibit 5(d)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this ___ day of _____ 1998, by and between Rupay-Barrington
Total Return Fund, Inc. a Maryland corporation (the "Corporation"), and
Rupay-Barrington Advisors, Inc., a Nevada corporation (the "Advisor").
W I T N E S S E T H:
WHEREAS, the Corporation was formed to engage in business as a diversified
open-end series company and registered management investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act");
WHEREAS, the Corporation is authorized to issue shares of capital stock
of the Corporation in the Rupay-Barrington Growth Fund (the "Fund"), a
separate series of the Corporation, the shares of which represent interests
in a separate portfolio of securities and other assets ("Fund Shares");
WHEREAS, the Advisor is engaged principally in the business of rendering
advisory services and is registered as an investment advisor under the
Investment Advisors Act of 1940, as amended;
WHEREAS, the Corporation desires to retain the Advisor to render
investment supervisory and corporate administrative services to the Fund in the
manner and on the terms hereinafter set forth; and
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the parties hereby agree as follows:
ARTICLE 1.
Duties of the Advisor
The Corporation hereby employs the Advisor to act as the investment
advisor to, and manager of, the Fund and to manage the investment and
reinvestment of the assets of the Fund and to administer its affairs, subject to
the supervision of the Board of Directors of the Corporation, on the terms and
conditions set forth in this Agreement and the statements relating to the Fund's
investment objective, investment policies and investment restrictions as the
same are set forth in the currently effective prospectus of the Fund (the
"Prospectus"). The Advisor hereby accepts such employment and agrees during such
period, at its own expense, to render the services and to assume the obligations
herein set forth for the compensation provided for herein.
<PAGE>
The Advisor shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
(a) Investment Advisory Services. In acting as investment advisor to the
Fund, the Advisor shall regularly provide the Fund with such investment
research, advice and supervision as the latter may from time to time consider
necessary for the proper supervision of the Fund and shall furnish continuously
an investment program and shall determine from time to time what securities
shall be purchased, sold or exchanged and what portion of the assets of the Fund
shall be held in the various securities in which it may invest, subject to the
restrictions set forth in the Corporation's Articles of Incorporation and
By-Laws, as amended from time to time, the Articles Supplementary, the
provisions of the Investment Company Act, and the statements relating to the
Fund's investment objectives, investment policies and investment restrictions as
the same are set forth in the Prospectus. Should the Board of Directors of the
Corporation at any time, however, make any definite determinations as to
investment policy and notify the Advisor thereof, the Advisor shall be bound by
such determination for the period, if any, specified in such notice or until
similarly notified that such determination has been revoked. The Advisor shall
take, on behalf of the Fund, all actions which it deems necessary to implement
the investment policies, as such policies relate to the Advisor, determined as
provided above, and in particular to place all orders for the purchase or sale
of securities for the Fund with brokers or dealers selected by it. In connection
with the selection of such brokers or dealers and the placing of such orders,
except as otherwise expressly set forth herein, the Advisor is directed at all
times to seek to obtain for the Fund the most favorable net results for the Fund
as determined by the Board of Directors and set forth in the Prospectus. Subject
to this requirement and the provisions of the Investment Company Act, the
Securities Exchange Act of 1934 (the "1934 Act"), and other applicable
provisions of law, nothing shall prohibit the Advisor from selecting brokers or
dealers with which it or the Fund is affiliated, including, without limitation,
Rupay-Barrington Securities, Inc. This determination may be viewed in terms of
either that particular transaction or the overall responsibilities which the
Advisor and its affiliates have with respect to accounts over which they
exercise investment discretion. The Board of Directors of the Corporation shall
periodically review the commissions paid by the Fund to determine if the
commissions paid over representative periods of time were reasonable in relation
to the benefits to the Fund.
(b) Brokerage. Subject to the approval of the Board of Directors, the
Advisor, in carrying out its duties under Paragraph 1(a), may cause the
Corporation, with respect to the Fund, to pay a broker-dealer which furnishes
brokerage or research services (as such services are defined under Section 28(e)
of the 1934 Act, a higher commission than that which might be charged by another
broker-dealer which does not furnish brokerage or research services or which
furnishes brokerage or research services deemed to be of lesser value, if such
commission is deemed reasonable in relation to the brokerage and research
services provided by the broker-dealer, viewed in terms of either that
particular transaction or the overall responsibilities of the Advisor with
respect to the accounts as to which it exercises investment discretion (as such
term is defined under Section 3(a)(35) of the 1934 Act). This determination may
be viewed in terms of either that particular transaction or the overall
responsibilities which the Advisor and its affiliates have with respect to
accounts over which they exercise investment discretion.
<PAGE>
(c) Advisor's Use of the Services of Others. The Advisor may (at its cost)
employ, retain or otherwise avail itself of the services or facilities of other
persons or organizations for the purpose of providing the Advisor or the
Corporation or the Fund, as appropriate, with such statistical and other factual
information, such advice regarding economic factors and trends, such advice as
to occasional transactions in specific securities or such other information,
advice or assistance as the Advisor may deem necessary, appropriate or
convenient for the discharge of its obligations hereunder or otherwise helpful
to the Corporation or the Fund, as appropriate, or in the discharge of the
Advisor's overall responsibilities with respect to the other accounts which it
serves as investment advisor.
(d) Ownership of Records. All records required to be maintained and
preserved by the Corporation or the Fund pursuant to the provisions of rules or
regulations of the Securities and Exchange Commission under Section 31(a) of the
Securities Act of 1933, as amended, and maintained and preserved by the Advisor
on behalf of the Corporation or the Fund, as appropriate, are the property of
the Corporation or the Fund, as appropriate, and will be surrendered by the
Advisor promptly on request by the Corporation or the Fund, as appropriate.
(e) Reports to the Advisor. The Corporation or the Fund, as appropriate,
shall furnish or otherwise make available to the Advisor such prospectuses,
financial statements, proxy statements, reports, and other information relating
to the business and affairs of the Corporation or the Fund, as appropriate, as
the Advisor may, at any time or from time to time, reasonably require in order
to discharge its obligations under this Agreement.
(f) Administrative Services. In addition to the performance of investment
advisory services, the Advisor shall perform, or supervise the performance of,
administrative services in connection with the management of the Fund. In this
connection, the Advisor agrees to: (i) assist in supervising all aspects of the
Fund's operations, including the co-ordination of all matters relating to the
functions of the Corporation's custodian, transfer agent, administrative and
accounting servicer, other shareholder service agents, accountants, attorneys
and other parties performing services or operational functions for the Fund or
the Corporation; (ii) maintain the corporate existence and records of the
Corporation; (iii) provide the Fund, at the Advisor's expense, with services of
persons competent to perform such administrative and clerical functions as are
necessary in order to provide effective administration of the Fund, including
duties in connection with shareholder relations, redemption requests and account
adjustments and the maintenance of certain books and records of the Fund; (iv)
prepare all general shareholder communications, including shareholder reports
for the Fund; (v) during such times as shares are publicly offered, maintain the
registration and qualification of the Fund Shares under federal and state law;
(vi) provide the Fund, at the Advisor's expense, with adequate office space and
related services necessary for its operations as contemplated in this Agreement;
(vii) investigate the development of and develop and implement, if appropriate,
management and shareholder services designed to enhance the value or convenience
of the Fund as an investment vehicle; (viii) permit the Advisor's employees to
serve as officers, directors and committee members of the Corporation, without
cost to the Corporation; and (ix) reimburse the Fund for any loss incurred as a
result of the Fund's receipt of NSF checks from investors if said funds cannot
be recovered from the investors.
<PAGE>
ARTICLE 2.
Compensation of the Advisor
(a) Investment Advisory Fee. For the services rendered hereunder, the Fund
shall pay to the Advisor monthly on the first business day of the next
succeeding calendar month a fee based upon the average daily value of the
aggregate net assets of the Fund, as determined and computed in accordance with
the description of the method of determination of net asset value contained in
the Prospectus, at the annual rate of 0.80% of the average daily value of the
aggregate net assets of the Fund, less the amounts described below.
The Advisor shall pay, from the investment advisory fee as calculated
in the manner described above, certain expenses, the amount of which expenses
shall be determined in accordance with the provisions set forth in paragraphs
(b) and (c) below.
(b) Expenses. The Fund assumes and shall pay all expenses of the operation
of the Fund, unless any of such expenses are specifically assumed by The
Rupay-Barrington Financial Group, Inc. ("RPFG") pursuant to that certain
agreement between the Fund and RPFG or assumed by the Advisor, including,
without limitation: costs relating to the organization of the Fund, insurance,
taxes, expenses for legal and auditing services, costs of printing proxies,
stock certificates, shareholder reports and prospectuses (except to the extent
paid by the Distributor, Rupay-Barrington Securities, Inc.), charges of the
Custodian, Transfer Agent and the Administrative and Accounting Services,
expenses of redemption of shares, expenses and fees associated with registering
the shares under Federal and state securities laws, fees and expenses of
directors who are not affiliated persons of RPFG or its subsidiaries, accounting
and pricing costs (including the daily calculation of net asset value),
interest, brokerage costs, litigation and other extraordinary or non-recurring
expenses, and any other expenses properly payable by the Fund or the
Corporation.
(c) Expense Limitations. In the event the operating expenses of the Fund,
including the investment advisory fee payable to the Advisor for any fiscal year
ending on a date on which this Agreement is in effect exceed, after payment to
RPFG of amounts due under that certain agreement referenced in paragraph (b)
hereof, the expense limitations under state securities laws or regulations
thereunder, as such limitations may be raised or lowered from time to time, the
Advisor shall reduce its investment advisory fee by the extent of such excess
and, if required under any such laws or regulations, will reimburse the Fund in
the amount of such excess; provided, however, to the extent permitted by law,
the Advisor shall be reimbursed for any such excess payments made to the Fund in
subsequent years. For purposes of determining whether the Fund is entitled to
reimbursement, the expenses of the Fund are calculated on a monthly basis, and
the Fund's distribution plan expenses are excluded. Whenever the expenses of the
Fund exceed the applicable annual expense limitations, the estimated amounts of
reimbursement under such limitations shall be applicable as an offset against
the monthly payment of the advisory fee due to the Advisor.
<PAGE>
ARTICLE 3.
Limitation of Liability of the Advisor
The Advisor and its directors, officers or employees shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with any investment policy or the purchase, sale or redemption of
any securities on the recommendation of the Advisor. Nothing herein contained
shall be construed to protect the Advisor against any liability to the Fund or
its security holders to which the Advisor shall otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence in the performance of its
duties on behalf of the Fund, reckless disregard of the Advisor's obligations
and duties under this Agreement or the violation of any applicable law.
ARTICLE 4.
Activities of the Advisor
The services of the Advisor under this Agreement are not to be deemed
exclusive, and the Advisor shall be free to render similar services to others so
long as its services hereunder are not impaired thereby. It is understood that
directors, officers, employees and shareholders of the Fund have, or may
acquire, interests in the Advisor, as directors, officers, employees or
shareholders or otherwise and that directors, officers, employees or
shareholders of the Advisor have, or may acquire, similar interests in the Fund,
and that the Advisor has, or may acquire, interests in the Fund as a shareholder
or otherwise.
ARTICLE 5.
Duration and Termination of this Agreement
This Agreement shall become effective as of the date first above written
and, unless sooner terminated as hereinafter provided, shall remain in force
until December 31, 1999 and thereafter shall continue in effect from year to
year, but only so long as such continuance is specifically approved at least
annually by: (a) the Board of Directors of the Corporation or by vote of a
majority of the outstanding voting securities of the Fund and, concurrently with
such approval by the Board of Directors or prior to such approval by the holders
of the outstanding voting securities of the Fund, as the case may be, by the
vote, cast in person at a meeting called for the purpose of voting on such
approval, of a majority of the directors of the Corporation, with respect to the
Fund, who are not parties to this Agreement or interested persons of any such
party; and (b) the Advisor shall not have notified the Corporation, in writing,
at least 60 days prior to December 31, 1999 or prior to December 31st of any
year thereafter, that it does not desire such continuation. The Advisor shall
furnish to the Corporation, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
This Agreement may be terminated by either party hereto, without the
payment of any penalty, on sixty days' prior written notice to the other party;
provided, that in the case of termination by the Corporation, with respect to
the Fund, such action shall have been authorized
<PAGE>
by resolution of a majority of the directors of the Corporation who are not
parties to this Agreement or interested persons of any such party, or by a vote
of a majority of the outstanding voting security of the Fund. This Agreement
shall automatically terminate in the event of its assignment.
ARTICLE 6.
Definitions
The terms "assignment," "affiliated person" and "interested person," when
used in this Agreement, shall have the respective meanings specified in the
Investment Company Act. As used with respect to the Corporation or any of its
Funds, the term "majority of the outstanding voting securities" means the lesser
of: (i) 67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented; or (ii) more than 50% of the outstanding
voting securities.
ARTICLE 7.
Amendments of this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by: (i) the Board of Directors of the Corporation, or by
the vote of a majority of outstanding shares of the Fund; and (ii) a majority of
those directors of the Corporation who are not parties to this Agreement or
interested persons of any such party cast in person at a meeting called for the
purpose of voting on such approval.
ARTICLE 8.
Notices
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given: (i) when mailed by
registered or certified mail, return receipt requested, postage prepaid; (ii)
when telecopies, provided that a copy of such notice is mailed by registered or
certified mail, return receipt requested, postage prepaid, within one business
day following transmission of the telecopy; or (iii) when hand delivered to the
party to whom it is to be given at the address of such party set forth below, as
follows:
If to the Fund: Rupay-Barrington Total Return Fund, Inc.
1000 Ballpark Way
Suite 302
Arlington, TX 76011
If to the Advisor:Rupay-Barrington Advisors, Inc.
3551 S. Monaco Parkway, #116
Denver, CO 80237
<PAGE>
ARTICLE 9.
Governing Law
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of Texas as at the time in effect and the
applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of Texas or any of the provisions herein, conflict
with the applicable provisions of the Investment Company Act, the latter shall
control.
ARTICLE 10.
Miscellaneous
(a) Captions. The captions in this Agreement are included for convenience
of reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
(b) Interpretation. Nothing herein contained shall be deemed to require
the Corporation to take any action contrary to its Articles of Incorporation or
By-Laws, or any applicable statutory or regulatory requirement to which it is
subject or by which it is bound, or to relieve or deprive the Board of Directors
of the Corporation of its responsibility for and control of the conduct of the
affairs of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers and their respective corporate
seals to be hereunto duly affixed and attested.
RUPAY-BARRINGTON TOTAL RETURN
FUND, INC.
By:
--------------------------------
Attest: Authorized Signatory
- -----------------------------
Secretary
RUPAY-BARRINGTON ADVISORS, INC.
By:
--------------------------------
Attest: Authorized Signatory
- -----------------------------
Secretary
<PAGE>
Exhibit 5(e)
INVESTMENT ADVISORY AGREEMENT
This AGREEMENT made this ___ day of _____ 1998, by
and between Rupay-Barrington Total Return Fund, Inc. a Maryland corporation (the
"Corporation"), and Rupay-Barrington Advisors, Inc., a Nevada corporation (the
"Advisor").
W I T N E S S E T H:
WHEREAS, the Corporation was formed to engage in business as a diversified
open-end series company and registered management investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act");
WHEREAS, the Corporation is authorized to issue shares of capital stock of
the Corporation ("Shares") in the Rupay-Barrington Value Equity Fund (the
"Fund"), a separate series of the Corporation, the shares of which represent
interests in a separate portfolio of securities and other assets ("Fund
Shares");
WHEREAS, the Advisor is engaged principally in the business of rendering
advisory services and is registered as an investment advisor under the
Investment Advisors Act of 1940, as amended;
WHEREAS, the Corporation desires to retain the Advisor to render investment
supervisory and corporate administrative services to the Fund in the manner and
on the terms hereinafter set forth; and
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the parties hereby agree as follows:
ARTICLE 1.
Duties of the Advisor
The Corporation hereby employs the Advisor to act as the investment advisor
to, and manager of, the Fund and to manage the investment and reinvestment of
the assets of the Fund and to administer its affairs, subject to the supervision
of the Board of Directors of the Corporation, on the terms and conditions set
forth in this Agreement and the statements relating to the Fund's investment
objective, investment policies and investment restrictions as the same are set
forth in the currently effective prospectus of the Fund (the "Prospectus"). The
Advisor hereby accepts such employment and agrees during such period, at its own
expense, to render the services and to assume the obligations herein set forth
for the compensation provided for herein.
<PAGE>
The Advisor shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
(a) Investment Advisory Services. In acting as investment advisor to the
Fund, the Advisor shall regularly provide the Fund with such investment
research, advice and supervision as the latter may from time to time consider
necessary for the proper supervision of the Fund and shall furnish continuously
an investment program and shall determine from time to time what securities
shall be purchased, sold or exchanged and what portion of the assets of the Fund
shall be held in the various securities in which it may invest, subject to the
restrictions set forth in the Corporation's Articles of Incorporation and
By-Laws, as amended from time to time, the Articles Supplementary, the
provisions of the Investment Company Act, and the statements relating to the
Fund's investment objectives, investment policies and investment restrictions as
the same are set forth in the Prospectus. Should the Board of Directors of the
Corporation at any time, however, make any definite determinations as to
investment policy and notify the Advisor thereof, the Advisor shall be bound by
such determination for the period, if any, specified in such notice or until
similarly notified that such determination has been revoked. The Advisor shall
take, on behalf of the Fund, all actions which it deems necessary to implement
the investment policies, as such policies relate to the Advisor, determined as
provided above, and in particular to place all orders for the purchase or sale
of securities for the Fund with brokers or dealers selected by it. In connection
with the selection of such brokers or dealers and the placing of such orders,
except as otherwise expressly set forth herein, the Advisor is directed at all
times to seek to obtain for the Fund the most favorable net results for the Fund
as determined by the Board of Directors and set forth in the Prospectus. Subject
to this requirement and the provisions of the Investment Company Act, the
Securities Exchange Act of 1934, as amended, (the "1934 Act"), and other
applicable provisions of law, nothing shall prohibit the Advisor from selecting
brokers or dealers with which it or the Fund is affiliated, including, without
limitation, Rupay-Barrington Securities, Inc. This determination may be viewed
in terms of either that particular transaction or the overall responsibilities
which the Advisor and its affiliates have with respect to accounts over which
they exercise investment discretion. The Board of Directors of the Corporation
shall periodically review the commissions paid by the Fund to determine if the
commissions paid over representative periods of time were reasonable in relation
to the benefits to the Fund.
(b) Brokerage. Subject to the approval of the Board of Directors, the
Advisor, in carrying out its duties under Paragraph 1(a), may cause the
Corporation, with respect to the Fund, to pay a broker-dealer which furnishes
brokerage or research services (as such services are defined under Section 28(e)
of the 1934 Act, a higher commission than that which might be charged by another
broker-dealer which does not furnish brokerage or research services or which
furnishes brokerage or research services deemed to be of lesser value, if such
commission is deemed reasonable in relation to the brokerage and research
services provided by the broker-dealer, viewed in terms of either that
particular transaction or the overall responsibilities of the Advisor with
respect to the accounts as to which it exercises investment discretion (as such
term is defined under Section 3(a)(35) of the 1934 Act). This determination may
be viewed in terms of either that particular transaction or the overall
responsibilities which the Advisor and its affiliates have with respect to
accounts over which they exercise investment discretion.
<PAGE>
(c) Advisor's Use of the Services of Others. The Advisor may (at its cost)
employ, retain or otherwise avail itself of the services or facilities of other
persons or organizations for the purpose of providing the Advisor or the
Corporation or the Fund, as appropriate, with such statistical and other factual
information, such advice regarding economic factors and trends, such advice as
to occasional transactions in specific securities or such other information,
advice or assistance as the Advisor may deem necessary, appropriate or
convenient for the discharge of its obligations hereunder or otherwise helpful
to the Corporation or the Fund, as appropriate, or in the discharge of the
Advisor's overall responsibilities with respect to the other accounts which it
serves as investment advisor.
(d) Ownership of Records. All records required to be maintained and
preserved by the Corporation or the Fund pursuant to the provisions of rules or
regulations of the Securities and Exchange Commission under Section 31(a) of the
Securities Act of 1933 and maintained and preserved by the Advisor on behalf of
the Corporation or the Fund, as appropriate, are the property of the Corporation
or the Fund, as appropriate, and will be surrendered by the Advisor promptly on
request by the Corporation or the Fund, as appropriate.
(e) Reports to the Advisor. The Corporation or the Fund, as
appropriate, shall furnish or otherwise make available to the Advisor such
prospectuses, financial statements, proxy statements, reports, and other
information relating to the business and affairs of the Corporation or the Fund,
as appropriate, as the Advisor may, at any time or from time to time, reasonably
require in order to discharge its obligations under this Agreement.
(f) Administrative Services. In addition to the performance of investment
advisory services, the Advisor shall perform, or supervise the performance of,
administrative services in connection with the management of the Fund. In this
connection, the Advisor agrees to: (i) assist in supervising all aspects of the
Fund's operations, including the co-ordination of all matters relating to the
functions of the Corporation's custodian, transfer agent, administrative and
accounting servicer, other shareholder service agents, accountants, attorneys
and other parties performing services or operational functions for the Fund or
the Corporation; (ii) maintain the corporate existence and records of the
Corporation; (iii) provide the Fund, at the Advisor's expense, with services of
persons competent to perform such administrative and clerical functions as are
necessary in order to provide effective administration of the Fund, including
duties in connection with shareholder relations, redemption requests and account
adjustments and the maintenance of certain books and records of the Fund; (iv)
prepare all general shareholder communications, including shareholder reports
for the Fund; (v) during such times as shares are publicly offered, maintain the
registration and qualification of the Fund Shares under federal and state law;
(vi) provide the Fund, at the Advisor's expense, with adequate office space and
related services necessary for its operations as contemplated in this Agreement;
(vii) investigate the development of and develop and implement, if appropriate,
management and shareholder services designed to enhance the value or convenience
of the Fund as an investment vehicle; (viii) permit the Advisor's employees to
serve as officers, directors and committee members of the Corporation, without
cost to the Corporation; and (ix) reimburse the Fund for any loss incurred as a
result of the Fund's receipt of NSF checks from investors if said funds cannot
be recovered from the investors.
<PAGE>
ARTICLE 2.
Compensation of the Advisor
(a) Investment Advisory Fee. For the services rendered hereunder, the
Fund shall pay to the Advisor monthly on the first business day of the next
succeeding calendar month a fee based upon the average daily value of the
aggregate net assets of the Fund, as determined and computed in accordance with
the description of the method of determination of net asset value contained in
the Prospectus, at the annual rate of 0.80% of the average daily value of the
aggregate net assets of the Fund, less the amounts described below.
The Advisor shall pay, from the investment advisory fee as
calculated in the manner described above, certain expenses, the amount of which
expenses shall be determined in accordance with the provisions set forth in
paragraphs (b) and (c) below.
(b) Expenses. The Fund assumes and shall pay all expenses of the
operation of the Fund, unless any of such expenses are specifically assumed by
The Rupay-Barrington Financial Group, Inc. ("RPFG") pursuant to that certain
agreement between the Fund and RPFG or assumed by the Advisor, including,
without limitation: costs relating to the organization of the Fund, insurance,
taxes, expenses for legal and auditing services, costs of printing proxies,
stock certificates, shareholder reports and prospectuses (except to the extent
paid by the Distributor, Rupay-Barrington Securities, Inc.), charges of the
Custodian, Transfer Agent and the Administrative and Accounting Services,
expenses of redemption of shares, expenses and fees associated with registering
the shares under Federal and state securities laws, fees and expenses of
directors who are not affiliated persons of RPFG or its subsidiaries, accounting
and pricing costs (including the daily calculation of net asset value),
interest, brokerage costs, litigation and other extraordinary or non-recurring
expenses, and any other expenses properly payable by the Fund or the
Corporation.
(c) Expense Limitations. In the event the operating expenses of the Fund,
including the investment advisory fee payable to the Advisor for any fiscal year
ending on a date on which this Agreement is in effect exceed, after payment to
RPFG of amounts due under that certain agreement referenced in paragraph (b)
hereof, the expense limitations under state securities laws or regulations
thereunder, as such limitations may be raised or lowered from time to time, the
Advisor shall reduce its investment advisory fee by the extent of such excess
and, if required under any such laws or regulations, will reimburse the Fund in
the amount of such excess; provided, however, to the extent permitted by law,
the Advisor shall be reimbursed for any such excess payments made to the Fund in
subsequent years. For purposes of determining whether the Fund is entitled to
reimbursement, the expenses of the Fund are calculated on a monthly basis, and
the Fund's distribution plan expenses are excluded. Whenever the expenses of the
Fund exceed the applicable annual expense limitations, the estimated amounts of
reimbursement under such limitations shall be applicable as an offset against
the monthly payment of the advisory fee due to the Advisor.
<PAGE>
ARTICLE 3.
Limitation of Liability of the Advisor
The Advisor and its directors, officers or employees shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with any investment policy or the purchase, sale or redemption of
any securities on the recommendation of the Advisor. Nothing herein contained
shall be construed to protect the Advisor against any liability to the Fund or
its security holders to which the Advisor shall otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence in the performance of its
duties on behalf of the Fund, reckless disregard of the Advisor's obligations
and duties under this Agreement or the violation of any applicable law.
ARTICLE 4.
Activities of the Advisor
The services of the Advisor under this Agreement are not to be deemed
exclusive, and the Advisor shall be free to render similar services to others so
long as its services hereunder are not impaired thereby. It is understood that
directors, officers, employees and shareholders of the Fund have, or may
acquire, interests in the Advisor, as directors, officers, employees or
shareholders or otherwise and that directors, officers, employees or
shareholders of the Advisor have, or may acquire, similar interests in the Fund,
and that the Advisor has, or may acquire, interests in the Fund as a shareholder
or otherwise.
ARTICLE 5.
Duration and Termination of this Agreement
This Agreement shall become effective as of the date first above written
and, unless sooner terminated as hereinafter provided, shall remain in force
until December 31, 1999 and thereafter shall continue in effect from year to
year, but only so long as such continuance is specifically approved at least
annually by: (a) the Board of Directors of the Corporation or by vote of a
majority of the outstanding voting securities of the Fund and, concurrently with
such approval by the Board of Directors or prior to such approval by the holders
of the outstanding voting securities of the Fund, as the case may be, by the
vote, cast in person at a meeting called for the purpose of voting on such
approval, of a majority of the directors of the Corporation, with respect to the
Fund, who are not parties to this Agreement or interested persons of any such
party; and (b) the Advisor shall not have notified the Corporation, in writing,
at least 60 days prior to December 31, 1999 or prior to December 31st of any
year thereafter, that it does not desire such continuation. The Advisor shall
furnish to the Corporation, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
This Agreement may be terminated by either party hereto, without the
payment of any penalty, on sixty days' prior written notice to the other party;
provided, that in the case of termination by the Corporation, with respect to
the Fund, such action shall have been authorized
<PAGE>
by resolution of a majority of the directors of the Corporation who are not
parties to this Agreement or interested persons of any such party, or by a vote
of a majority of the outstanding voting security of the Fund. This Agreement
shall automatically terminate in the event of its assignment.
ARTICLE 6.
Definitions
The terms "assignment," "affiliated person" and "interested person," when
used in this Agreement, shall have the respective meanings specified in the
Investment Company Act. As used with respect to the Corporation or any of its
Funds, the term "majority of the outstanding voting securities" means the lesser
of: (i) 67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented; or (ii) more than 50% of the outstanding
voting securities.
ARTICLE 7.
Amendments of this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by: (i) the Board of Directors of the Corporation, or by
the vote of a majority of outstanding shares of the Fund; and (ii) a majority of
those directors of the Corporation who are not parties to this Agreement or
interested persons of any such party cast in person at a meeting called for the
purpose of voting on such approval.
ARTICLE 8.
Notices
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given: (i) when mailed by
registered or certified mail, return receipt requested, postage prepaid; (ii)
when telecopied, provided that a copy of such notice is mailed by registered or
certified mail, return receipt requested, postage prepaid, within one business
day following transmission of the telecopy; or (iii) when hand delivered to the
party to whom it is to be given at the address of such party set forth below, as
follows:
If to the Fund: Rupay-Barrington Total Return Fund, Inc.
1000 Ballpark Way
Suite 302
Arlington, TX 76011
If to the Advisor: Rupay-Barrington Advisors, Inc.
3551 S. Monaco Parkway, #116
Denver, CO 80237
<PAGE>
ARTICLE 9.
Governing Law
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of Texas as at the time in effect and the
applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of Texas or any of the provisions herein, conflict
with the applicable provisions of the Investment Company Act, the latter shall
control.
ARTICLE 10.
Miscellaneous
(a) Captions. The captions in this Agreement are
included for convenience of reference only and in no way define or delineate any
of the provisions hereof or otherwise affect their construction or effect.
(b) Interpretation. Nothing herein contained shall be deemed to require
the Corporation to take any action contrary to its Articles of Incorporation or
By-Laws, as amended from time to time, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve or
deprive the Board of Directors of the Corporation of its responsibility for and
control of the conduct of the affairs of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers and their respective corporate
seals to be hereunto duly affixed and attested.
RUPAY-BARRINGTON TOTAL RETURN
FUND, INC.
By:
-----------------------------------------
Attest: Authorized Signatory
- -------------------------------
Secretary
RUPAY-BARRINGTON ADVISORS, INC.
By:
---------------------------------------------
Attest: Authorized Signatory
- -------------------------------------------------
Secretary
<PAGE>
Exhibit 6(c)
AMENDMENT TO DISTRIBUTION AGREEMENT
THIS AMENDMENT TO DISTRIBUTION AGREEMENT is made and entered into this
____ day of ________, 1998, for the purpose of amending that certain
Distribution Agreement by and among Rupay-Barrington Total Return Fund, Inc.,
f/k/a Valley Forge Capital Holdings Total Return Fund, Inc., a Maryland
corporation (the "Corporation") and Rupay-Barrington Securities Corporation,
f/k/a Valley Forge Distributors, Inc., a Nevada corporation (the "Distributor").
WHEREAS, effective November 29, 1997, the Corporation changed its legal
name from "Valley Forge Capital Holdings Total Return Fund, Inc." to its current
legal name of "Rupay-Barrington Total Return Fund, Inc.";
WHEREAS, effective June 9, 1997, the Distributor changed its legal name
from "Valley Forge Distributors, Inc." to its current legal name of
"Rupay-Barrington Securities Corporation";
WHEREAS, the Corporation has filed Articles Supplementary with the State
Department of Assessments and Taxation of Maryland to classify and reclassify
the shares of capital stock of the Corporation (the "Shares") as follows: all
unissued Shares being classified into a number of series and all issued and
outstanding Shares being reclassified into a series (each series being referred
to herein as a "Series"); and
WHEREAS, the Corporation and the Distributor now wish to amend the
Distribution Agreement to reflect the name changes and the Series.
NOW, THEREFORE, the parties agree to amend the Distribution Agreement as
follows:
In all places where the name "Valley Forge Capital Holdings Total Return
Fund, Inc." appears in the Distribution Agreement, the name "Rupay-Barrington
Total Return Fund, Inc." shall be substituted and in all places where
Rupay-Barrington Total Return Fund, Inc. is referred to as the "Fund", the
designation "Corporation" shall be substituted.
In all places where the name "Valley Forge Distributors, Inc." appears in
the Distribution Agreement, the name "Rupay-Barrington Securities Corporation"
shall be substituted.
Section 1 of the Distribution Agreement is hereby amended and restated in
its entirety to read as follows:
Solicitation of Shares. The Distributor shall be the principal underwriter
of the shares of the Corporation in any and all series into which such shares
are or may be classified (the shares in any and all series being referred to
herein as the "Shares") with such duties as hereinafter stated. The Distributor
agrees to use its best efforts to bring about and maintain a broad distribution
of the Corporation's Shares among bona fide investors.
Section 9 of the Distribution Agreement is hereby amended and restated in
its entirety as follows:
Notice. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given
when: (i) mailed by regular or certified mail, return receipt requested,
postage prepaid; (ii) telecopied, provided that a copy of such notice is
mailed by registered mail or certified mail, return receipt requested,
postage prepaid, within one business day following transmission of the
<PAGE>
telecopy; or (iii) hand-delivered to the party to whom it is to be given,
at the address of such party set forth below, as follows:
If to the Corporation: Rupay-Barrington Total Return Fund, Inc.
1000 Ballpark Way, Suite 302
Arlington, Texas 76011
If to the Distributor: Rupay-Barrington Securities Corporation
1000 Ballpark Way, Suite 207-A
Arlington, Texas 76011
IN WITNESS WHEREOF, the parties hereto have executed this Distribution
Amendment as of the date first above written.
RUPAY-BARRINGTON TOTAL RETURN FUND, INC.
By:_________________________
Name:
Its:
RUPAY-BARRINGTON SECURITIES CORPORATION
By:_________________________
Name:
Its:
<PAGE>
Exhibit 6(d)
DEALER AGREEMENT
for the sale of
Rupay-Barrington Financial Group, Inc.
Family of Funds
RUPAY-BARRINGTON SECURITIES CORPORATION
1000 Ballpark Way
Suite 207A
Arlington, TX 76011
Phone: (800) 469-7220
Selected Dealer Agreement between Rupay-Barrington Securities Corporation
("RBSC") and _______________________________________________________
("Dealer")
WHEREAS, RBSC is the principal underwriter for the shares of common
stock (the "Shares") of each of the diversified series (as set forth on the
attached Schedules which shall be updated from time to time and collectively
referred to as "Fund(s)") of Rupay-Barrington Total Return Fund, Inc. (the
"Company"), a diversified, open-end investment company registered with the
Securities and Exchange Commission under the Investment Company Act of 1940,
sponsored by The Rupay-Barrington Financial Group, Inc. We have been given the
exclusive right to purchase the Shares from the Fund(s), for sale throughout the
United States. Shares of the Fund(s) will be or are offered for sale to the
public in unlimited amounts.
APPOINTMENT. We hereby offer to appoint you as a non-exclusive distributor for
the sale of the Shares in those states and jurisdictions of the United States in
which you and the Shares are currently qualified for sale. A list of the
proposed states and jurisdictions in which the Shares will be qualified for sale
is set forth in the attached Schedule(s) applicable to the Fund(s) the Dealer
will offer to sell shares. The final list of states and jurisdictions will be
provided to you prior to the sale or offer for sale of any Shares of the
Fund(s).
SALE OF SHARES. Subject to applicable legal restrictions, you agree to use your
best efforts to solicit investors for orders to purchase the Shares. In all
sales of the Shares made by you, you shall act as Dealer with respect to
investors and in no transaction shall you have any authority to act as agent of
the Fund(s) or of us, and nothing in this Agreement shall constitute either you
or us the agent of the other or shall constitute you or the Fund(s) the agent of
the other. You agree to sell only those Shares for which you place orders with
us, and to purchase Shares from no person other than us.
No person is authorized to make any representation concerning the Fund(s)
or the Shares except those contained in the then effective prospectus of a Fund
(the "Prospectus"). For each Fund, we shall provide you with copies of the
Prospectus, Reports to Shareholders and available printed information in
reasonable quantities upon request.
You shall solicit orders for the Shares only at prices calculated as
described in the Prospectus.
ORDERS, CONFIRMATIONS AND PAYMENT FOR SHARES. Orders submitted by you shall be
accepted by us only at the public offering price applicable to each order
determined as described in the Prospectus for each Fund. All orders are subject
to acceptance by us and we reserve the right in our sole
discretion to reject any order. Dealer will not purchase Shares from the
Fund(s) except to cover purchase orders already received.
You may place orders with us by telephone, at our office in Arlington,
Texas, phone (800) 469-7220 or (817) 469-7200. You will notify us each day of
orders you receive prior to the close of the New York Stock Exchange, furnishing
the investor's state of residence, and the gross amount of each order received
or the number of Shares being purchased. You will make payment to us, c/o our
transfer agent, FSI at P.O. Box 26305, Richmond, VA 23260-6305, for the full
amount of the investment, within 3 business days of placing the order. You may
additionally call 1-800-797-6706 to verify price, shares, concessions, etc. (If
such payment is not to received, we reserve the right without notice to cancel
the sale, and we may hold you responsible for any loss, including loss of
profit, suffered by us or by the Fund(s) resulting from your failure to make
such payment.) We will mail to you duplicate copies of a confirmation showing
the number of Shares of a Fund purchased, the price per Share, the gross amount
of each order, and your concession. After receipt of your payment for the order,
we will send a "Statement of Account" to the investors. The Shares will not be
certificated.
Orders may also be placed directly with us by mailing Account Application
Forms and checks to us, c/o our custodian and transfer agent, FSI at P.O. Box
26305, Richmond, VA 23260-6305, as described in the purchase application form in
the Prospectus for each Fund. The check accompanying the order must be for the
full amount of the investment.
If any Shares sold under the terms of this Agreement are repurchased or
redeemed by a Fund within seven (7) business days after the date of our
confirmation, it is agreed that you shall forthwith refund to us the full
concession allowed to you on such sale. Upon receipt, we will pay your refund to
that Fund.
All sales are made subject to receipt of Shares by the Fund(s). We reserve
the right in our discretion, without notice, to suspend their sales of Shares or
withdraw the offering of Shares entirely.
SALES CONCESSION. A purchase order will be filled at an offering price which
will include the sales commission, out of which will be allowed a dealer
concession set forth on the Schedule applicable to the Fund(s) in which Dealer
will offer to sell shares.
APPLICABLE LAWS. You agree to comply with all applicable United States federal
and state laws and rules, as well as the rules and regulations of all authorized
agencies having jurisdiction. Each of us hereby represents and agrees that each
of us is and will continue to be during the life of this Agreement a
member of the National Association of Securities Dealers, Inc.
RECORDS. You agree to maintain records of all sales of Shares made through you
and to furnish us with copies of such records on request.
TERMINATION. This Agreement [and its attached Schedule(s)] may be terminated by
either party, at any time, upon written notice.
NOTICES AND COMMUNICATIONS. All communications to us shall be sent to the above
address. Any notice to you shall be duly given if mailed or telegraphed to you
at that address set forth below (or such other address of which you shall notify
us in writing).
<PAGE>
Signature Page
RUPAY-BARRINGTON SECURITIES CORPORATION
________________________________
The undersigned hereby accepts the offer contained in the above Agreement and
agrees to abide by the foregoing terms and conditions:
NAME OF DEALER _________________________________________
ADDRESS:_______________________________________________
CITY, STATE, ZIP:______________________________________
TELEPHONE NUMBER:______________________________________
By:___________________________________________________
(Name and Title of Principal - Please Print)
_____________________________________________________
(Signature)
Date:______________________________________________
<PAGE>
SCHEDULE A-1
- -------------------------------------------------------------------
Rupay-Barrington Total Return Fund, Inc. has made blue sky filings in the
following states:
California
Colorado
Washington, DC
Florida
Michigan
New Jersey
New York
Ohio
Texas
IF YOU INTEND TO MAKE SALES IN ANY OF THE STATES NOT LISTED ABOVE, PLEASE LET US
KNOW. States will be added as deemed necessary by Rupay-Barrington Securities
Corporation, and as requested by selling group members. Please contact RBSC at
(800) 469-7220 for the most updated listing.
updated 4/98
<PAGE>
SCHEDULE A
This Schedule reflects the "dealer concession" as referenced in the "SALES
CONCESSION" section of the attached Agreement of which this Schedule is a part.
The following commission schedule is applicable to the Rupay-Barrington Total
Return Fund ("Fund"). A purchase order will be filled at an
offering price which will include the sales commission, out of which will
be allowed a dealer concession as follows:
Total Sales Dealer
On Individual Purchases Commission Concession
Less than $50,000 5.75% 5.00%
$50,000 but less than $100,000 5.00% 4.40%
$100,000 but less than $250,000 4.00% 3.50%
$250,000 but less than $500,000 3.00% 2.50%
$500,000 but less than $1,000,000 2.00% 1.75%
$1,000,000 but less than $2,000,000 none see below
The following commissions will be paid by Rupay-Barrington Securities
Corporation to dealers who initiate and are responsible for purchases of $1
million or more and for purchases made at net asset value by certain retirement
plans of organizations with collective retirement plan assets of $10 million or
more: 1.00% on sales of up to $2 million, plus 0.80% on sales of $2 million to
$3 million, plus 0.50% on sales of $3 million to $10 million, plus 0.25% on
sales of $10 million to $25 million, plus 0.15% on sales in excess of $25
million.
A sales commission equal to 4.00% of the offering price is applicable to
all purchases of Shares, regardless of amount, made for any qualified or
non-qualified employee benefit plan. Of the 4.00% sales commission applicable to
such purchases, 3.20% of the offering price will be reallowed to dealers.
Individual purchases are considered to include single sales to any "person"
as from time to time defined in the Act and the Rules and Regulations
thereunder. The above scale of reduced sales commission and dealer concession
may also be applied on a cumulative basis to subsequent sales where the dollar
amount of the subsequent sale, when added to the higher of the value (calculated
at current offering price) or the purchase price of other Shares of any of the
Fund then owned by the investor, is $50,000 or more.
Sales of Shares pursuant to a "Letter of Intent," as described in the
Prospectus, will be adjusted to the correct sales commission after the
expiration of the thirteen-month period. If it is necessary to charge your
customer additional commission based on the customer not meeting the
requirements of a "Letter of Intent" ("LOI"), then the Fund will involuntarily
redeem from escrow the number of Shares necessary to pay the additional sales
charge. You will be sent your proportionate share of the increased sales charge.
The amount of the total sales commission or the dealer concession or both may
be changed at any time. The undersigned Dealer hereby accepts the offer
contained in this Schedule:
DEALER RUPAY-BARRINGTON SECURITIES CORPORATION
By:________________________________ By:______________________________
Signature of Authorized Individual Signature of Authorized Individual
Name and Title of Principal - Please Print Name and Title of Principal
Date:
<PAGE>
SCHEDULE B
This Schedule reflects the "dealer concession" as referenced in the "SALES
CONCESSION" section of the attached Agreement of which this Schedule is a part.
The following commission schedule is applicable to the Rupay-Barrington Growth
Fund ("Fund"). A purchase order will be filled at an offering
price which will include the sales commission, out of which will be
allowed a dealer concession as follows:
Total Sales Dealer
On Individual Purchases Commission Concession
Less than $25,000 4.50% 3.75%
$25,000 but less than $250,000 3.00% 2.40%
$250,000 but less than $500,000 2.00% 1.55%
$500,000 but less than $1,000,000 1.00% 0.75%
$1,000,000 or more none see below
The following commissions will be paid by Rupay-Barrington Securities
Corporation to dealers who initiate and are responsible for purchases of $1
million or more and for purchases made at net asset value by certain retirement
plans of organizations with collective retirement plan assets of $10 million or
more: 1.00% on sales of up to $2 million, plus 0.80% on sales of $2 million to
$3 million, plus 0.50% on sales of $3 million to $10 million, plus 0.25% on
sales of $10 million to $25 million, plus 0.15% on sales in excess of $25
million.
A sales commission equal to 4.00% of the offering price (4.17% of the net
asset value) is applicable to all purchases of Shares, regardless of amount,
made for any qualified or non-qualified employee benefit plan. Of the 4.00%
sales commission applicable to such purchases, 3.20% of the offering price will
be reallowed to dealers.
Individual purchases are considered to include single sales to any "person"
as from time to time defined in the Act and the Rules and Regulations
thereunder. The above scale of reduced sales commission and dealer concession
may also be applied on a cumulative basis to subsequent sales where the dollar
amount of the subsequent sale, when added to the higher of the value (calculated
at current offering price) or the purchase price of other Shares of any of the
Fund then owned by the investor, is $25,000 or more.
Sales of Shares pursuant to a "Letter of Intent," as described in the
Prospectus, will be adjusted to the correct sales commission after the
expiration of the thirteen-month period. If it is necessary to charge your
customer additional commission based on the customer not meeting the
requirements of a "Letter of Intent" ("LOI"), then the Fund will involuntarily
redeem from escrow the number of Shares necessary to pay the additional sales
charge. You will be sent your proportionate share of the increased sales charge.
The amount of the total sales commission or the dealer concession or both may
be changed at any time. The undersigned Dealer hereby accepts the offer
contained in this Schedule:
DEALER RUPAY-BARRINGTON SECURITIES CORPORATION
By:________________________________ By:________________________________
Signature of Authorized Individual Signature of Authorized Individual
_________________________________________ ____________________________
Name and Title of Principal - Please Print Name and Title of Principal
Date:________________
<PAGE>
SCHEDULE C
This Schedule reflects the "dealer concession" as referenced in the "SALES
CONCESSION" section of the attached Agreement of which this Schedule is a part.
The following commission schedule is applicable to the Rupay-Barrington Value
Equity Fund ("Fund"). A purchase order will be filled at an
offering price which will include the sales commission, out of which will
be allowed a dealer concession as follows:
Total Sales Dealer
On Individual Purchases Commission Concession
Less than $25,000 4.50% 3.75%
$25,000 but less than $250,000 3.00% 2.40%
$250,000 but less than $500,000 2.00% 1.55%
$500,000 but less than $,000,000 1.00% 0.75%
$1,000,000 or more none see below
The following commissions will be paid by Rupay-Barrington Securities
Corporation to dealers who initiate and are responsible for purchases of $1
million or more and for purchases made at net asset value by certain retirement
plans of organizations with collective retirement plan assets of $10 million or
more: 1.00% on sales of up to $2 million, plus 0.80% on sales of $2 million to
$3 million, plus 0.50% on sales of $3 million to $10 million, plus 0.25% on
sales of $10 million to $25 million, plus 0.15% on sales in excess of $25
million.
A sales commission equal to 4.00% of the offering price (4.17% of the net asset
value) is applicable to all purchases of Shares, regardless of amount, made for
any qualified or non-qualified employee benefit plan. Of the 4.00% sales
commission applicable to such purchases, 3.20% of the offering price will be
reallowed to dealers.
Individual purchases are considered to include single sales to any "person"
as from time to time defined in the Act and the Rules and Regulations
thereunder. The above scale of reduced sales commission and dealer concession
may also be applied on a cumulative basis to subsequent sales where the dollar
amount of the subsequent sale, when added to the higher of the value
(calculated at current offering price) or the purchase price of other Shares of
any of the Fund then owned by the investor, is $25,000 or more.
Sales of Shares pursuant to a "Letter of Intent," as described in the
Prospectus, will be adjusted to the correct sales commission after the
expiration of the thirteen-month period. If it is necessary to charge your
customer additional commission based on the customer not meeting the
requirements of a "Letter of Intent" ("LOI"), then the Fund will involuntarily
redeem from escrow the number of Shares necessary to pay the additional sales
charge. You will be sent your proportionate share of the increased sales charge.
The amount of the total sales commission or the dealer concession or both may
be changed at any time. The undersigned Dealer hereby accepts the offer
contained in this Schedule:
DEALER RUPAY-BARRINGTON SECURITIES CORPORATION
By:_________________________________ By: __________________________
Signature of Authorized Individual Signature of Authorized Individual
_________________________________________ _________________________
Name and Title of Principal - Please Print Name and Title of Principal
Date:_________________________
<PAGE>
Exhibit 8)c)
CUSTODY AGREEMENT
This agreement (the "Agreement") is entered into as of the _____ day of
March, 1998, by and between Rupay-Barrington Total Return Fund, Inc., (the
"Corporation") and Star Bank, National Association, (the "Custodian"), a
national banking association having its principal office at 425 Walnut Street,
Cincinnati, Ohio, 45202.
WHEREAS, the Corporation and the Custodian desire to enter into this
Agreement to provide for the custody and safekeeping of the assets of the
Corporation as required by the Act (as hereafter defined).
THEREFORE, in consideration of the mutual promises hereinafter set
forth, the Corporation and the Custodian agree as follows:
ARTICLE I
Definitions
The following words and phrases, when used in this Agreement, unless the
context otherwise requires, shall have the following meanings:
Act - the Investment Company Act of 1940, as amended.
1934 Act - the Securities and Exchange Act of 1934, as amended.
Authorized Person - any (i) Officer of the Corporation or (ii) any other
person, whether or not any such person is an officer or employee of the
Corporation, who is duly authorized by the Board of Directors of the Corporation
to give Oral Instructions and Written Instructions on behalf of the Corporation
or any Fund, and named in Appendix A attached hereto and as amended from time to
time by resolution of the Board of Directors, certified by an Officer, and
received by the Custodian.
Board of Directors - the Directors from time to time serving under the
Corporation's Articles of Incorporation, as from time to time amended.
Book-Entry System - a federal book-entry system as provided in Subpart O
of Treasury Circular No. 300, 31 CFR 306, in Subpart B of 31 CFT Part 350, or in
such book-entry regulations of federal agencies as are substantially in the form
of Subpart O.
Business Day - any day recognized as a settlement day by The New York
Stock Exchange, Inc. and any other day for which the Corporation computes the
net asset value of Shares of any fund.
Depository - The Depository Trust Company ("DTC"), a limited purpose
trust company, its successor(s) and its nominee(s). Depository shall include any
other clearing agency registered with the SEC under Section 17A of the 1934 Act
which acts as a system for the central handling of Securities where all
Securities of any particular class or series of an issuer deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of the Securities provided that the Custodian
shall have received a copy of a resolution of the Board Of Directors, certified
by an Officer, specifically approving the use of such clearing agency as a
depository for the Funds.
Dividend and Transfer Agent - the dividend and transfer agent appointed,
from time to time, pursuant to a written agreement between the dividend and
transfer agent and the Corporation.
Foreign Securities - a) securities issued and sold primarily outside of
the United States by a foreign government, a national of any foreign country, or
a trust or other organization incorporated or organized under the laws of any
foreign country or; b) securities issued or guaranteed by the government of the
United States, by any state, by any political subdivision or agency thereof, or
by any entity organized under the laws of the United States or of any state
thereof, which have been issued and sold primarily outside of the United States.
Fund - each series of the Corporation listed in Appendix B and any
additional series added pursuant to Proper Industries. A series is individually
referred to as a "Fund" and collectively referred to as the "Funds."
Money Market Security - debt obligations issued or guaranteed as to
principal and/or interest by the government of the United States or agencies or
instrumentalities thereof, commercial paper, obligations (including certificates
of deposit, bankers' acceptances, repurchase agreements and reverse repurchase
agreements with respect to the same), and time deposits of domestic banks and
thrift institutions whose deposits are insured by the Federal Deposit Insurance
Corporation, and short-term corporate obligations where the purchase and sale of
such securities normally require settlement in federal funds or their equivalent
on the same day as such purchase and sale, all of which mature in not more than
thirteen (13) months.
NASD - the National Association of Securities Dealers, Inc.
Officer - the Chairman, President, Secretary, Treasurer, any
Vice President, Assistant Secretary or Assistant Treasurer of
the Corporation.
Oral Instructions - instructions orally transmitted to and received by
the Custodian from an Authorized Person (or from a person that the Custodian
reasonably believes in good faith to be an Authorized Person) and confirmed by
Written Instructions in such a manner that such Written Instructions are
received by the Custodian on the Business Day immediately following receipt of
such Oral Instructions.
Proper Instructions - Oral Instructions or Written Instructions. Proper
Instructions may be continuing Written Instructions when deemed appropriate by
both parties.
Prospectus - the Corporation's then currently effective prospectus and
Statement of Additional Information, as filed with and declared effective from
time to time by the Securities and Exchange Commission.
Security or Securities - Money Market Securities, common stock,
preferred stock, options, financial futures, bonds, notes, debentures, corporate
debt securities, mortgages, bank certificates of deposit, bankers' acceptances,
mortgage-backed securities or other obligations and any certificates, receipts,
warrants, or other instruments or documents representing rights to receive,
purchase, or subscribe for the same or evidencing or representing any other
rights or interest therein, or any similar property or assets that the Custodian
has the facilities to clear and to service.
SEC - the Securities and Exchange Commission of the United States of
America.
Shares - with respect to a Fund, the shares of common stock issued by
the Corporation on account of such Fund.
Written Instructions - communications in writing actually received by
the Custodian from an Authorized Person. A communication in writing includes a
communication by facsimile, telex or between electro-mechanical or electronic
devices (where the use of such devices have been approved by resolution of the
Board of Directors and the resolution is certified by an Officer and delivered
to the Custodian). All written communications shall be directed to the
Custodian, attention: Mutual Fund Custody Department.
ARTICLE II
Appointment; Acceptance; and Furnishing of Documents
A. Appointment of Custodian. The Corporation hereby onstitutes and
appoints the Custodian as custodian of all ecurities and cash owned by the
Corporation at any time during the term of this Agreement.
B. Acceptance of Custodian. The Custodian hereby accepts
appointment as such custodian and agrees to perform the duties thereof as
hereinafter set forth.
C. Documents to be Furnished. The following documents, including
any amendments thereto, will be provided contemporaneously with the execution
of the Agreement, to the Custodian by the Corporation:
1. A copy of the Articles of Incorporation of the Corporation
certified by the Secretary.
2. A copy of the By-Laws of the Corporation certified by the
Secretary.
3. A copy of the resolution of the Board Of Directors of the
Corporation appointing the Custodian, certified by the Secretary.
4. A copy of the then current Prospectus.
5. A Certificate of the President and Secretary of the
Corporation setting forth the names and signatures of the current Officers of
the Corporation and other Authorized Persons.
D. Notice of Appointment of Dividend and Transfer Agent. The
Corporation agrees to notify the Custodian in writing of the appointment,
termination or change in appointment of any Dividend and Transfer Agent.
ARTICLE III
Receipt of Corporation Assets
A. Delivery of Moneys. During the term of this Agreement, the
Corporation will deliver or cause to be delivered to the Custodian all moneys to
be held by the Custodian for the account of any Fund. Subject to Article V,
Section A, the Custodian shall be entitled to reverse any deposits made on any
Fund's behalf where such deposits have been entered and moneys are not finally
collected within 30 days of the making of such entry.
B. Delivery of Securities. During the term of this Agreement, the
Corporation will deliver or cause to be delivered to the Custodian all
Securities to be held by the Custodian for the account of any Fund. The
Custodian will not have any duties or responsibilities with respect to such
Securities until actually received by the Custodian.
C. Payments for Shares. As and when received, the Custodian shall
deposit to the account(s) of a Fund any and all payments for Shares of that Fund
issued or sold from time to time as they are received from the Corporation's
distributor or Dividend and Transfer Agent or from the Corporation itself.
D. Duties Upon Receipt. The Custodian shall, acting on behalf
of each Fund, deposit any Fund assets in the Book-Entry System or a Depository.
The Custodian shall not be responsible for any Securities, moneys or other
assets of any Fund until actually received by it. The Custodian shall always be
accountable to the Corporation for Fund assets deposited by the Custodian.
E. Validity of Title. The Custodian shall not be responsible for the title,
validity or genuineness of any property or evidence of title thereto received or
delivered by it pursuant to this Agreement.
ARTICLE IV
Disbursement of Corporation Assets
A. Declaration of Dividends by Corporation. The Corporation shall
furnish to the Custodian a copy of the resolution of the Board Of Directors of
the Corporation, certified by the Corporation's Secretary, either (i) setting
forth the date of the declaration of any dividend or distribution in respect of
Shares of any Fund of the Corporation, the date of payment thereof, the record
date as of which the Fund shareholders entitled to payment shall be determined,
the amount payable per share to Fund shareholders of record as of that date, and
the total amount to be paid by the Dividend and Transfer Agent on the payment
date, or (ii) authorizing the declaration of dividends and distributions in
respect of Shares of a Fund on a daily basis and authorizing the Custodian to
rely on Written Instructions setting forth the date of the declaration of any
such dividend or distribution, the date of payment thereof, the record date as
of which the Fund shareholders entitled to payment shall be determined, the
amount payable per share to Fund shareholders of record as of that date, and the
total amount to be paid by the Dividend and Transfer Agent on the payment date.
On the payment date specified in the resolution or Written Instructions
described above, the Custodian shall segregate such amounts from moneys held for
the account of the Fund so that they are available for such payment.
B. Segregation of Redemption Proceeds. Upon receipt of Proper Instructions
so directing it, the Custodian shall segregate amounts necessary for the payment
of redemption proceeds to be made by the Dividend and Transfer Agent from moneys
held for the account of the Fund so that they are available for such payment.
C. Disbursements of Custodian. Upon receipt of a Certificate directing
payment and setting forth the name and address of the person to whom such
payment is to be made, the amount of such payment, the name of the Fund from
which payment is to be made, and the purpose for which payment is to be made,
the Custodian shall disburse amounts as and when directed from the assets of
that Fund. The Custodian is authorized to rely on any Written Instructions that
it reasonably believes to have been issued by an Authorized Person.
D. Payment of Custodian Fees. Upon receipt of Written Instructions
directing payment, the Custodian shall disburse moneys from the assets of the
Corporation in payment of the Custodian's fees and expenses as provided in
Article VIII hereof.
ARTICLE V
Custody of Corporation Assets
A. Separate Accounts for Each Fund. As to each Fund, the Custodian shall
open and maintain a separate bank account or accounts in the United States in
the name of the Corporation coupled with the name of such Fund, subject only to
draft or order by the Custodian acting pursuant to the terms of this Agreement,
and shall hold all cash received by it from or for the account of the Fund,
other than cash maintained by the Fund in a bank account established and used by
the Fund in accordance with Rule 17f-3 under the Act. Moneys held by the
Custodian on behalf of a Fund may be deposited by the Custodian to its credit as
Custodian in the banking department of the Custodian. Such moneys shall be
deposited by the Custodian in its capacity as such, and shall be withdrawable by
the Custodian only in such capacity.
B. Segregation of Non-Cash Assets. All Securities and non-cash property
held by the Custodian for the account of a Fund (other than Securities
maintained in a Depository or Book-entry System) shall be physically segregated
from other Securities and non-cash property in the possession of the Custodian
(including the Securities and non-cash property of the other Funds) and shall be
identified as subject to this Agreement.
C. Securities in Bearer and Registered Form. All Securities held which
are issued or issuable only in bearer form, shall be held by the Custodian in
that form; all other Securities held for the Fund may be registered in the name
of the Custodian, any sub-custodian appointed in accordance with this Agreement,
or the nominee of any of them. The Corporation agrees to furnish to the
Custodian appropriate instruments to enable the Custodian to hold, or deliver in
proper form for transfer, any Securities that it may hold for the account of any
Fund and which may, from time to time, be registered in the name of a Fund.
D. Duties of Custodian As to Securities. Unless otherwise instructed by
the Corporation, with respect to all Securities held for the Corporation, the
Custodian shall on a timely basis (concerning items 1 and 2 below, as defined in
the Custodian's Standards of Service Guide, as amended from time to time,
annexed hereto as Appendix D):
1.) Collect all income due and payable with respect to such
Securities;
2.) Present for payment and collect amounts payable upon all
Securities which may mature or be called, redeemed, or retired,
or otherwise become payable;
3.) Surrender interim receipts or Securities in temporary form
for Securities in definitive form; and
4.) Execute, as Custodian, any necessary declarations or
certificates of ownership under the Federal income tax laws or the laws or
regulations of any other taxing authority, including any foreign taxing
authority, now or hereafter in effect.
E. Certain Actions Upon Written Instructions. Upon receipt of
a Written Instructions and not otherwise, the Custodian shall:
1.) Execute and deliver to such persons as may be designated
in such Written Instructions proxies, consents, authorizations, and any other
instruments whereby the authority of the Corporation as beneficial owner of any
Securities may be exercised;
2.) Deliver any Securities in exchange for other Securities or
cash issued or paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation, or recapitalization of any corporation, or
the exercise of any conversion privilege;
3.) Deliver any Securities to any protective committee,
reorganization committee, or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization, or sale of assets of any
corporation, and receive and hold under the terms of this Agreement such
certificates of deposit, interim receipts or other instruments or documents as
may be issued to it to evidence such delivery;
4.) Make such transfers or exchanges of the assets of any Fund
and take such other steps as shall be stated in the Written Instructions to be
for the purpose of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the Corporation;
and
5.) Deliver any Securities held for any Fund to the depository
agent for tender or other similar offers.
F. Custodian to Deliver Proxy Materials. The Custodian shall promptly
deliver to the Corporation all notices, proxy material and executed but unvoted
proxies pertaining to shareholder meetings of Securities held by any Fund. The
Custodian shall not vote or authorize the voting of any Securities or give any
consent, waiver or approval with respect thereto unless so directed by Written
Instructions.
G. Custodian to Deliver Tender Offer Information. The Custodian shall
promptly deliver to the Corporation all information received by the Custodian
and pertaining to Securities held by any Fund with respect to tender or exchange
offers, calls for redemption or purchase, or expiration of rights. If the
Corporation desires to take action with respect to any tender offer, exchange
offer or other similar transaction, the Corporation shall notify the Custodian
at least five Business Days prior to the date on which the Custodian is to take
such action. The Corporation will provide or cause to be provided to the
Custodian all relevant information for any Security which has unique put/option
provisions at least five Business Days prior to the beginning date of the tender
period.
ARTICLE VI
Purchase and Sale of Securities
A. Purchase of Securities. Promptly after each purchase of Securities by
the Corporation, the Corporation shall deliver to the Custodian (i) with respect
to each purchase of Securities which are not Money Market Securities, Written
Instructions, and (ii) with respect to each purchase of Money Market Securities,
Proper Instructions, specifying with respect to each such purchase the;
1.) name of the issuer and the title of the Securities,
2.) the number of shares, principal amount purchased (and
accrued interest, if any) or other units purchased,
3.) date of purchase and settlement,
4.) purchase price per unit,
5.) total amount payable,
6.) name of the person from whom, or the broker through
which, the purchase was made,
7.) the name of the person to whom such amount is payable,
and
8.) the Fund for which the purchase was made.
The Custodian shall, against receipt of Securities purchased by or for the
Corporation, pay out of the moneys held for the account of such Fund the total
amount specified in the Written Instructions, or Oral Instructions, if
applicable, to the person named therein. The Custodian shall not be under any
obligation to pay out moneys to cover the cost of a purchase of Securities for a
Fund, if in the relevant Fund custody account there is insufficient cash
available to the Fund for which such purchase was made.
B. Sale of Securities. Promptly after each sale of Securities by a Fund,
the Corporation shall deliver to the Custodian (i) with respect to each sale of
Securities which are not Money Market Securities, Written Instructions, and (ii)
with respect to each sale of Money Market Securities, Proper Instructions,
specifying with respect to each such sale the:
1.) name of the issuer and the title of the Securities,
2.) number of shares, principal amount sold (and accrued
interest, if any) or other units sold,
3.) date of sale and settlement,
4.) sale price per unit,
5.) total amount receivable,
6.) name of the person to whom, or the broker through which,
the sale was made,
7.) name of the person to whom such Securities are to be
delivered, and
8.) Fund for which the sale was made.
The Custodian shall deliver the Securities against receipt of the total amount
specified in the Written Instructions, or Oral Instructions, if applicable.
Notwithstanding any other provision of this Agreement, the Custodian, when
properly instructed as provided herein to deliver Securities against payment,
shall be entitled, if in accordance with generally accepted market practice, to
deliver such Securities prior to actual receipt of final payment therefor. In
any such case, the Fund for which the Securities were delivered shall bear the
risk that final payment for the Securities may not be made or that the
Securities may be returned or otherwise held or disposed of by or through the
person to whom they were delivered, and the Custodian shall have no liability
for any of the foregoing.
C. Options. Promptly after the time as of which the Corporation,
on behalf of a Fund, either:
1. writes an option on securities,
2. notifies the Custodian that its obligations in respect of
any put or call
option, as described in the Corporation's Prospectus, require
that the Fund
deposit Securities or additional Securities with the
Custodian, specifying the
type and value of Securities required to be so deposited,
the Custodian will cause to be segregated or identified as
deposited, pursuant to the Fund's
obligations as set forth in the Prospectus, Securities of such kinds and having
such aggregate values as are required to meet the Fund's obligations in respect
thereof. The Corporation will provide to the Custodian, as of the end of each
trading day, the market value of the Fund's
option liability and the market value of its portfolio of common
stocks.
D. Payment on Settlement Date. On contractual settlement date, the
account of the Fund will be charged for all purchased Securities settling on
that day, regardless of whether or not delivery is made. Likewise, on
contractual settlement date, proceeds from the sale of Securities settling that
day will be credited to the account of the Fund, irrespective of delivery. Any
such credit shall be conditioned upon actual receipt by Custodian of final
payment and may be reversed if final payment is not actually received in full.
E.. Credit of Moneys Prior to Receipt. With respect to any credit given
prior to actual receipt of final payment, the Custodian may, in its sole
discretion and from time to time, permit a Fund to use funds so credited to its
Fund custody account in anticipation of actual receipt of final payment. Any
such funds shall be deemed a loan from the Custodian to the Corporation payable
on demand and bearing interest accruing from the date such loan is made up to
but not including the date on which such loan is repaid at the rate per annum
customarily charged by the Custodian on similar loans.
F. Segregated Accounts. The Custodian shall, upon receipt of Proper
Instructions so directing it, establish and maintain a segregated account or
accounts for and on behalf of a Fund. Cash and/or Securities may be transferred
into such account or accounts for specific purposes, to-wit:
1.) in accordance with the provision of any agreement among the
Corporation, the Custodian, and a broker-dealer registered under the 1934 Act,
and also a member of the NASD (or any futures commission merchant registered
under the Commodity Exchange Act), relating to compliance with the rules of the
Options Clearing Corporation and of any registered national securities exchange,
the Commodity Futures Trading Commission, any registered contract market, or any
similar organization or organizations requiring escrow or other similar
arrangements in connection with transactions by the Fund;
2.) for purposes of segregating cash or Securities in
connection with options purchased, sold, or written by the Fund or commodity
futures contracts or options thereon purchased or sold by the Fund;
3.) for the purpose of compliance by the Fund with the
procedures required for reverse repurchase agreements, firm commitment
agreements, standby commitment agreements, and short sales by Act Release No.
10666, or any subsequent release or releases or rule of the SEC relating to the
maintenance of segregated accounts by registered investment companies;
4.) for the purpose of segregating collateral for loans of
Securities made by the Fund; and
5.) for other proper corporate purposes, but only upon receipt
of, in addition to Proper Instructions, a copy of a resolution of the Board Of
Directors, certified by an Officer, setting forth the purposes of such
segregated account.
Each segregated account established hereunder shall be established and
maintained for a single Fund only. All Proper Instructions relating to a
segregated account shall specify the Fund involved.
G. Advances for Settlement. Except as otherwise may be agreed upon by
the parties hereto, the Custodian shall not be required to comply with any
Written Instructions to settle the purchase of any Securities on behalf of a
Fund unless there is sufficient cash in the account(s) pertaining to such Fund
at the time or to settle the sale of any Securities from such an account(s)
unless such Securities are in deliverable form. Notwithstanding the foregoing,
if the purchase price of such Securities exceeds the amount of cash in the
account(s) at the time of such purchase, the Custodian may, in its sole
discretion, advance the amount of the difference in order to settle the purchase
of such Securities. The amount of any such advance shall be deemed a loan from
the Custodian to the Corporation payable on demand and bearing interest accruing
from the date such loan is made up to but not including the date such loan is
repaid at the rate per annum customarily charged by the Custodian on similar
loans.
ARTICLE VII
Corporation Indebtedness
In connection with any borrowings by the Corporation, the Corporation
will cause to be delivered to the Custodian by a bank or broker requiring
Securities as collateral for such borrowings (including the Custodian if the
borrowing is from the Custodian), a notice or undertaking in the form currently
employed by such bank or broker setting forth the amount of collateral. The
Corporation shall promptly deliver to the Custodian Written Instructions
specifying with respect to each such borrowing: (a) the name of the bank or
broker, (b) the amount and terms of the borrowing, which may be set forth by
incorporating by reference an attached promissory note duly endorsed by the
Corporation, or a loan agreement, (c) the date, and time if known, on which the
loan is to be entered into, (d) the date on which the loan becomes due and
payable, (e) the total amount payable to the Corporation on the borrowing date,
and (f) the description of the Securities securing the loan, including the name
of the issuer, the title and the number of shares or other units or the
principal amount. The Custodian shall deliver on the borrowing date specified in
the Written Instructions the required collateral against the lender's delivery
of the total loan amount then payable, provided that the same conforms to that
which is described in the Written Instructions. The Custodian shall deliver, in
the manner directed by the Corporation, such Securities as additional
collateral, as may be specified in Written Instructions, to secure further any
transaction described in this Article VII. The Corporation shall cause all
Securities released from collateral status to be returned directly to the
Custodian and the Custodian shall receive from time to time such return of
collateral as may be tendered to it.
The Custodian may, at the option of the lender, keep such collateral in
its possession, subject to all rights therein given to the lender because of the
loan. The Custodian may require such reasonable conditions regarding such
collateral and its dealings with third-party lenders as it may deem appropriate.
ARTICLE VIII
Concerning the Custodian
A. Limitations on Liability of Custodian. Except as otherwise provided
herein, the Custodian shall not be liable for any loss or damage resulting from
its action or omission to act or otherwise, except for any such loss or damage
arising out of its own gross negligence or willful misconduct, or reckless
disregard of its duties under this Agreement. The Corporation shall defend,
indemnify and hold harmless the Custodian and its directors, officers, employees
and agents with respect to any loss, claim, liability or cost (including
reasonable attorneys' fees) arising or alleged to arise from or relating to the
Corporation's duties hereunder or any other action or inaction of the
Corporation or its Directors, officers, employees or agents, except such as may
arise from the grossly negligent action or omission, willful misconduct,
reckless disregard, or breach of this Agreement by the Custodian. The Custodian
shall indemnify, defend and hold harmless the Corporation and its Directors,
officers, employees or agents with respect to any loss, claim, liability or cost
(including reasonable attorneys' fees) arising or alleged to arise from or
relating to the Custodian's duties with respect to the Corporation hereunder or
any other action or inaction of the Custodian or its directors, officers,
employees, agents, nominees or Sub-Custodians as to a Fund, except such as may
arise from the grossly negligent action or omission, willful misconduct,
reckless disregard of breach of this Agreement by the Corporation, its
directors, officers, employees or agents. The Custodian shall be entitled to
rely on and may act upon the advice and opinion of counsel on all matters, at
the expense of the Corporation, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice or opinion of counsel. The
provisions under this paragraph shall survive the termination of this Agreement.
B. Actions Not Required By Custodian. Without limiting the generality of
the foregoing, the Custodian, acting in the capacity of Custodian hereunder,
shall be under no obligation to inquire into, and shall not be liable for:
1.) The validity of the issue of any Securities purchased by
or for the account of any Fund, the legality of the purchase
thereof, or the propriety of the amount paid therefor;
2.) The legality of the sale of any Securities by or for the
account of any Fund, or the propriety of the amount for which
the same are sold;
3.) The legality of the issue or sale of any Shares of any
Fund, or the sufficiency of the amount to be received therefor;
4.) The legality of the redemption of any Shares of any Fund,
or the propriety of the amount to be paid therefor;
5.) The legality of the declaration or payment of any dividend
by the Corporation in respect of Shares of any Fund;
6.) The legality of any borrowing by the Corporation on behalf
of the Corporation or any Fund, using Securities as collateral;
7.) Whether the Corporation or a Fund is in compliance with the
1940 Act, the regulations thereunder, the provisions of the Corporation's
charter documents or by-laws, or its investment objectives and policies as then
in effect.
C. No Duty to Collect Amounts Due From Dividend and Transfer Agent. The
Custodian shall not be under any duty or obligation to take action to effect
collection of any amount due to the Corporation from any Dividend and Transfer
Agent of the Corporation nor to take any action to effect payment or
distribution by any Dividend and Transfer Agent of the Corporation of any amount
paid by the Custodian to any Dividend and Transfer Agent of the Corporation in
accordance with this Agreement.
D. No Enforcement Actions. Notwithstanding Section D of Article V, the
Custodian shall not be under any duty or obligation to take action, by legal
means or otherwise, to effect collection of any amount, if the Securities upon
which such amount is payable are in default, or if payment is refused after due
demand or presentation, unless and until (i) it shall be directed to take such
action by Written Instructions and (ii) it shall be assured to its satisfaction
(including prepayment thereof) of reimbursement of its costs and expenses in
connection with any such action.
E. Authority to Use Agents and Sub-Custodians. The Corporation acknowledges
and hereby authorizes the Custodian to hold Securities through its various
agents described in Appendix C annexed hereto. The Fund hereby represents that
such authorization has been duly approved by the Board Of Directors of the
Corporation as required by the Act.
In addition, the Corporation acknowledges that the Custodian may appoint
one or more financial institutions, as agent or agents or as sub-custodian or
sub-custodians, including, but not limited to, banking institutions located in
foreign countries, for the purpose of holding Securities and moneys at any time
owned by the Fund. The Custodian shall not be relieved of any obligation or
liability under this Agreement in connection with the appointment or activities
of such agents or sub-custodians. Any such agent or sub-custodian shall be
qualified to serve as such for assets of investment companies registered under
the Act. The Funds shall reimburse the Custodian for all costs incurred by the
Custodian in connection with opening accounts with any such agents or
sub-custodians. Upon request, the Custodian shall promptly forward to the
Corporation any documents it receives from any agent or sub-custodian appointed
hereunder which may assist trustees of registered investment companies to
fulfill their responsibilities under Rule 17f-5 of the Act.
F. No Duty to Supervise Investments. The Custodian shall not be under any
duty or obligation to ascertain whether any Securities at any time delivered to
or held by it for the account of the Corporation are such as properly may be
held by the Corporation under the provisions of the Articles of Incorporation
and the Corporation's By-Laws.
G. All Records Confidential. The Custodian shall treat all records and
other information relating to the Corporation and the assets of all Funds as
confidential and shall not disclose any such records or information to any other
person unless (i) the Corporation shall have consented thereto in writing or
(ii) such disclosure is required by law.
H. Compensation of Custodian. The Custodian shall be entitled to receive
and the Corporation agrees to pay to the Custodian such compensation as shall be
determined pursuant to Appendix E attached hereto, or as shall be determined
pursuant to amendments to Appendix E. The Custodian shall be entitled to charge
against any money held by it for the account of any Fund, the amount of any of
its fees, any loss, damage, liability or expense, including counsel fees. The
expenses which the Custodian may charge against the account of a Fund include,
but are not limited to, the expenses of agents or sub-custodians incurred in
settling transactions involving the purchase and sale of Securities of the Fund.
I. Reliance Upon Instructions. The Custodian shall be entitled to rely
upon any Proper Instructions. The Corporation agrees to forward to the Custodian
Written Instructions confirming Oral Instructions in such a manner so that such
Written Instructions are received by the Custodian, whether by hand delivery,
telex, facsimile or otherwise, on the same Business Day on which such Oral
Instructions were given. The Corporation agrees that the failure of the
Custodian to receive such confirming instructions shall in no way affect the
validity of the transactions or enforceability of the transactions hereby
authorized by the Corporation. The Corporation agrees that the Custodian shall
incur no liability to the Corporation for acting upon Oral Instructions given to
the Custodian hereunder concerning such transactions.
J. Books and Records. The Custodian will (i) set up and maintain proper
books of account and complete records of all transactions in the accounts
maintained by the Custodian hereunder in such manner as will meet the
obligations of the Fund under the Act, with particular attention to Section 31
thereof and Rules 3la-1 and 3la-2 thereunder and those records are the property
of the Corporation, and (ii) preserve for the periods prescribed by applicable
Federal statute or regulation all records required to be so preserved. All such
books and records shall be the property of the Corporation, and shall be
available, upon request, for inspection by duly authorized officers, employees
or agents of the Corporation and employees of the SEC.
K. Internal Accounting Control Systems. The Custodian shall send to the
Corporation any report received on the systems of internal accounting control of
the Custodian, or its agents or sub-custodians, as the Corporation may
reasonably request from time to time.
L. No Management of Assets By Custodian. The Custodian performs only the
services of a custodian and shall have no responsibility for the management,
investment or reinvestment of the Securities or other assets from time to time
owned by any Fund. The Custodian is not a selling agent for Shares of any Fund
and performance of its duties as custodian shall not be deemed to be a
recommendation to any Fund's depositors or others of Shares of the Fund as an
investment. The Custodian shall have no duties or obligations whatsoever except
such duties and obligations as are specifically set forth in this Agreement, and
no covenant or obligation shall be implied in this Agreement against the
Custodian.
M. Assistance to Corporation. The Custodian shall take all reasonable
action, that the Corporation may from time to time request, to assist the
Corporation in obtaining favorable opinions from the Corporation's independent
accountants, with respect to the Custodian's activities hereunder, in connection
with the preparation of the Fund's Form N- IA, Form N-SAR, or other annual
reports to the SEC.
N. Grant of Security Interest. The Corporation hereby pledges to and
grants the Custodian a security interest in the assets of any Fund to secure the
payment of any liabilities of the Corporation to the Custodian, whether acting
in its capacity as Custodian or otherwise, or on account of money borrowed from
the Custodian. This pledge is in addition to any other pledge of collateral by
the Corporation to the Custodian.
ARTICLE IX
Initial Term; Termination
A. Initial Term. This Agreement shall become effective as of its execution
and shall continue in full force and effect for a period of two years (the
"Initial Term") and thereafter until terminated as hereinafter provided.
B. Termination. Either party hereto may terminate this Agreement after
the Initial Term for any reason by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less than ninety
(90) days after the date of giving of such notice. If such notice is given by
the Corporation, it shall be accompanied by a copy of a resolution of the Board
Of Directors of the Corporation, certified by the Secretary of the Corporation,
electing to terminate this Agreement and designating a successor custodian or
custodians. In the event such notice is given by the Custodian, the Corporation
shall, on or before the termination date, deliver to the Custodian a copy of a
resolution of the Board Of Directors of the Corporation, certified by the
Secretary, designating a successor custodian or custodians to act on behalf of
the Corporation. In the absence of such designation by the Corporation, the
Custodian may designate a successor custodian which shall be a bank or
corporation company having not less than $100,000,000 aggregate capital,
surplus, and undivided profits. Upon the date set forth in such notice this
Agreement shall terminate, and the Custodian, provided that it has received a
notice of acceptance by the successor custodian, shall deliver, on that date,
directly to the successor custodian all Securities and moneys then owned by the
Fund and held by it as Custodian. Upon termination of this Agreement, the
Corporation shall pay to the Custodian on behalf of the Corporation such
compensation as may be due as of the date of such termination. The Corporation
agrees on behalf of the Corporation that the Custodian shall be reimbursed for
its reasonable costs in connection with the termination of this Agreement.
C. Failure to Designate Successor Trustee. If a successor custodian is
not designated by the Corporation, or by the Custodian in accordance with the
preceding paragraph, or the designated successor cannot or will not serve, the
Corporation shall, upon the delivery by the Custodian to the Corporation of all
Securities (other than Securities held in the Book-Entry System which cannot be
delivered to the Corporation) and moneys then owned by the Corporation, be
deemed to be the custodian for the Corporation, and the Custodian shall thereby
be relieved of all duties and responsibilities pursuant to this Agreement, other
than the duty with respect to Securities held in the Book-Entry System, which
cannot be delivered to the Corporation, which shall be held by the Custodian in
accordance with this Agreement.
ARTICLE X
Force Majeure
Neither the Custodian nor the Corporation shall be liable for any
failure or delay in performance of its obligations under this Agreement arising
out of or caused, directly or indirectly, by circumstances beyond its reasonable
control, including, without limitation, acts of God; earthquakes; fires; floods;
wars; civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes; acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation; provided, however, that the Custodian, in the event of a failure
or delay, shall use its best efforts to ameliorate the effects of any such
failure or delay.
ARTICLE XI
Miscellaneous
A. Designation of Authorized Persons. Appendix A sets forth the names
and the signatures of all Authorized Persons as of this date, as certified by
the Secretary of the Corporation. The Corporation agrees to furnish to the
Custodian a new Appendix A in form similar to the attached Appendix A, if any
present Authorized Person ceases to be an Authorized Person or if any other or
additional Authorized Persons are elected or appointed. Until such new Appendix
A shall be received, the Custodian shall be fully protected in acting under the
provisions of this Agreement upon Oral Instructions or signatures of the then
current Authorized Persons as set forth in the last delivered Appendix A.
B. Limitation of Personal Liability. No recourse under any obligation of
this Agreement or for any claim based thereon shall be had against any
organizer, shareholder, officer, trustee, past, present or future as such, of
the Corporation or of any predecessor or successor, either directly or through
the Corporation or any such predecessor or successor, whether by virtue of any
constitution, statute or rule of law or equity, or by the enforcement of any
assessment or penalty or otherwise; it being expressly agreed and understood
that this Agreement and the obligations thereunder are enforceable solely
against the Corporation, and that no such personal liability whatever shall
attach to, or is or shall be incurred by, the organizers, shareholders,
officers, or directors of the Corporation or of any predecessor or successor, or
any of them as such. To the extent that any such liability exists, it is hereby
expressly waived and released by the Custodian as a condition of, and as a
consideration for, the execution of this Agreement.
C. Authorization By Board. The obligations set forth in this Agreement as
having been made by the Corporation have been made by the Board Of Directors,
acting as such Directors for and on behalf of the Corporation, pursuant to the
authority vested in them under the laws of the State of Maryland, the Articles
of Incorporation and the By-Laws of the Corporation. This Agreement has been
executed by Officers of the Corporation as officers, and not individually, and
the obligations contained herein are not binding upon any of the Directors,
Officers, agents or holders of shares, personally, but bind only the
Corporation.
D. Custodian's Consent to Use of Its Name. The Corporation shall review
with the Custodian all provisions of the Prospectus and any other documents
(including advertising material) specifically mentioning the Custodian (other
than merely by name and address) and shall obtain the Custodian's consent prior
to the publication and/or dissemination or distribution thereof.
E. Notices to Custodian. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the Custodian, shall be
sufficiently given if addressed to the Custodian and mailed or delivered to it
at its offices at Star Bank Center, 425 Walnut Street, M. L. 6118, Cincinnati,
Ohio 45202, attention Mutual Fund Custody Department, or at such other place as
the Custodian may from time to time designate in writing.
F. Notices to Corporation. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the Corporation shall be
sufficiently given when delivered to the Corporation or on the second Business
Day following the time such notice is deposited in the U.S. mail postage prepaid
and addressed to the Corporation at its office at 595 Market Street, Suite 1980,
San Francisco, California 94105 or at such other place as the Corporation may
from time to time designate in writing.
G. Amendments In Writing. This Agreement, with the exception of the
Appendices, may not be amended or modified in any manner except by a written
agreement executed by both parties with the same formality as this Agreement,
and authorized and approved by a resolution of the Board of Directors of the
Corporation.
H. Successors and Assigns. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by the
Corporation or by the Custodian, and no attempted assignment by the Corporation
or the Custodian shall be effective without the written consent of the other
party hereto.
I. Governing Law. This Agreement shall be construed in accordance with the
laws of the State of Ohio.
J. Jurisdiction. Any legal action, suit or proceeding to be instituted by
either party with respect to this Agreement shall be brought by such party
exclusively in the courts of the State of Ohio or in the courts of the United
States for the Southern District of Ohio, and each party, by its execution of
this Agreement, irrevocably (i) submits to such jurisdiction and (ii) consents
to the service of any process or pleadings by first class U.S. mail, postage
prepaid and return receipt requested, or by any other means from time to time
authorized by the laws of such jurisdiction.
K. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
L. Headings. The headings of paragraphs in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized as of the day
and year first above written.
ATTEST: RUPAY-BARRINGTON TOTAL RETURN FUND, INC.
_____________________ By:________________________
Title:_______________________
ATTEST: STAR BANK, N.A.
_____________________ By:_________________________
Marsha A. Croxton
Title: Senior Vice President
<PAGE>
APPENDIX A
Authorized Persons Specimen Signatures
President: Fritz Bensler __________________
Secretary: Larry Mao ___________________
Treasurer: __________________ ___________________
Senior Vice
President: __________________ ___________________
Assistant
Secretary: __________________ ___________________
Assistant
Treasurer: __________________ ___________________
Adviser Employees: Steve Drobot ___________________
------------------ -------------------
Transfer Agent/Fund Accountant
Employees: __________________ ___________________
------------------ -------------------
------------------ -------------------
------------------ -------------------
<PAGE>
APPENDIX B
Series of the Corporation
Rupay-Barrington Total Return Fund
Rupay-Barrington Value Equity Fund
Rupay-Barrington Growth Fund
<PAGE>
APPENDIX C
Agents of the Custodian
The following agents are employed currently by Star Bank, N.A.
for securities processing and control:
The Depository Trust Company (New York)
7 Hanover Square
New York, NY 10004
The Federal Reserve Bank
Cincinnati and Cleveland Branches
Bankers Trust Company
16 Wall Street
New York, NY 10005
(For Foreign Securities and certain non-DTC eligible
Securities)
<PAGE>
APPENDIX D
Standards of Service Guide
<PAGE>
APPENDIX E
Schedule of Compensation
Star Bank, N.A., as Custodian, will receive monthly compensation for services
according to the terms of the following Schedule:
I. Portfolio Transaction Fees:
(a) For each repurchase agreement transaction $7.00
(b) For each portfolio transaction processed through
DTC or Federal Reserve $9.00
(c) For each portfolio transaction processed through
our New York custodian $25.00
(d) For each GNMA/Amortized Security Purchase $16.00
(e) For each GNMA Prin/Int Paydown, GNMA Sales $8.00
(f) For each option/future contract written,
exercised or expired $40.00
(g) For each Cedel/Euro clear transaction $80.00
(h) For each Disbursement (Fund expenses only) $5.00
A transaction is a purchase/sale of a security, free receipt/free delivery
(excludes initial conversion), maturity, tender or exchange:
II. Market Value Fee
Based upon an annual rate of: Million
.0003 (3 Basis Points) on First $20
.0002 (2 Basis Points) on Next $20
.00015 (1.5 Basis Points) on Balance
III. Monthly Minimum Fee-Per Fund $400.00
IV. Out-of-Pocket Expenses
The only out-of-pocket expenses charged to your account will be shipping
fees or transfer fees.
V. IRA Documents
Per Shareholder/year to hold each IRA Document $8.00
VI. Earnings Credits
On a monthly basis any earnings credits generated from uninvested
custody balances will be applied against any cash management service fees
generated. Earnings credits are based on a Cost of Funds Tiered Earnings Credit
Rate.
<PAGE>
APPENDIX E.
Schedule of Compensation Continued
Services Unit Cost ($) Monthly Cost ($)
D.D.A. Account Maintenance 14.00
Deposits .399
Deposited Items .109
Checks Paid .159
Balance Reporting - P.C. Access 50.00
ACH Transaction .095
ACH Monthly Maintenance 40.00
Controlled Disbursement (1st account) 110.00
Each additional account 25.00
Deposited Items Returned 6.00
International Items Returned 10.00
NSF Returned Checks 25.00
Stop Payments 22.00
Data Transmission per account 110.00
Data Capture* .10
Drafts Cleared .179
Lockbox Maintenance** 55.00
Lockbox items Processed
with copy of check .32
without copy of check .26
Checks Printed .20
Positive Pay .06
Issued Items .015
Wires Incoming
Domestic 10.00
International 10.00
Wires Outgoing
Domestic
Repetitive 12.00
Non-Repetitive 13.00
International
Repetitive 35.00
Non-Repetitive 40.00
PC - Initiated Wires:
Domestic
Repetitive 9.00
Non-Repetitive 9.00
International
Repetitive 25.00
Non-Repetitive 25.00
- ----------------------------
***Uncollected Charge Star Bank Prime Rate as of
first of month plus 4%
* Price can vary depending upon what information needs to be captured
** With the use of lockbox, the collected balance in the demand deposit account
will be significantly increased and therefore earnings to offset cash management
service fees will be maximized.
*** Fees for uncollected balances are figured on the monthly average of all
combined accounts.
**** Other available cash management services are priced separately.
<PAGE>
STAR BANK, N.A.
STANDARDS OF SERVICE GUIDE
Star Bank, N.A. is committed to providing superior qualify service to
all customers and their agents at all times. We have compiled this guide as a
tool for our clients to determine our standards for the processing of security
settlements, payment collection, and capital change transactions. Deadlines
recited in this guide represent the times required for Star Bank to guarantee
processing. Failure to meet these deadlines will result in settlement at our
client's risk. In all cases, Star Bank will make every effort to complete all
processing on a timely basis.
Star Bank is a direct participant of the Depository Trust Company, a
direct member of the Federal Reserve Bank of Cleveland, and utilizes the Bankers
Trust Company as its agent for ineligible and foreign securities.
For corporate reorganizations, Star Bank utilizes SEI's Reorg
Source, Financial Information, Inc., XCITEK, DTC Important Notices
and the Wall Street Journal.
For bond calls and mandatory puts, Star Bank utilizes SEI's Bond
Source, Kenny Information Systems, Standard & Poor's Corporation, and DTC
Important Notices. Star Bank will not notify
clients of optional put opportunities.
Any securities delivered free to Star Bank or its agent must be
received three (3) business days prior to any payment or settlement in order for
the Star Bank standards of service to apply.
Should you have any questions regarding the information contained in
this guide, please feel free to contact your account representative.
The information contained in this Standards of Service Guide is subject
to change. Should any changes be made Star Bank will provide you with
an updated copy of its Standards of Service Guide.
<PAGE>
Star Bank Security Settlement Standards
Transaction Type Instructions Deadlines* Delivery Instructions
DTC 1:30 p.m. on Settlement DTC Participant #2219
Date Agent Bank ID 27895
Institutions #_____
For Account # ______
Federal Reserve 12:30 p.m. on Settlement Federal Reserve Bank
Book Entry Date of Cinti/Trust for
Star Bank, N.A.
ABA# 042000013
For Account # _____
Federal Reserve 1:00 p.m. on Settlement Federal Reserve Bank
Book Entry Date of Cinti/Spec for
(Repurchase Star Bank, N.A.
Agreement ABA# 042000013
Collateral Only For Account # ______
PTC Securities 12:00 p.m. on Settlement PTC For Account
(GNMA Book Date BTRST/CUST Sub
Entry) Account: Star Bank,
Physical 9:30 a.m. EST on Settlement N.A. #090334 Bankers
Securities Date (for Deliveries, Trust Company 16 Wall
by 4:00 p.m. on Settlement Street 4th Floor,
Date minus 1) Window 43 for Star
Bank Account #090334
CEDEL/EURO-CLEAR 11:00 a.m. on Settlement Euroclear Via Cedel
Date minus 2 Bridge in favor of
Bankers Trust Comp
Cedel 53355 For Star
Bank Account #
501526354
Cash Wire 3:00 p.m. Star Bank, N.A. Cinti/
Transfer Trust ABA #042000013
Credit Account
#9901877 Further
Credit to _____
Account # ________
<PAGE>
Star Bank Payment Standards
Security Type Income Principal
Equities Payable Date
Municipal Bonds* Payable Date Payable Date
Corporate Bonds* Payable Date Payable Date
Federal Reserve Bank Payable Date Payable Date
Book Entry*
PTC GNMA's (P&I) Payable Date+1 Payable Date+1
CMOs*
DTC Payable Date+1 Payable Date+1
Bankers Trust Payable Date+1 Payable Date+1
SBA Loan Certificates When Received When Received
Unit Investment Trust Payable Date Payable Date
Certificates*
Certificates of Deposit* Payable Date+1 Payable Date+1
Limited Partnerships When Received When Received
Foreign Securities When Received When Received
*Variable Rate Securities
Federal Reserve Bank Payable Date Payable Date
Book Entry
DTC Payable Date+1 Payable Date+1
Bankers Trust Payable Date+1 Payable Date+1
Note: If a payable date falls on a weekend or bank holiday,
payment will be made on the immediately following business day.
<PAGE>
Star Bank Corporate Reorganization Standards
Type of Notification Deadline for Client Transaction
Action to Client Instructions to Star Posting
Bank
Rights Later of 10 5 business days prior Upon receipt
Warrants, and business days to expiration
Optional prior to
Mergers expiration or
receipt of notice
Mandatory Puts Later of 10 5 business days prior Upon Receipt
with Option business days to expiration
to Retain prior to
expiration or
receipt of notice
Class Actions 10 business 5 business days prior Upon receipt
days prior to to expiration
expiration
date
Voluntary Later of 10 5 business days prior Upon Receipt
Tenders, business days to expiration
Exchanges, and prior to
Conversions expiration or
receipt of notice
Mandatory Puts At posting of None Upon receipt
Defaults, funds or
Liquidations, securities
Bankruptcies, received
Stock Splits,
Mandatory
Exchanges
Full and Later of 10 None Upon Receipt
Partial business days
Calls prior to
expiration or
receipt of notice
NOTE: Fractional shares/par amounts resulting from any of the
above will be sold.
<PAGE>
Exhibit 9(g)
ADMINISTRATIVE SERVICES AGREEMENT
Administrative Services Agreement for each series as set forth on Schedule
A (the "Agreement") dated ________________, by and between RUPAY-BARRINGTON
TOTAL RETURN FUND, INC. (the "Corporation"), a diversified, open-end management
investment company, duly organized as a corporation in accordance with the laws
of the State of Maryland, and COMMONWEALTH SHAREHOLDER SERVICES, INC. ("CSS"), a
corporation duly organized as a corporation in accordance with the laws of the
Commonwealth of Virginia.
WITNESSETH THAT:
WHEREAS, the Corporation desires to appoint CSS as its Administrator to
perform certain recordkeeping and shareholder servicing functions required of a
duly registered investment company to comply with certain provisions of federal,
state and local law, rules and regulations, and to assist the Corporation in
preparing and filing certain financial reports (including quarterly, semi-annual
and annual reports to shareholders, Form N-SAR reports, and post-effective
amendments to the Corporation's registration statement).
WHEREAS, CSS may, if requested, perform certain daily functions in
connection with the on-going operations of the Corporation, as mutually agreed
upon, and provide ministerial services to implement the investment decisions of
the Corporation and its investment advisor; and
WHEREAS, CSS is willing to perform such functions upon the
terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
agree as follows:
Section 1. CSS shall examine and review all records and documents of
the Corporation pertaining to its duties under this Agreement in order to
determine and/or recommend how such records and documents shall be maintained.
Section 2. CSS shall, as necessary for such purposes, advise the
Corporation and its agents of the information which is deemed to be "necessary"
for the performance of its duties under this Agreement, and upon receipt of
necessary information and Written or Oral Instructions from the Corporation,
shall maintain and keep current such shareholder relations records.
Unless the information necessary to perform the above functions is
furnished in writing to CSS by the Corporation or its agents (such as
Custodians, Transfer Agents, etc.), CSS shall incur no liability and the
Corportion shall indemnify and hold harmless
<PAGE>
CSS from and against any liability arising from any discrepancy in the
information received by CSS and used in the performance by CSS of its duties.
It shall be the responsibility of the Corporation to furnish CSS with
the net asset value per share, declaration, record and payment dates and amounts
of any dividends or distributions of income or gains (including the status of
same) and any other special actions required concerning each of its securities.
CSS shall maintain such shareholder records above mentioned as required
by regulation and as agreed upon between the Corporation and CSS.
Section 3. CSS shall provide assistance to the Corporation in the
servicing of shareholder accounts, which may include telephone and written
conversations, assistance in redemptions, exchanges, transfers and opening
accounts as may be required from time to time. CSS shall, at the direction of
the Corporation, also prepare and maintain the Corporation's Blue Sky
registrations. CSS shall, in addition, provide such additional administrative
non-advisory management services as it and the Corporation may from time to time
agree.
Section 4. The accounts and records maintained by CSS shall be the
property of the Corporation, and shall be made available to the Corporation,
within a reasonable period of time, upon demand. CSS shall assist the
Corporation's independent auditors, or any other person authorized by the
Corporation or, upon demand, any regulatory body as authorized by law or
regulation, in any requested review of the Corporation's accounts and records
but shall be reimbursed for all reasonable and documented expenses and employee
time invested in any such review outside of routine and normal periodic reviews.
Upon receipt from the Corporation of any necessary information, CSS shall assist
the Corporation in organizing necessary data for the Corporation's completion of
any necessary tax returns, questionnaires, periodic reports to shareholders and
such other reports and information requests as the Corporation and CSS shall
agree upon from time to time.
Section 5. CSS and the Corporation may from time to time adopt
procedures they agree upon, and, absent knowledge to the contrary, CSS may
conclusively assume that any procedure approved by the Corporation or directed
by the Corporation, does not conflict with or violate any requirements of
Corporation's Prospectus, Articles of Incorporation, By-Laws, registration
statement, orders, or any rule or regulation of any regulatory body or
governmental agency. The Corporation (acting through its officers or other
agents) shall be responsible for notifying CSS of any changes in regulations or
rules which might necessitate changes in the Corporation's procedures.
Section 6. CSS may rely upon the advice of the Corporation
and upon statements of the Corporation's lawyers, accountants and
<PAGE>
other persons believed by it in good faith to be expert in matters upon which
they are consulted, and CSS shall not be liable for any actions taken in good
faith upon such statements.
Section 7. CSS shall not be liable for any actions taken in good faith
reliance upon any authorized Oral Instructions, any Written Instructions, and
certified copy of any resolution of the Board of Directors of the Corporation or
any other document reasonably believed by CSS to be genuine and to have been
executed or signed by the proper person or persons.
CSS shall not be held to have notice of any change of authority of any
officer, employee or agent of the Corporation until receipt of notification
thereof from the Corporation.
The Corporation shall indemnify and hold CSS harmless from any and all
expenses, damages, claims, suits, liabilities, actions, demands and losses
whatsoever arising out of or in connection with any error, omission, inaccuracy
or other deficiency of any information provided to CSS by the Corporation or any
agent of the Corporation acting within the scope of its duties (except
information provided by agents of the Corporation who are acting in a capacity
arising from his or her position with CSS, or when such agent is acting through
individuals who are employed by and subject to the supervisory control of CSS),
or the failure of the Corporation to provide any information needed by CSS
knowledgeably to perform its functions hereunder (excluding any such failure by
an agent of the Corporation acting in a capacity arising from his or her
position with CSS, or when such agent is acting through individuals who are
employed by and subject to the supervisory control of CSS). Also, the
Corporation shall indemnify and hold harmless CSS from all claims and
liabilities (including reasonable documented expenses for legal counsel)
incurred by or assessed against CSS in connection with the performance of this
Agreement, except such as may arise from CSS's own grossly negligent action,
omission or willful misconduct; provided, however, that before confessing any
claim against it, CSS shall give the Corporation reasonable opportunity to
defend against such claim in the name of the Corporation or CSS or both.
Section 8. The Corporation agrees to pay CSS compensation for its
services and to reimburse it for expenses, as set forth in the Schedule attached
hereto, or as shall be set forth in amendments to such schedule approved by the
Corporation's Board of Directors and CSS.
Section 9. Except as required by laws and regulations governing
investment companies, nothing contained in this Agreement is intended to or
shall require CSS, in any capacity hereunder, to
<PAGE>
perform any functions or duties on any holiday or other day of special
observance on which CSS is closed. Functions or duties normally scheduled to be
performed on such days shall be performed on, and as of, the next business day
on which both the Corporation and CSS are open. CSS will be open for business on
days when the Corporation is open for business and/or as otherwise set forth in
the Corporation's Prospectus and Statement of Additional Information.
Section 10. Either the Corporation or CSS may give written notice to
the other of the termination of this Agreement, such termination to take effect
at the time specified in the notice, which time shall be not less than 90 days
from the giving of such notice. Such termination shall be without penalty.
Section 11. Any notice or other communication required by or permitted
to be given in connection with this Agreement shall be in writing, and shall be
delivered in person or sent by first-class mail, postage prepaid, to the
respective parties at their last known address, except that Oral Instructions
may be given if authorized by the Board of the Corporation and preceded by a
certificate from the Corporation's secretary so attesting.
Notices to the Corporation shall be directed to:
595 Market Street
Suite 1980
San Francisco, CA 94105
Notices to CSS shall be directed to:
1500 Forest Ave.
Suite 223
Richmond, VA 23229
Section 12. This Agreement may be executed in two or more counterparts,
each of which, when so executed, shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
Section 13. This Agreement shall extend to and shall be binding upon
the parties hereto and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Corporation without
the written consent of CSS, or by CSS without the written consent of the
Corporation, authorized or approved by a resolution of its Board of Directors.
Section 15. For purposes of this Agreement, the terms Oral Instructions
and Written Instructions shall mean:
Oral Instructions: The term Oral Instruction shall mean an
authorization, instruction, approval, item or set of data, or
information of any kind transmitted to CSS in person or by
telephone, telegram, telecopy, or other mechanical or documentary
<PAGE>
-5-
means lacking a signature, by a person or persons believed in good faith by CSS
to be a person or persons authorized by a resolution of the Board of Directors
of the Corporation, to give Oral Instructions on behalf of the Corporation.
Written Instructions: The term Written Instruction shall mean an
authorization, instruction, approval, item or set of data, or information of any
kind transmitted to CSS in original writing containing original signatures or a
copy of such document transmitted by telecopy including transmission of such
signature believed in good faith by CSS to be the signature of a person
authorized by a resolution of the Board of Directors of the Corporation to give
Written Instructions on behalf of the Corporation.
The Corporation shall file with CSS a certified copy of each resolution
of its Board of Directors authorizing execution of Written Instructions or the
transmittal of Oral Instructions as provided above.
Section 16. This Agreement shall be governed by the laws of the State
of Virginia.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers as of the day and year first above
written.
RUPAY-BARRINGTON TOTAL RETURN FUND, INC.
By:______________________________
Ftitz Bensler
President
COMMONWEALTH SHAREHOLDER SERVICES, INC.
By:____________________________
John Pasco, III
<PAGE>
Chief Executive Officer
-6-
SCHEDULE A TO
ADMINISTRATIVE SERVICES AGREEMENT
BY AND BETWEEN
RUPAY-BARRINGTON TOTAL RETURN FUND, INC.
AND
COMMONWEALTH SHAREHOLDER SERVICES, INC.
FOR
RUPAY-BARRINGTON TOTAL RETURN FUND
Pursuant to Section 8 of the Administrative Services
Agreement, dated ________________, by and between Rupay Barrington
Total Return Fund, Inc. for the Rupay-Barrington Total Return Fund,
one of its series (the "Fund"), and Commonwealth Shareholder
Services, Inc. ("CSS"), the Fund shall pay CSS a fee calculated and
paid monthly as follows:
A. For the performance of Blue Sky matters, CSS shall be paid at
the rate of $30 per hour of actual time used.
B. For shareholder servicing, CSS shall be paid at the rate of
$30 per hour of actual time used.
C. For all other administration, CSS shall be paid a fee at the
rate of 0.2% per annum of the average daily net assets of the
Fund, payable monthly, with a minimum fee of $30,000.
D. In addition to the foregoing, the Fund shall reimburse CSS for
all expenses incurred by it on behalf of the Fund. Such out-
of-pocket expenses shall include, but not be limited to:
documented fees and costs of obtaining advice of counsel or
accountants in connection with its services to the Fund;
postage; long distance telephone; special forms required by
the Fund; any travel which may be required in the performance
of its duties to the Fund; and any other extraordinary
expenses it may incur in connection with its services to the
Fund.
<PAGE>
SCHEDULE A TO
ADMINISTRATIVE SERVICES AGREEMENT
BY AND BETWEEN
RUPAY-BARRINGTON TOTAL RETURN FUND, INC.
AND
COMMONWEALTH SHAREHOLDER SERVICES, INC.
FOR
RUPAY-BARRINGTON GROWTH FUND
Pursuant to Section 8 of the Administrative Services Agreement, dated
________________, by and between Rupay-Barrington Total Return Fund, Inc. for
the Rupay-Barrington Growth Fund, one of its series (the "Fund"), and
Commonwealth Shareholder Services, Inc. ("CSS"), the Fund shall pay CSS a fee
calculated and paid monthly as follows:
A. For the performance of Blue Sky matters, CSS shall be paid at
the rate of $30 per hour of actual time used.
B. For shareholder servicing, CSS shall be paid at the rate of
$30 per hour of actual time used.
C. For all other administration, CSS shall be paid a fee at the
rate of 0.2% per annum of the average daily net assets of the
Fund, payable monthly, with a minimum fee of $30,000.
D. In addition to the foregoing, the Fund shall reimburse CSS for
all expenses incurred by it on behalf of the Fund. Such out-
of-pocket expenses shall include, but not be limited to:
documented fees and costs of obtaining advice of counsel or
accountants in connection with its services to the Fund;
postage; long distance telephone; special forms required by
the Fund; any travel which may be required in the performance
of its duties to the Fund; and any other extraordinary
expenses it may incur in connection with its services to the
Fund.
<PAGE>
SCHEDULE A TO
ADMINISTRATIVE SERVICES AGREEMENT
BY AND BETWEEN
RUPAY BARRINGTON TOTAL RETURN FUND, INC.
AND
COMMONWEALTH SHAREHOLDER SERVICES, INC.
FOR
RUPAY-BARRINGTON VALUE EQUITY FUND
Pursuant to Section 8 of the Administrative Services
Agreement, dated ________________, by and between Rupay-Barrington
Total Return Fund, Inc. for the Rupay-Barrngton Value Equity Fund,
one of its series (the "Fund"), and Commonwealth Shareholder
Services, Inc. ("CSS"), the Fund shall pay CSS a fee calculated and
paid monthly as follows:
A. For the performance of Blue Sky matters, CSS shall be paid at
the rate of $30 per hour of actual time used.
B. For shareholder servicing, CSS shall be paid at the rate of
$30 per hour of actual time used.
C. For all other administration, CSS shall be paid a fee at the
rate of 0.2% per annum of the average daily net assets of the
Fund, payable monthly, with a minimum fee of $30,000.
D. In addition to the foregoing, the Fund shall reimburse CSS for
all expenses incurred by it on behalf of the Fund. Such out-
of-pocket expenses shall include, but not be limited to:
documented fees and costs of obtaining advice of counsel or
accountants in connection with its services to the Fund;
postage; long distance telephone; special forms required by
the Fund; any travel which may be required in the performance
of its duties to the Fund; and any other extraordinary
expenses it may incur in connection with its services to the
Fund.
<PAGE>
Exhibit 9(h)
AMENDMENT TO EXPENSE LIMITATION AGREEMENT
THIS AMENDMENT TO EXPENSE LIMITATION AGREEMENT is made and entered into
as of the _____ day of __________, 1998, for the purpose of amending that
certain Expense Limitation Agreement by and between Rupay-Barrington Total
Return Fund, Inc., f/k/a Valley Forge Capital Holdings Total Return Fund, Inc.
(the "Corporation") and The Rupay-Barrington Financial Group, Inc., f/k/a Valley
Forge Capital Holdings, Inc., a Nevada corporation ("Rupay-Barrington
Financial").
A. WHEREAS, effective November 29, 1997, the Corporation changed its legal
name from "Valley Forge Capital Holdings Total Return Fund, Inc." to its current
legal name of "Rupay-Barrington Total Return Fund, Inc.";
B. WHEREAS, effective June 9, 1997, the Rupay-Barrington Financial changed
its legal name from "Valley Forge Capital Holdings, Inc." to its current legal
name of "The Rupay-Barrington Financial Group, Inc.";
C. WHEREAS, the Corporation has filed Articles Supplementary with the State
Department of Assessments and Taxation of Maryland to classify and reclassify
the shares of capital stock of the Corporation (the "Shares") as follows: all
unissued Shares being classified into a number of series and all issued and
outstanding Shares being reclassified into a series (each series being referred
to herein as a "Series"); and
D. WHEREAS, the Corporation and the Rupay-Barrington Financial now wish to
amend the Expense Limitation Agreement to reflect the name changes and certain
changes for the Series.
NOW, THEREFORE, the parties agree to amend the Expense Limitation
Agreemen as follows:
1. In all places where the name "Valley Forge Capital Holdings Total Return
Fund, Inc." appears in the Distribution Agreement, the name "Rupay-Barrington
Total Return Fund, Inc." shall be substituted and in all places where
Rupay-Barrington Total Return Fund, Inc. is referred to as the "Fund" , the
designation "Corporation" shall be substituted.
2. In all places where the name "Valley Forge Capital Holdings, Inc."
appears in the Distribution Agreement, the name "The Rupay-Barrington Financial
Group, Inc." shall be substituted and in all places where The Rupay-Barrington
Financial Group, Inc. is referred to as "Valley Forge Capital", the designation
"Rupay-Barrington Financial" shall be substituted.
3. The section of the Expense Limitation Agreement entitled "Background
Statement" is hereby amended and restated in its entirety to read as follows:
Background Statement
The Corporation is a series company and a registered
management investment company. The various series of the
capital stock of the Corporation (the shares of capital stock
in any and all series being referred to herein as the
"Shares") include the Rupay-Barrington Total Return Fund, the
Rupay-Barrington Growth Fund and the Rupay-Barrington Value
Equity Fund (each series referred to herein as a "Series").
Pursuant to the terms of (i) the Amended and Restated
Investment Advisory Agreement by and between the Corporation
and Rupay-Barrington Advisors, Inc., ("Rupay-Barrington
Advisors") dated the _____ day of __________, 1998, (the
"Total Return Fund Advisory Agreement"); (ii) the Investment
Advisory Agreement by and between the Corporation and
Rupay-Barrington Advisors dated the _____ day of __________,
1998, (the "Growth Fund Advisory Agreement") and (iii) the
Investment Advisory Agreement by and between the Corporation
and Rupay-Barrington Advisors dated the _____ day of
__________, 1998, (the "Value Equity Fund Advisory
Agreement"), the Corporation is obligated to pay all expenses
of the operations of each Series of the Corporation not
otherwise specifically assumed by Rupay-Barrington Advisors.
Although it is not anticipated that total operating expenses
of any Series will exceed the amounts set forth in the
Corporation's Prospectus for such Series, it is possible that
the expenses to be incurred by the Corporation in its
operations of any Series may exceed those amounts during the
initial period of operations of a Series. Rupay-Barrington
Financial, and the Corporation desire to limit the operational
expense to be paid by the Corporation during such initial
period of operation.
4. The section of the Expense Limitation Agreement entitled "Statement of
Agreement" is hereby amended and restated in its entirety to read as follows:
Statement of Agreement
In consideration of the premises and of the mutual
covenants and conditions contained herein, and for other good
and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto, intending to
be legally bound, agree for themselves, their successors and
assigns as follows:
For a period of five (5) years from: (i) February 24, 1995,
Rupay-Barrington Financial agrees to pay on behalf of the
Corporation such expenses associated with the operation of the
Rupay-Barrington Total Return Fund as would cause the
Rupay-Barrington Total Return Fund's ratio of operating
expenses to average net assets to exceed 1.95%.; (ii)
____________, 1998, Rupay-Barrington Financial agrees to pay
on behalf of the Corporation such expenses associated with the
operation of the Rupay-Barrington Growth Fund as would cause
the Rupay-Barrington Growth Fund's ratio of operating
expenses to average net assets to exceed 1.85%; (iii)
____________, 1998, Rupay-Barrington Financial agrees to pay
on behalf of the Corporation such expenses associated with the
operation of the Rupay-Barrington Value Equity Fund as would
cause the Rupay-Barrington Value Equity Fund's ratio of
operating expenses to average net assets to exceed 1.85%. Any
payments to be made by Rupay-Barrington Financial hereunder
shall be paid by Rupay-Barrington Financial annually upon 30
days written notice to Rupay-Barrington Financial from the
Corporation, it being anticipated that such notice will be
given on a basis that will permit the payment of such expenses
on or before the Corporation's fiscal year end. In the event
in any given year it is determined that the amount paid by
Rupay-Barrington Financial is less than or in excess of the
amount owed by Rupay-Barrington Financial hereunder, any
deficit will be promptly remitted to the Corporation by
Rupay-Barrington Financial and any excess will be promptly
remitted by the Corporation to Rupay-Barrington Financial.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
the Expense Limitation Agreement as of the date first above written.
RUPAY-BARRINGTON TOTAL RETURN FUND, INC.
By:___________________________
Name:_________________________
Its:__________________________
THE RUPAY-BARRINGTON FINANCIAL GROUP, INC.
By:___________________________
Name:_________________________
Its:__________________________
<PAGE>
Exhibit 9(i)
Amendment to Accounting Services Agreement
In accordance with Section 18 of the contract dated October 1, 1996 between
Commonwealth Fund Accounting, Inc. and the Valley Forge Capital Holdings Total
Return Fund, the first paragraph is hereby modified to read "Agreement dated
October 1, 1996 (the "Agreement") between Rupay-Barrington Total Return Fund,
Inc. (the "Fund") a corporation operating as an open-end management investment
company, duly organized and existing under the laws of the State of Maryland and
Commonwealth Fund Accounting, Inc. (the "Company") a corporation duly organized
and existing under the laws of the State of Virginia."
_______________________ ___________________
J. Michael Tuohey Larry S. Mao
President CFA, Inc. Vice President
Rupay-Barrington Total Return Fund, Inc.
<PAGE>
Exhibit 10
(312) 207-6463
May 4, 1998
Board of Directors
Rupay-Barrington
Total Return Fund, Inc.
1000 Ballpark Way, Suite 302
Arlington, Texas 76011
Re: Rupay-Barrington Total Return Fund, Inc.
Post-Effective Amendment No. 4 to Registration Statement on Form N-1A
Registration No. (33-79068)
To The Board Of Directors:
At your request, we have examined the above-referenced Post-Effective
Amendment to the Registration Statement on Form N-1A (the "Registration
Statement") to be filed by Rupay-Barrington Total Return Fund, Inc., a series
company and a registered management investment company organized as a Maryland
corporation (the "Corporation") with the Securities and Exchange Commission
under the Securities Act of 1933, as amended and the Investment Company Act
of 1940, as amended, with respect to the offering on a continuous basis of an
indefinite number of shares of capital stock of the Corporation, par value
$.01 per share (the "Capital Stock").
As counsel to the Corporation, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the Articles of
Amendment and Restatement of the Corporation, as amended, the Form of Articles
Supplementary to be filed with the Maryland State Department of Assessments and
Taxation (the "Maryland State Department"), the Bylaws of the Corporation and
such other documents, corporate records, certificates of public officials and
instruments as we have considered necessary or advisable for the purpose of this
opinion. We have assumed the authenticity of all documents submitted to us as
originals and the conformity to original documents of all documents submitted to
us as copies. We have not independently verified such assumptions.
We are members of the Bar of the State of Illinois and we express no
opinion as to the law of any jurisdiction other than the laws of the State of
Illinois and the federal laws of the United States.
Subject to the foregoing and based on such examination, we are of the
opinion that, upon filing of the Articles Supplementary with the Maryland State
Department, the shares of the Corporation's Capital Stock to be issued and sold
by the Corporation pursuant to the Registration Statement
<PAGE>
Board of Directors
April 29, 1998
Page 2
will be, upon issuance, sale and delivery in the manner and under the terms and
conditions described in the Registration Statement, legally issued, fully paid
and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us contained in the "Legal
Matters" section of the Registration Statement, including the Statement of
Additional Information constituting a part thereof.
Very truly yours,
SACHNOFF & WEAVER, LTD.
/s/ Sachnoff & Weaver, Ltd.
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the references to our firm in Post-Effective Amendment No. 4 to
the Registration Statement on Form N-IA of the Rupay-Barrington Total Return
Fund, Inc. and to the use of our report dated January 23, 1998 on the
financial statements and financial highlights. Such financial statements
and financial highlights are included in the Statement of Additional
Information, which is a part of such Registration Statement.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 27, 1998
<PAGE>
Exhibit 15(b)
RUPAY-BARRINGTON TOTAL RETURN FUND, INC.
TOTAL RETURN FUND
AMENDMENT TO
DISTRIBUTION PLAN AND AGREEMENT
THIS AMENDMENT TO DISTRIBUTION PLAN AND AGREEMENT is made and entered
into this __ day of ______, 1998, for the purpose of amending that certain
Distribution Plan and Agreement (the "Plan") by and among Rupay-Barrington Total
Return Fund, Inc., f/k/a Valley Forge Capital Holdings Total Return Fund, Inc.,
a Maryland corporation (the "Corporation") and Rupay-Barrington Securities
Corporation, f/k/a Valley Forge Distributors, Inc., a Nevada corporation (the
"Distributor").
WHEREAS, effective November 29, 1997, the Corporation changed its legal
name from "Valley Forge Capital Holdings Total Return Fund, Inc." to its current
legal name of "Rupay-Barrington Total Return Fund, Inc.";
WHEREAS, effective June 9, 1997, the Distributor changed its legal name
from "Valley Forge Distributors, Inc." to its current legal name of
"Rupay-Barrington Securities Corporation";
WHEREAS, the Corporation has filed Articles Supplementary with the State
Department of Assessments and Taxation of Maryland to classify and reclassify
the shares of capital stock of the Corporation (the "Shares") as follows: all
unissued Shares being classified into a number of series and all issued and
outstanding Shares being reclassified into a series (each series being referred
to herein as a "Series"); and
WHEREAS, the Corporation and the Distributor now wish to amend the
Distribution Plan and Agreement to reflect the name changes and the Series.
NOW, THEREFORE, the parties agree to amend the Distribution Agreement as
follows:
In all places where the name "Valley Forge Capital Holdings Total Return
Fund, Inc." appears in the Distribution Agreement, the name "Rupay-Barrington
Total Return Fund, Inc." shall be substituted and in all places where
Rupay-Barrington Total Return Fund, Inc. is referred to as the "Fund", the
designation "Corporation" shall be substituted.
In all places where the name "Valley Forge Distributors, Inc." appears in
the Agreement, the name "Rupay-Barrington Securities Corporation" shall be
substituted and in all places where Rupay-Barrington Securities Corporation is
referred to as the "Valley Forge Distributors", the designation "Distributor"
shall be substituted.
The first paragraph of the Plan is hereby amended and restated in its
entirety to read as follows:
This Distribution Plan and Agreement (the "Plan") constitutes the
Distribution Plan for the Total Return Fund series (the "Series") of
Rupay-Barrington Total Return Fund, Inc., a Maryland corporation (the
"Corporation"), adopted pursuant to the provisions of Rule 12b-1 under the
Investment Company Act of 1940 (the "Act") and the related agreement
between the Corporation and Rupay-Barrington Securities Corporation, a
Nevada corporation (the "Distributor"), the principal underwriter of the
shares of the Corporation in any and all series into which such shares are
or may be
<PAGE>
classified. During the effective term of this Plan, the Fund may make
payments to the Distributor upon the terms and conditions hereinafter set
forth.
Section 1 of the Plan is hereby amended and restated in its entirety to
read as follows:
The Corporation may make payments to the Distributor, in the form of
fees or reimbursements, to compensate the Distributor for services
provided and expenses incurred by it for purposes of promoting the
sale of shares of the Series, reducing redemptions of shares, or
maintaining or improving services provided to shareholders of the
Series by the Distributor and investment dealers. The amount of such
payments and the purposes for which they are made shall be determined
by the Qualified Directors (as defined below). Payments under this
Plan shall not exceed in any fiscal quarter the annual rate of .35%
of the average net asset value of the Series, as determined at the
close of each business day during the month. A majority of the
Qualified Directors may, at any time and from time to time, reduce
the amount of such payments, or may suspend the operation of the Plan
for such period or periods of time as they may determine.
Section 2(a) of the Plan is hereby amended and restated in its entirety to
read as follows:
it has been approved by a vote of a majority of the outstanding
voting securities of the Series; and
Section 5 of the Plan is hereby amended and restated in its entirety to
read as follows:
This Plan may be terminated at any time by vote of a majority of the
Qualified Directors, or by vote of a majority of the outstanding
voting securities of the Series.
Section 7(a) of the Plan is hereby amended and restated in its entirety to
read as follows:
that such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Qualified Directors or by
vote of a majority of the outstanding voting securities of the
Series, on not more than 60 days' written notice to any other party
to the agreement; and
Section 8 of the Plan is hereby amended and restated in its entirety to
read as follows:
This Plan may not be amended to increase materially the amount of
distribution expenses permitted pursuant to Section 1 hereof without
the approval of a majority of the outstanding voting securities of
the Series, and all other material amendments to this Plan shall be
approved in the manner provided for approval of this Plan in Section
2(b) hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date first above written.
RUPAY-BARRINGTON TOTAL RETURN FUND, INC.
By:____________________________
Name:____________________
Its:_____________________
RUPAY-BARRINGTON SECURITIES CORPORATION
By:_____________________________
Name:_____________________
Its:______________________
<PAGE>
Exhibit 15(c)
RUPAY-BARRINGTON TOTAL RETURN FUND, INC.
GROWTH FUND
DISTRIBUTION PLAN AND AGREEMENT
This Distribution Plan and Agreement (the "Plan") constitutes the
Distribution Plan for the Growth Fund series (the "Series") of Rupay-Barrington
Total Return Fund, Inc., a Maryland corporation (the "Corporation"), adopted
pursuant to the provisions of Rule 12b-1 under the Investment Company Act of
1940 (the "Act") and the related agreement between the Corporation and
Rupay-Barrington Securities Corporation, a Nevada corporation (the
"Distributor"), the principal underwriter of the shares of the Corporation in
any and all series into which such shares are or may be classified. During the
effective term of this Plan, the Corporation may make payments to the
Distributor upon the terms and conditions hereinafter set forth.
Section 1. The Corporation may make payments to the Distributor, in the
form of fees or reimbursements, to compensate the Distributor for services
provided and expenses incurred by it for purposes of promoting the sale of
shares of the Series, reducing redemptions of shares, or maintaining or
improving services provided to shareholders of the Series by the Distributor and
investment dealers. The amount of such payments and the purposes for which they
are made shall be determined by the Qualified Directors (as defined below).
Payments under this Plan shall not exceed in any fiscal quarter the annual rate
of .35% of the average net asset value of the Series, as determined at the close
of each business day during the month. A majority of the Qualified Directors
may, at any time and from time to time, reduce the amount of such payments, or
may suspend the operation of the Plan for such period or periods of time as they
may determine.
Section 2. This Plan shall not take effect until:
(a) it has been approved by a vote of a majority of the outstanding
voting securities of the Series; and
(b) it has been approved, together with any related agreements, by votes,
of the majority (or whatever greater percentage may, from time to time, be
required by Section 12(b) of the Act or the rules and regulations
(hereunder) of both (i) the Board of Directors of the Corporation, and
(ii) the Qualified Directors of the Corporation, cast in person at a
meeting called for the purpose of voting on this Plan or such agreement.
Section 3. This Plan shall continue in effect for a period of more than
one year after it takes effect only so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 2(b).
Section 4. The Distributor shall provide to the Board of Directors of the
Corporation, and the Board of Directors shall review, at least quarterly, a
written report of amounts expended and the purpose for which such expenditures
were made.
Section 5. This Plan may be terminated at any time by vote of a majority
of the Qualified Directors, or by vote of a majority of the outstanding voting
securities of the Series.
Section 6. This Plan shall terminate automatically in the event of its
assignment.
<PAGE>
Section 7. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to the Plan shall
provide:
(a) that such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Qualified Directors or by vote
of a majority of the outstanding voting securities of the Series, on not
more than 60 days' written notice to any other party to the agreement; and
(b) that such agreement shall terminate automatically in the event of its
assignment.
Section 8. This Plan may not be amended to increase materially the amount
of distribution expenses permitted pursuant to Section 1 hereof without the
approval of a majority of the outstanding voting securities of the Series, and
all other material amendments to this Plan shall be approved in the manner
provided for approval of this Plan in Section 2(b) hereof.
Section 9. As used in this Plan, (a) the term "Qualified Directors" shall
mean those Directors of the Corporation who are not interested persons of the
Corporation, and have no direct or indirect financial interest in the operation
of this Plan or any agreements related to it, and (b) the terms "assignment",
"interested person" and "vote of a majority of the outstanding securities" shall
have the respective meanings specified in the Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission.
Section 10. A copy of the Articles of Incorporation of the Corporation is
on file with the Secretary of State of the State of Maryland and notice is
hereby given that this instrument is executed on behalf of the directors of the
Corporation as Directors and not individually, and that the obligations of or
arising out of this instrument are not binding upon any of the Directors,
offices or shareholders individually but are binding only upon the assets and
property of the Corporation.
Executed as of __________________, 1998.
RUPAY-BARRINGTON SECURITIES RUPAY-BARRINGTON TOTAL RETURN
CORPORATION FUND, INC.
By:________________________________ By:________________________________
President President
<PAGE>
Exhibit 15(d)
RUPAY-BARRINGTON TOTAL RETURN FUND, INC.
VALUE EQUITY FUND
DISTRIBUTION PLAN AND AGREEMENT
This Distribution Plan and Agreement (the "Plan") constitutes the
Distribution Plan for the Value Equity Fund series (the "Series") of
Rupay-Barrington Total Return Fund, Inc., a Maryland corporation (the
"Corporation"), adopted pursuant to the provisions of Rule 12b-1 under the
Investment Company Act of 1940 (the "Act") and the related agreement between the
Corporation and Rupay-Barrington Securities Corporation, a Nevada corporation
(the "Distributor"), the principal underwriter of the shares of the Corporation
in any and all series into which such shares are or may be classified. During
the effective term of this Plan, the Corporation may make payments to the
Distributor upon the terms and conditions hereinafter set forth.
Section 1. The Corporation may make payments to the Distributor, in the
form of fees or reimbursements, to compensate the Distributor for services
provided and expenses incurred by it for purposes of promoting the sale of
shares of the Series, reducing redemptions of shares, or maintaining or
improving services provided to shareholders of the Series by the Distributor and
investment dealers. The amount of such payments and the purposes for which they
are made shall be determined by the Qualified Directors (as defined below).
Payments under this Plan shall not exceed in any fiscal quarter the annual rate
of .35% of the average net asset value of the Series, as determined at the close
of each business day during the month. A majority of the Qualified Directors
may, at any time and from time to time, reduce the amount of such payments, or
may suspend the operation of the Plan for such period or periods of time as they
may determine.
Section 2. This Plan shall not take effect until:
(a) it has been approved by a vote of a majority of the outstanding
voting securities of the Series; and
(b) it has been approved, together with any related agreements, by votes,
of the majority (or whatever greater percentage may, from time to time, be
required by Section 12(b) of the Act or the rules and regulations
(hereunder) of both (i) the Board of Directors of the Corporation, and
(ii) the Qualified Directors of the Corporation, cast in person at a
meeting called for the purpose of voting on this Plan or such agreement.
Section 3. This Plan shall continue in effect for a period of more than
one year after it takes effect only so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 2(b).
Section 4. The Distributor shall provide to the Board of Directors of the
Corporation, and the Board of Directors shall review, at least quarterly, a
written report of amounts expended and the purpose for which such expenditures
were made.
Section 5. This Plan may be terminated at any time by vote of a majority
of the Qualified Directors, or by vote of a majority of the outstanding voting
securities of the Series.
Section 6. This Plan shall terminate automatically in the event of its
assignment.
<PAGE>
Section 7. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to the Plan shall
provide:
(a) that such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Qualified Directors or by vote
of a majority of the outstanding voting securities of the Series, on not
more than 60 days' written notice to any other party to the agreement; and
(b) that such agreement shall terminate automatically in the event of its
assignment.
Section 8. This Plan may not be amended to increase materially the amount
of distribution expenses permitted pursuant to Section 1 hereof without the
approval of a majority of the outstanding voting securities of the Series, and
all other material amendments to this Plan shall be approved in the manner
provided for approval of this Plan in Section 2(b) hereof.
Section 9. As used in this Plan, (a) the term "Qualified Directors" shall
mean those Directors of the Corporation who are not interested persons of the
Corporation, and have no direct or indirect financial interest in the operation
of this Plan or any agreements related to it, and (b) the terms "assignment",
"interested person" and "vote of a majority of the outstanding securities" shall
have the respective meanings specified in the Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission.
Section 10. A copy of the Articles of Incorporation of the Corporation is
on file with the Secretary of State of the State of Maryland and notice is
hereby given that this instrument is executed on behalf of the directors of the
Corporation as Directors and not individually, and that the obligations of or
arising out of this instrument are not binding upon any of the Directors,
offices or shareholders individually but are binding only upon the assets and
property of the Corporation.
Executed as of __________________, 1998.
RUPAY-BARRINGTON SECURITIES RUPAY-BARRINGTON TOTAL RETURN
CORPORATION FUND, INC.
By:________________________________ By:________________________________
President President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1632575
<INVESTMENTS-AT-VALUE> 1674837
<RECEIVABLES> 7577
<ASSETS-OTHER> 106031
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2229236
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27344
<TOTAL-LIABILITIES> 27344
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2094620
<SHARES-COMMON-STOCK> 227517
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 65010
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 42262
<NET-ASSETS> 2201892
<DIVIDEND-INCOME> 56376
<INTEREST-INCOME> 81876
<OTHER-INCOME> 0
<EXPENSES-NET> 74242
<NET-INVESTMENT-INCOME> 64010
<REALIZED-GAINS-CURRENT> 152327
<APPREC-INCREASE-CURRENT> 193117
<NET-CHANGE-FROM-OPS> 409454
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 68866
<DISTRIBUTIONS-OF-GAINS> 147579
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 74341
<NUMBER-OF-SHARES-REDEEMED> 375106
<SHARES-REINVESTED> 21591
<NET-CHANGE-IN-ASSETS> (2723843)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30443
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 145623
<AVERAGE-NET-ASSETS> 3805375
<PER-SHARE-NAV-BEGIN> 9.72
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> .67
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .91
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.68
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
