Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 68)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Material
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
INVESTORS RESEARCH FUND, INC.
(Name of Registrant as Specified in Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
INVESTORS RESEARCH FUND, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 31, 1998
Notice is hereby given that the annual meeting of the shareholders of INVESTORS
RESEARCH FUND, INC. will be held on Tuesday, March 31, 1998, 10:30 A.M. at the
Pepper Tree Inn, (Tree Top Room), 3850 State Street, Santa Barbara, California,
for the following purposes:
1. To elect a Board of Directors to serve until the next annual meeting
of shareholders and until their successors are elected and qualified.
2. To ratify the selection of Timpson Garcia as the independent Certified
Public Accountants to be employed by the corporation to sign or
certify financial statements which may be filed by the corporation
with the Securities and Exchange Commission.
3. To approve the proposed Investment Advisory Agreement with Fox Asset
Management, Inc.
4. The transaction of such other business as may properly come before the
meeting, or any adjournment or adjournments thereof.
This meeting is being held pursuant to the By-Laws of the corporation.
March 3, 1998
Michael A. Marshall
Secretary-Treasurer
IMPORTANT: THE MANAGEMENT HOPES THAT YOU CAN ATTEND THE ANNUAL MEETING. HOWEVER,
IF YOU ARE UNABLE TO BE PRESENT IN PERSON, YOU ARE EARNESTLY REQUESTED TO SIGN
AND RETURN THE ENCLOSED PROXY IN ORDER THAT THE NECESSARY QUORUM MAY BE
REPRESENTED AT THE MEETING. IF THE ENCLOSED PROXY IS EXECUTED AND RETURNED, IT
MAY NEVERTHELESS BE REVOKED AT THE MEETING OR AT ANY TIME BEFORE THE POLLS
CLOSE. THE ENCLOSED ADDRESSED ENVELOPE REQUIRES NO POSTAGE AND IS INTENDED FOR
YOUR CONVENIENCE.
PLEASE PROMPTLY RETURN THE ENCLOSED PROXY. YOU WILL ASSIST YOUR FUND IN AVOIDING
THE EXTRA EXPENSE OF FOLLOW-UP LETTERS.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS OF
INVESTORS RESEARCH FUND, INC.
(3757 State Street, Suite 204, Santa Barbara, California 93105)
This Statement is furnished in connection with a solicitation of proxies made by
and on behalf of INVESTORS RESEARCH FUND, INC. (hereafter called the "Fund"),
3757 State Street, Suite 204, Santa Barbara, California 93105, and its present
management, to be used at the annual meeting of shareholders of the Fund, to be
held on Tuesday, March 31, 1998, 10:30 A.M. at the PEPPER TREE INN, (Tree Top
Room), 3850 STATE STREET, SANTA BARBARA, CALIFORNIA, for the purposes set forth
in the accompanying Notice of Annual Meeting of Shareholders. Such solicitation
is made primarily by the mailing of this Statement with its enclosures. The
approximate date of first mailing is March 7, 1998.
Supplementary solicitation may be made by mail, telephone, telegraph, and by
personal contact by employees of the Fund and others. The expenses in connection
with preparing and mailing this Statement and its enclosures and of such
solicitations will be paid by the Fund. In some instances, said supplementary
solicitation may be made by securities dealers by whom shares of the Fund have
been sold and would be made at their own expense.
If the enclosed form of proxy is executed and returned, it may nevertheless be
revoked prior to the closing of the polls. A proxy may be revoked by written
notice to the Fund prior to the Annual Meeting of Shareholders, or by execution
of a subsequent proxy which is presented at the Annual Meeting of Shareholders,
or by personal vote at the Annual Shareholders Meeting. All proxies solicited by
the management which are properly executed and received in time will be voted in
the meeting. Such proxies will be voted in accordance with the instruction
thereon, if any, and if no specification is made, the proxy will be voted in
accordance with the judgment of the proxy holder. Discretionary authority is
conferred by the proxy as to all matters not specifically listed which may
properly come before the meeting. The management is not aware that any other
matters are to be presented for action.
As of February 6, 1998 there were issued and outstanding 8,388,491 shares of
capital stock of the Fund. Shareholders are entitled to one (1) vote for each
share of record at the close of business on February 6, 1998. Fund shareholders
have cumulative voting rights and every shareholder entitled to vote in the
election for directors has the right in person or by written proxy to multiply
the number of votes to which he is entitled by the number of directors to be
elected, and he may cast the whole number of such votes for one candidate, or he
may distribute them among two or more candidates. A shareholder may use his
right to cumulative voting by indicating on the face of the Proxy enclosed with
this Proxy Statement the candidate or candidates of his choice and the number of
votes cast for each such candidate. The candidates receiving the highest number
of votes up to the number to be elected, shall be elected. The presence in
person or by proxy of persons entitled to vote a majority of the outstanding
voting shares at any meeting shall constitute a quorum for the transaction of
business.
Abstentions and broker non-votes will be counted as present or represented at
the Annual Meeting for purposes of determining whether a quorum exists. However,
abstentions and broker non- votes with respect to any matter brought to a vote
at the Annual Meeting will be treated as shares not voted for purposes of
determining whether the requisite vote has been obtained. Also, if a broker
indicates on the proxy that it does not, as to certain shares, have
discretionary authority to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter. In view
of the requirement that there be a certain number of affirmative votes, an
abstention or a broker no-vote has a negative impact as to a matter brought to a
vote. See section below entitled "Vote Required."
The aggregate dollar amount of portfolio brokerage commissions paid during
Fiscal 1996-97 was $257,905. Of that amount, $82,151 was paid to Diversified
Securities, Inc., 3701 Long Beach Boulevard, Long Beach, CA 90801 (P. O. Box
357, Long Beach, CA 90807), the Fund's Principal Underwriter. That latter figure
represents 32% of the aggregate dollar amount of the commissions paid by the
Fund. Diversified Securities, Inc. handled 35.74 % of the brokerage transactions
effected during the year.
The matters to be acted upon pursuant to the proxy are:
Proposal 1. ELECTION OF DIRECTORS: It is the present intention that the enclosed
proxy will, in the absence of special designation by the shareholders signing
it, be used for the purpose of voting for election or re-election of the
following 13 persons as Directors of the Fund to hold office until the next
annual meeting of shareholders and until their successors are elected and
qualified. The shareholder may nominate and vote for other persons as directors
of the Fund by indicating their names and the number of votes cast for each
candidate on the enclosed proxy.
Capital Stock
Owned
Beneficially
Served Directly and
Name, Position with Fund Continuously Indirectly
and Principal Occupation as a Director as of
During the Past 5 Years Since Sept. 30, 1997
GERTRUDE B. CALDEN, Director and Member of the July 12, 1983 17,984 shares
Executive Committee, is Emeritus Director, Foundation
for Santa Barbara City College and has served under
three Presidents on the National Advisory Council on
Adult Education. 819 East Pedregosa Street,
Santa Barbara, CA 93103 (Age 88)
RICHARD CHERNICK, Director, is a retired partner January 22, 1997 3,563 shares
of the Los Angeles Law Firm of Gibson, Dunn & Crutcher
Currently he is active in arbitration and mediation
of disputes in the Los Angeles area
3055 Wilshire Boulevard, Seventh Floor,
Los Angeles, CA 90010-1108 (Age 52)
JAMES A. CORRADI, Director, is owner and December 2, 1994 595 shares
operator of Landscape Ties of California, Inc.,
a wood brokerage business; is a semi-retired
business executive, and former General Manager of
Hope Ranch Park Homes Association. 5014 Whitney Court,
Santa Barbara, CA 93111 (Age 68)
FREDRIC J. FRENCH,* Director, is President January 19, 1996 632 shares
of Merrimac Advisory Company, investment sub-adviser
to Lakeview Securities Corporation; formerly President
and Senior Portfolio Strategist of The Arms Companies
since November, 1992. 6201 Uptown Boulevard, N.E.,
Albuquerque, NM 87110 (Age 51)
HARRY P. GELLES, Director, is Managing Director January 22, 1997 2,888 shares
for Corporate Finance, in the Investment Banking Division
of Cruttenden-Roth, Irvine, California. Formerly was
Senior Vice-President of Chelsea Management Company,
an investment management company in Los Angeles,
California. 1114 State Street, Suite 236,
Santa Barbara, CA 93101 (Age 63)
HUGH J. HAFERKAMP,** President and Director, January 22, 1997 475 shares
is an attorney-at-law in private practice in the
Santa Barbara area. Has been legal counsel to
Investors Research Fund, Inc. for approximately
18 years. 11800 Baccarat Lane, N.E.,
Albuquerque, NM 87111 (Age 70)
LEONARD S. JARROTT, Director, is a Real Estate January 24, 1996 1,199 shares
Investment Adviser and independent Real Estate Broker
in Santa Barbara, California. 3532 Chuparosa Drive,
Santa Barbara, CA 93105 (Age 53)
MICHAEL A. MARSHALL,* Secretary-Treasurer, February 10, 1994 3,498 shares
Director and Member of the Executive Committee, is a
former Senior Vice-President of Prudential California
Realty and is engaged in real estate investment and property
management, M-P Marshall & Co., 23 Princeton Trail,
Coto De Caza, CA 92679 (Age 62)
WILLIAM J. NASIF, Director, is a certified public February 14, 1996 None
accountant and partner of Nasif, Hicks, Harris & Co.,
Certified Public Accountants of Santa Barbara, CA
1111 Garden Street, Santa Barbara, CA 93101 (Age 55)
MARK SCHNIEPP, Director, is an economist and Director August 12, 1994 None
of the Economics Forecast Project at the University
of California, Santa Barbara, California
944 Randolph Road, Santa Barbara, CA 93111 (Age 44)
DAN B. SECORD, Director, is a physician in private December 12, 1995 None
practice of obstetrics and gynecology in Santa Barbara
Staff Santa Barbara Cottage Hospital. Member, Santa Barbara
City Council. 2329 Oak Park Lane, Santa Barbara,
CA 93105 (Age 61)
MARK L. SILLS,* Vice-President, Director and December 12, 1995 19,154 shares
Member of the Executive Committee, is a business
consultant doing business as Business Improvement
and Recovery Services; specializes in organizational
difficulties and turnaround situations. Formerly,
was Director of Consumer Services and Information
Services, Aleene's-Division of Artis, Inc.
3751 Lincolnwood Drive, Santa Barbara,
CA 93110 (Age 53)
VAN WHISNAND,* Nominee for Director, is a principal -- --
of the investment management firm of Fox Asset
Management, Inc. He is a Senior Portfolio Manager
and is a member of both the Equity and Fixed Income
Investment Committees of Fox. He was formerly a
partner in the investment advisory firm Combined
Capital Management, where he was responsible for
management of both tax-exempt and individual
taxable accounts. Mr. Whisnand holds the Bachelor
of Arts degree from Brown University and a Master
of Business Administration degree from the Darden
School of the University of Virginia. He is a
member of the New York Society of Security
Analysts. 44 Sycamore Avenue,
Little Silver, NJ 07739 (Age 54)
<FN>
* An "interested person" as defined in Section 2(a)(19) of the Investment
Company Act of 1940 as amended. Mr. Whisnand would be "interested" because of
his affiliation with the Fund's adviser.
** Is deemed an "interested person" by virtue of having acted as counsel to the
Fund during the last two years and as an officer of the Fund.
</FN>
It is not expected that any of the nominees will decline or become unavailable
for election; however, in case this should happen, the discretionary power given
in the proxy may be used to vote for a substitute nominee or nominees.
COMPENSATION TABLE *
Position or Estimated
Retirement Annual Total
Benefits Benefits Compensation
Aggregate Accrues as Upon Paid to
Name, Position Compensation Expenses Retirement Directors
Hugh J. Haferkamp $8,678 $0 $0 $1,250
President
Mark L. Sills $1,750 $0 $0 $1,750
Vice-President
Michael A. Marshall $1,750 $0 $0 $1,750
Secretary-Treasurer
Gertrude B. Calden $2,000 $0 $0 $2,000
Director
Richard Chernick $ 750 $0 $0 $ 750
Director
James A. Corradi $1,250 $0 $0 $1,250
Director
Fredric J. French $ 0 $0 $0 $ 0
Director
Harry P. Gelles $ 750 $0 $0 $ 750
Director
Leonard S. Jarrott $1,500 $0 $0 $1,500
Director
William J. Nasif $1,750 $0 $0 $1,750
Director
Mark Schniepp $1,250 $0 $0 $1,250
Director
Dan B. Secord $ 750 $0 $0 $ 750
Director
* For Fiscal 1996-1997
During the fiscal year, there were four regular meetings of the Board of
Directors, two special meetings of the Board, and three meetings of the
Executive Committee. All of the incumbent directors attended at least 75% of the
Board meetings during the term of their incumbency, except Dr. Secord, who was
absent from two regular meetings. All of the above-listed Directors who were
members of the committee attended the Executive Committee meetings.
To and including December 31, 1993, none of the officers of the Fund had
received any compensation directly from the Fund for serving in any capacity
since the date of inception of the Fund. The Fund has no pension or retirement
benefits for any officers or employees. Effective January 1, 1994, the Fund
began compensating the President for his services at the rate of $1,200 per
month. Through December 31, 1997, Mr. Haferkamp, current President, was
compensated for his services as President at the rate of $1,200 per month.
Effective January 1, 1998, his salary was increased to $2,000 per month. The
attendance fee payable to Directors and members of the Executive Committee is
$250 for each meeting actually attended. These payments have been made by the
Fund. No such attendance fees have been payable to those Directors who are
associated with the Investment Adviser. The Fund has not provided expense
reimbursement to the Directors. However, at its January 1, 1998 meeting, the
Board increased the per meeting attendance fee for board meetings and Executive
Committee meetings actually attended to $500 and agreed to pay reasonable travel
expenses actually incurred to those Directors who reside outside of the general
Santa Barbara area. These new arrangements also apply to Directors who are
associated with the Investment Advisers. The total compensation paid by the Fund
to all Directors during the fiscal year 1996-97 was $14,750.
The Board of Directors does not have any standing compensation committee and has
no committee performing similar functions. However, because of the 12b-1 Plan,
the independent directors are required to select and nominate those directors
who are not interested persons of the Fund and, consequently, they serve as a de
facto nominating committee as to the independent director positions. The current
independent directors are Gertrude B. Calden, Richard Chernick, James A.
Corradi, Harry P. Gelles, Leonard S. Jarrott, William J. Nasif, Mark Schniepp,
and Dan B. Secord. Additionally, at its December, 1994 meeting, the Board
established an audit committee. The current members are Messrs. Corradi, Nasif
and Schniepp.
On February 6, 1998, the Executive Committee established a Nominating Committee.
The members of that committee are Leonard S. Jarrott, James A. Corradi, Harry P.
Gelles and Mark Schniepp. Of course, there were no meetings held during Fiscal
1996-97. The functions of the committee are to recommend to the Board candidates
for all directorships which are to be filled by the shareholders or to be filled
by the Board and to recommend to the Board persons (who are directors) to fill
the seats on Board committees. The Nominating Committee will consider nominees
recommended by Fund shareholders. Such recommendations should be in writing and
addressed to the Fund, ATTN: Nominating Committee, with the name, address and
telephone number of the person recommended and of the recommending person.
The following directors received the sums set opposite their names as
compensation for services as directors, including attendance at the meetings of
the Executive Committee, during fiscal 1997:
Gertrude B. Calden ........ $2,000 Michael A. Marshall ...... $1,750
Richard Chernick .......... $ 750 Robert P. Moseson ........ $ 0
James A. Corradi .......... $1,250 William J. Nasif ......... $1,750
Fredric J. French ......... $ 0 Mark Schniepp ............ $1,250
Harry P. Gelles ........... $ 750 Dan B. Secord ............ $ 750
Hugh J. Haferkamp ......... $1,250 Mark L. Sills ........... $1,750
Leonard S. Jarrott ........ $1,500
By virtue of his salary as President and his fees for director's meetings, Mr.
Haferkamp received total compensation from the Fund during fiscal 1997 of
$8,678. He also received $46,201 from the Fund for legal services to the Fund.
The directors set forth below also serve as a member of the Board of Directors
of other companies in addition to that of the Fund.
1. Fredric J. French - Merrimac Advisors Company
2. Harry P. Gelles - Chelsea Management Company
3. Mark L. Sills - Accu-Dent, Research and Development, Inc.
It is the present intention that the enclosed proxy will, in the absence of
special designation by the shareholders signing, be used fortheprupose of voting
to elect the nominees identified above as directors of the Fund to serve until
the next annual meeting and their successors are elected and qualified
Proposal 2. SELECTION OF ACCOUNTANTS: A majority of the members of the Board of
Directors who are not interested persons of the Fund (as defined in the
Investment Company Act of 1940) have selected the public accounting firm of
Timpson Garcia, 1610 Harrison Street, Oakland, California 94612, as the
independent certified public accountants to sign or certify any financial
statement which may be filed by the corporation with the Securities and Exchange
Commission. The employment of such accountants is expressly conditioned upon the
right of the corporation, by vote of a majority of the outstanding stock at any
meeting called for the purpose, to terminate such employment forthwith without
any penalty. Such selection is made pursuant to provisions of Section 32(a) of
the Investment Company Act of 1940, and is subject to ratification or rejection
by the stockholders at this meeting. No member of Timpson Garcia, or any
associate thereof, has any other relationship with the Fund or any affiliate
thereof. The Timpson Garcia firm has served as the Fund's auditors continously
since March 1993. No representative of the auditors is expected to be present at
this meeting.
It is the present intention that the enclosed proxy will, in the absence of
special designation by the shareholders signing, be used for the purpose of
voting to ratify the selection of Timpson Garcia as the Fund's independent
auditors for Fiscal 1997-98.
Proposal 3. TO APPROVE A NEW INVESTMENT ADVISORY AGREEMENT The Board of
Directors has decided to change investment advisers for the purpose of further
improving the Fund's investment performance and share distribution. After
extensive investigation of potential advisers, the Board has selected Fox Asset
Management, Inc., 44 Sycamore Avenue, Little Silver, New Jersey, to act as the
investment adviser to the Fund. A copy of the proposed agreement with Fox is
attached to this proxy statement for your review.
BACKGROUND TO PROPOSAL 3 The Fund retained its present adviser, Lakeview
Securities Corporation ("Lakeview"), by approval of the shareholders on November
29, 1993, effective January 1, 1994. During 1997, the Fund paid Lakeview
$150,169 for its services. Although the investment results of the Fund under
Lakeview's portfolio management have improved during the last two years, the
Board is seeking (1) a higher level of portfolio performance than has been
achieved under Lakeview's management and (2) a wider distribution of shares.
Accordingly, in mid-1997, the Fund's Strategic Planning Committee was asked to
undertake an investigation of possible avenues for enhanced performance and
broader distribution of shares.
The Committee recommended and the Board approved the retention of a consultant
to assist both the Committee and the Board in selecting the proper course of
action. Subsequently, the Fund retained Canterbury Consulting, of Newport Beach,
California. Canterbury is a firm specializing in performance evaluation and
performance tracking of investment managers and in consultations relating to
investment performance improvement.
After searching an extensive database of its own clients and a database compiled
by a large group of clients of other cooperating consultants, Canterbury
identified twelve candidates recommended for intensive consideration. That list
was subsequently reduced to four. A second consultant added a fifth candidate to
the list. After further investigation and assessment of the five candidates by
the consultant and the Fund directors and all day interviews of them by the full
Board, the Board selected Fox Asset Management, Inc. of Little Silver, New
Jersey as the new investment advisory manager at a meeting of the full board
held on January 6, 1998.
The process of decision was lengthy and the merits were fully considered and
openly debated by both the Strategic Planning Committee and the Board. The final
vote was overwhelming, being 9 in favor of employing Fox and 2 opposed, with 2
abstentions. There were three (3) Board meetings at which extensive
consideration was given to the issues of distribution and portfolio management,
the Board received detailed reports and analyses from Canterbury Consulting (the
consulting firm engaged by the Fund), which strongly recommended a new adviser,
and evaluations following two (2) meetings of the Strategic Planning Committee
devoted to the subjects of distribution and portfolio management.
FOX ASSET MANAGEMENT, INC.
Fox Asset Management, Inc. ("Fox") is a New Jersey Corporation which was
organized in December, 1985. It is an investment adviser registered as such with
the Securities and Exchange Commission under the Investment Advisers Act of
1940. Its shares are 100% employee owned. The address of Fox is 44 Sycamore
Avenue, Little Silver, New Jersey 07739-1242. Its telephone number is (732)
747-9143.
Mr. J. Peter Skirkanich (age 54) is the President of Fox, is a managing
director, and was the founder of the firm. He serves as the chairman of both the
Investment Committee for Equity Investment and the Committee for Fixed Income
Investments. Previously he was a managing director of Dreman Value Management,
also a highly regarded investment counseling firm. His work there centered on
portfolio management. He is a graduate of the Wharton School of Business at the
University of Pennsylvania.
Other directors of Fox are John W. Liang, Paul A. Stach, and Russell S.
Tompkins. All of them are employees of Fox and serve as Senior Portfolio
Managers in the firm's investment management operations. Mr. Liang holds degrees
in Economics and Business Management from Columbia University, Mr. Stach has a
B.A. in Economics from Williams College and the M.B.A. from Stanford, and Mr.
Tompkins has a B.A. in Economics from Utah State University and a Masters degree
in International Economics from the National University of Mexico. (U.N.A.M.)
In the past, Fox has served primarily large institutional clients and large
private clients. It currently has approximately $4.5 billion under management.
Fox is interested in managing the investment functions of a mutual fund and has
agreed to serve Investors Research Fund, Inc. in that capacity. At present, Fox
does not advise an equity mutual fund, but does advise a fixed income mutual
fund.
Fox has had an outstanding performance record since it began operations on
January 1, 1986. In making comparisons with the Standard & Poor's 500 Index, it
must be recognized that the S & P 500 has no brokerage charges and no
operational costs subtracted from its performance results. With that
recognition, the investment returns on Fox's equity accounts have equaled or
exceeded the returns of the S & P 500 in ten of the last 12 years. A table of
net returns of Fox's equity accounts versus the S & P 500 (Fox returns are net
of management fees and all transaction costs in accordance with S.E.C.
guidelines) through 12/31/97 follows:
Total Return Total Return
Fox Equity S & P 500
1 year 31.3 33.4
3 years 130.1 125.6
5 years 175.7 151.7
10 years 456.2 423.7
Since 1/86 604.7 554.1
Annualized Annualized
Returns Returns
Fox Equity S & P 500
1 year 31.3 33.4
3 years 32.0 31.2
5 years 22.5 20.3
10 years 18.7 18.0
Since 1/86 17.7 17.3
According to information supplied by Fox, its equity portfolio has outperformed
the S & P 500 in seven out of twelve years even with expenses deducted and
performed within one percent of the S & P 500 without consideration of Fox
expenses in three of the other five years. In only two out of the last twelve
years has Fox's portfolio underperformed the S & P 500 index.
In compiling its performance records, Fox follows the standards established by
the Association for Investment Management and Research. In accordance with AIMR
standards, the equity composites have been dollar weighted since 7/1/92. From
1/1/86 to 12/31/87, all accounts were included; from 1/1/88 to 7/1/92, all fully
discretionary tax exempt accounts managed for one quarter with a value of at
least $500,000 or more are included (the number of accounts excluded by the
criterion is negligible); from 7/1/92 to date, all fully discretionary equity
accounts are included.
Fox has informed us that the foregoing performance includes all of Fox's private
accounts which were managed with investment objectives, policies and strategies
substantially similar to those used in managing the Fund and that the relative
sizes of the Fund and the private accounts were sufficiently comparable to
ensure that the private account performance would be relevant to a potential
investor in the Fund. Of course, that information relates to past performance of
private accounts and does not necessarily indicate that future performance of
the Fund will be the same.
In evaluating the foregoing statistics, it is to be recognized that past
performance is not a guarantee that the Fund's future performance will be the
same.
Fox's investment style is of the Value Philosophy. They define "Value
Philosophy" of equity investing as the disciplined evaluation of companies and
the discipline of acquiring them only when their price is at a material discount
to fair market value or intrinsic value. They state the following with respect
to their particular application of value investing based upon cash flow:
"Fox Asset Management's 'Value Philosophy' is distinguished by its initial focus
on a company's cash flow, or earnings plus non-cash expenses. Both the amount of
cash flow per share and the uses of a company's cash flow are critical. Cash
flow from operations defines a company's ability to maintain and increase its
current capacity and efficiency, to invest in its future (acquisitions or R &
D), to pay interest and principal on debt, and perhaps most importantly to
increase dividends to investors. The companies included in the Fund's portfolios
have a history of increasing cash flow at a solid growth rate. Their current
cash flow is also high relative to current price (a low price to cash flow
ratio). This discipline concurrently generates a portfolio of companies with
materially lower P/E ratios and significantly higher yields from dividends than
the market average."
FOX'S INVESTMENT APPROACH
Fox reports that it continuously monitors a universe of about 2,000 companies to
identify 75 to 100 qualifying candidates for use in construction of its clients'
portfolios. They invest only in those companies meeting the majority of Fox's
criteria for undervaluation. Their stock selection criteria are listed as
follows:
1. High cash flow per share.
2. Consistent cash flow growth.
3. Dividend yield materially above the market average.
4. Consistent dividend growth.
5. Sustainable dividend payout rate.
6. Low price relative to earnings (low P/E ratio).
7. High per share working capital.
8. Low debt to equity ratio.
9. Favorable price relative to asset value.
Fox personnel are continuously making trips to personally visit companies in
which they have existing investments and companies which are potential
investments. They do their utmost to verify information on a current basis
regarding their stock selection criteria and to assess the future prospects of
those companies.
The equity portfolios are concentrated in 35 to 45 issues representing 15 to 20
industries. Fox's experience in both rising and falling markets (including the
1987 market drop) has indicated that that diversity is sufficient
diversification with properly selected investments. Generally, 80% to 90% of a
portfolio is invested in large or medium sized companies. Fox considers a
capitalization of $1 billion to $5 billion to be medium size and above $5
billion to be large capitalization. Portfolio purchases are approved by the Fox
investment committee and sales are made simultaneously from all accounts. That
assures consistent investment performance and maintenance of a sound sell
discipline. They attempt to maintain low turnover while carefully maintaining
sound portfolios.
TERMS OF THE INVESTMENT ADVISORY AGREEMENT
Under the proposed investment advisory agreement, Fox's duties with respect to
the Fund will include the following:
(i) Supervising and performing all aspects of the portfolio management of
the Fund;
(ii) Determining which issuers and securities shall be represented in the
Fund's investment portfolio and regularly reporting thereon to the
Board of Directors; and
(iii)Formulating and implementing continuing programs for the purchase and
sale of the securities of such issuers and regularly reporting thereon
to the Board of Directors.
The basic terms of the proposed agreement are essentially the same as the
existing investment adviser's agreement. Under the proposed agreement with Fox,
Fox will receive an annual fee for the services it renders, payable on a
quarterly basis. The fee is based upon an annual rate of 0.50% maximum
calculated as an average of the net assets of the Fund as of the close of each
month of the Fund's fiscal year. Payment will be made quarterly on the basis of
0.125% of the net assets of the Fund calculated as an average of the net assets
of the Fund as of the close of each month of the quarter. The fee and payment
schedule are the same in the proposed advisory agreement as those in the current
advisory agreement.
If the proposed agreement is approved, portfolio brokers will be selected to
effect securities transactions by Fox. Since they are operating in the area of
securities sales transactions on a daily basis, they will be responsible for
evaluation of the reasonableness of proposed brokerage commissions. A factor
which will be considered in the placement of brokerage, in addition to the
proposed commissions, is whether or not broker- dealers have sold share of the
Fund. However, the fact that a broker-dealer has sold shares of the Fund will
not be the sole factor in the selection of such broker-dealer and no one has any
agreement or commitment of any kind to place portfolio transactions through any
particular broker-dealer.
The receipt of research services may also be a factor in selecting brokers, but
no payment will be made for such research services in addition to the amount of
commission which would otherwise be payable for that transaction. The Fund is
aware that such research services have become more valuable and useful in recent
years and has therefore authorized Fox to utilize such a consideration.
Nevertheless, no persons acting on behalf of Fox or the Fund are authorized to
pay a broker a brokerage commission in excess of that which another broker might
have charged for effecting the same transaction in recognition of the value of
brokerage or research services provided by the broker.
The primary basis for selecting brokers is to effect transactions where prompt
execution of orders at the most favorable prices can be secured. In this
respect, the Fund itself compares all executions of portfolio orders with the
spread quoted in the financial press to verify that executions are within the
range quoted for the day of execution.
It is to be recognized that research services and information furnished by
brokers through whom the Fund will effect securities transactions may be used by
Fox in servicing all of their accounts and that not all such services may be
used by the investment adviser in connection with Fund transactions.
The proposed investment advisory agreement provides that any investment program
undertaken by Fox, as well as any other actions taken by Fox on behalf of the
Fund, shall at all times be subject to any directive of the Board of Directors
of the Fund. In performing its obligations under the agreement, Fox is required
to comply with all state and federal laws applicable to its activities,
including the Investment Company Act of 1940 and the Investment Adviser's Act of
1940.
Fox is obligated to provide to the Fund the benefit of its best judgment and
efforts in rendering services to the Fund. In return, neither Fox nor its
officers, directors, shareholders, employees or agent shall be liable for any
mistake of judgment or opinion relating to portfolio and investment matters of
the Fund, except for lack of good faith. However, Fox will be responsible to the
Fund or its shareholders for any acts of willful misfeasance, bad faith or
negligence in the performance of its obligations under the agreement, and for
any losses by reason of any reckless disregard of its obligations and duties
under the advisory agreement.
The proposed investment advisory agreement provides for an initial term
commencing upon termination of the existing agreement after approval by the
shareholders and sixty (60) days notice to the current adviser and then
continuing for one (1) year. The agreement then continues in effect from year to
year provided that such continuance is specifically approved at least annually
by (a) the Board of Directors or the vote of "a majority of the outstanding
voting securities" of the Fund (as defined in the 1940 Act) and (b) the
affirmative vote of a majority of the directors who are not parties to such
agreement or interested persons of any such party by votes cast in person at a
meeting called for such purpose.
The proposed agreement also provides that the Fund will nominate two (2) persons
selected by Fox for election as directors of the Fund. However, if elected by
the shareholders, those persons will be required to abstain from voting on
questions concerning the selection, tenure and employment of the Fund's
investment adviser.
The proposed advisory agreement may be terminated by either party on sixty (60)
days written notice without penalty. The proposed agreement would terminate
automatically in the event of its "assignment," as defined in the 1940 Act.
If approved by the shareholders, the new advisory agreement will become
effective sixty (60) days after March 31, 1998. There will be no disruption in
services between the present adviser and the new adviser, assuming approval of
the proposed advisory agreement.
Please refer to Exhibit A to this Proxy Statement for the precise language of
the proposed advisory agreement.
EVALUATION BY THE BOARD OF DIRECTORS
In pursuing its objective of enhanced distribution of its shares, the Board
majority has concluded that such distribution requires enhanced performance as a
prerequisite. Accordingly, after pursuing the investigation described
previously, the full Board interviewed representatives of the final five
candidates and studied written presentations by all five. The majority of the
Board concluded that Fox was the clear choice to serve as the Fund's adviser.
Although Fox does not have an established retail distribution organization, it
does have numerous contacts with financial planners, sales people, and financial
and investment consultants. It believes that substantial distribution increments
can be achieved by its contacts in the industry and by investments in the Fund
by people and institutions who cannot meet the minimum investment amount set by
Fox for its private accounts. Furthermore, the Board believes that the
considerably enhanced performance expected from Fox will be attractive to the
Fund's retail organizations. However, the actual distribution functions will
continue to be performed principally by the Fund's sales agency.
The Board believes that the considerably reduced turnover assured by Fox will
lead to considerably reduced brokerage expenses. In turn, it should also lead to
more favorable tax results for those shareholders who are not in tax-deferred
plans. Additionally, if enhanced distribution of shares is achieved, it will
reduce per share expenses.
Some of the material factors considered by the Board in selecting Fox were
(generally in order of importance):
1. An excellent performance record sustained over a relatively long
period, with an excellant reputation in the investment management
industry;
2. Fox utilizes the value style of investment management, which is the
style currently employed by the Fund;
3. Fox employs a risk averse approach to investing, aiming first to
preserve capital, with an equity portfolio beta (a commonjly used
measure of risk utilizing 1.0 as standard market risk [normally based
on the S&P 500 as 1.0])of 0.87 as of June 30, 1997;
4. Fox utilizes a team approach to stock selection with frequent personal
visits to companies of interest;
5. Fox utilizes a disciplined investment approach and invests primarily
in large capitalization stocks with higher dividend yield, which the
Board considers favorable from both risk and marketability
standpoints.
6. Fox does not attempt to time the market and remains essentially fully
invested except at times of relatively severe economic dislocation of
asset over-valuation. 7. Fox has a low turnover ratio, which is
favorable from both an expense standpoint and a tax standpoint, but
with recognition that investrment performance is the primary
consideration; and
8. Fox has a very strong recommendation by Canterbury Consulting (the
Fund's consulting firm).
As indicated previously, the really material factors in selection of Fox were
their performance record, their conservative risk averse investment style, and
their excellent reputation in the investment community. All of these factors are
expected to enhance the Fund's distribution of its shares.
Figures pertaining to the Fund's brokerage for the last three fiscal years are
presented in the following table:
Annual Portfolio Brokerage Commissions Brokerage Paid to
Turnover Ratio Total Brokerage Paid by the Fund to Broker-Dealers not Affiliated
to Total Assets Commissions Paid the Underwriter* with Adviser or Underwriter for:
Sales Services Other
1995 248.44% $284,333 $ 80,465 $203,868 -nil- -nil-
1996 669.79% $424,531 $ 46,392 $378,139 -nil- -nil-
1997 294.81% $257,905 $ 82,151 $175,754 -nil- -nil-
<FN>
* The Underwriter, Diversified Securities, Inc., is also a registered
broker-dealer with a securities retail brokerage operation.
</FN>
With respect to the question of "soft dollars" in brokerage transactions, the
Fund is informed that Fox does give preference to brokerage houses which make
significant research available to it. However, Fox nevertheless seeks best
execution regardless of the research aspect and does not make payments for
research provided. Additionally, because of the low turnover rate, the size of
the funds under management, and the practice of making similar purchases and
sales in all accounts, any amounts which could be considered "soft dollars"
would, as to any specific account, be negligible.
THE PRINCIPAL OFFICE OF THE FUND WILL REMAIN IN SANTA BARBARA, CALIFORNIA
Under the proposed arrangements with Fox, the principal office of the Fund will
remain in Santa Barbara, California. The Fund's headquarters will continue to be
based in Santa Barbara. The Fund office in Santa Barbara and the principal
office of Fox in New Jersey will be connected to each other by a computerized
telephonic network, which will provide essentially instantaneous communications
between both offices for effective information exchange and implementation of
transactions.
SHAREHOLDER'S PROPOSALS FOR NEXT MEETING
The next scheduled annual meeting of shareholders of the Fund is to be held on
March 30, 1999. Any proposal by a shareholder to be presented at that meeting
has to be received by the Fund no later than November 1, 1998.
VOTE REQUIRED: The presence in person or by proxy of the holders of a majority
of the outstanding shares is required to constitute a quorum at the Annual
Meeting. The election of directors requires a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. With respect to Proposals 2 and 3, the vote
required is the affirmative vote of the majority of shares present in person or
represented by proxy at the meeting and entitled to vote on that subject matter.
Approval of each of the proposals will require the affirmative vote of a
majority of Investors Research Fund, Inc. shares, as determined under Section
2(a)(42) of the Investment Company Act of 1940. That requires the affirmative
vote of the holders of the lesser of either (A) 67% or more of the outstanding
shares as of February 6, 1998 present at the meeting if the holders of more than
50% of the outstanding shares of the Fund are present or represented by proxy,
or (B) more than 50% of the outstanding shares.
If the accompanying form of proxy is executed properly and returned, shares
represented by it will be voted at the Annual Meeting in accordance with the
instructions on the proxy. However, if no instructions are specified, shares
will be voted in favor of each of the nominees and each of the proposals set
forth in the Notice of the Meeting.
COPIES OF THE FUND'S MOST RECENT ANNUAL AND SEMI-ANNUAL REPORTS TO ITS
SHAREHOLDERS ARE AVAILABLE UPON REQUEST TO THE FUND'S OFFICE LOCATED AT 3757
STATE STREET, SUITE 204, SANTA BARBARA, CA 93105 OR CALL 1-800-473-8631.
No other business is currently expected to come before the Meeting. As to any
matter which has not been brought to the attention of the proxies prior to the
date of this proxy statement, which is presented at the meeting, the proxies
will deal with such matter in accordance with their best judgment and the
discretionary authority granted by the proxy.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF THE
PROPOSED INVESTMENT ADVISORY AGREEMENT WITH FOX ASSET MANAGEMENT, INC.