DISTRIBUTION AGREEMENT
This Distribution Agreement, dated this 31st day of March, 1974, between
INVESTORS RESEARCH FUND, INC., a Delaware corporation (hereinafter called the
"Fund"), and DIVERSIFIED SECURITIES, INC., a California corporation (hereinafter
called the "Distributor"), is made with reference to the following facts:
The Fund is an investment company registered under the Investment Company
Act of 1940.
The Distributor is a registered broker-dealer.
The parties hereto agree as follows:
1. The Distributor shall be the exclusive agent of the Fund to offer
for sale Shares of the Fund, commencing on the effective date of this Agreement,
as hereinafter set forth, and continuing so long thereafter as this Agreement
shall be in effect. Distributor shall have the sole responsibility for the
offering for sale of Shares through dealers, but such sales shall be consummated
directly between the Fund and the Dealer's customers in the manner requested of
the Fund by the Dealer through the Distributor. The Distributor will not
purchase Shares from the Fund for resale and will not repurchase Shares. The
Distributor will take requests for redemption and repurchases from Dealers and
submit such requests to the Fund for execution. The Fund shall not offer Shares
for sale for its own account or for the account of others, or authorize others
than Distributor to offer or sell Shares for the Fund's account so long as this
Agreement shall remain in effect except as follows:
(a) The Fund may at any time issue Shares as a stock dividend
payable in cash or stock at the option of the shareholder.
(b) The Fund may at any time issue or grant to holders of its
outstanding Shares rights to purchase Shares at no less than the net
asset value of outstanding Shares, and may issue Shares upon exercise
of such rights, provided, however, that all such rights are granted
equally to all shareholders. (c) The Fund may at any time issue Shares
to any other corporation, association, trust, partnership or
individual, or its, their, or his security holders in connection with
a plan of merger, consolidation, or reorganization to which the Fund
is a party or in connection with the acquisition of all or
substantially all the property and assets of such other corporation,
association, trust, partnership or individual. (d) The Fund may at any
time sell its Shares at net asset value and without sales commission
to its directors, officers or partners of the Fund, its Investment
Adviser and Distributor or the bona fide, full-time employees or sales
representatives of any of the foregoing who have acted as such for not
less than ninety (90) days or to any trust, pension, profit-sharing or
other benefit plan for such person, upon written assurance that the
Shares are being purchase for investment purposes will not be resold
except through redemption or repurchase by or on behalf of the Fund.
The exception contained in this subparagraph (d) shall be effective
only during the period or periods that it is described in the Fund's
current Prospectus.
2. Distributor shall devote its best efforts to effect the sale of
Shares of the Fund and to such other activities as are contemplated by this
Agreement. It shall use its best efforts to effect such sales in those States in
which the Shares may be eligible or qualified for sale.
3. The Fund shall retain the right to direct the execution of orders
for its portfolio transactions with such brokers and eligible dealers as the
Fund in its sole and exclusive discretion shall from time to time determine.
Distributor agrees to mail to each of the Fund's directors within ten (10) days
after the end of each calendar month a written report tabulating the following
for such month: the total sales of the Shares of the Fund; the ten (10) brokers
or eligible dealers who sold the greatest number of such shares for said month,
giving both the number of shares and the dollar volume thereof for each such
broker or eligible dealer, and such other pertinent information as may be agreed
upon from time to time between the Fund and Distributor.
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4. The Fund agrees that it will make available for offering and sale
through Distributor its unissued Shares registered with the Securities and
Exchange Commission at the public offering price per Share based on asset value
as determined in the manner set forth in the then current Prospectus. The Fund
will make available proper certificates for Shares ordered by the Distributor
for delivery against payment in Los Angeles, California Clearing House funds.
The Fund may, however, withhold Shares from sale temporarily or permanently, at
any time if, in the opinion of counsel for the Fund, such offering or sale would
be contrary to law, or its Board of Directors determine that such offering or
sale is inadvisable in the interests of the Fund. The Fund will give prompt
notice to Distributor of any determination to withhold its Shares from sale, and
will indemnify Distributor against any loss suffered by Distributor as the
result of a good-faith acceptance by Distributor of an order for sale of Shares
of the Fund in accordance with Paragraph 8 hereof, and prior to receipt by
Distributor of such notice.
5. The Shares offered and sold through Distributor for the Fund's
account under this Agreement shall be offered and sold only at the then current
public offering price, provided that Distributor may employ the services of
subagents, or may offer Shares for sale for the Fund's account to other dealers,
and may allow such other dealers such commissions and may extend such
concessions or discounts as are set forth in the then current Registration
Statement and Prospectus filed with the Securities and Exchange Commission.
Dealers may, in the discretion of Distributor, be given exclusive or other sales
rights in State or other areas. No commission shall be allowed and no discounts
or concessions shall be extended by Distributor, however, unless Distributor
shall obtain a written agreement from each Dealer, running to Distributor and
the Fund to the effect that Dealer is a member of the National Association of
Securities Dealers, and will comply with the provisions of Section 26 of Article
III of the Rules of Fair Practice of that Association, and will not offer for
sale or sell Shares of the Fund at less than the public offering price set forth
in the then current Registration Statement and Prospectus.
6. The public offering price of Shares shall at all times be the
public offering price then in effect based on net asset value in the manner set
forth in the then current Registration Statement and the Prospectus included
therein filed by the Fund with the Securities and Exchange Commission to
register the Shares so offered. Until further notice from Fund to Distributor,
the public offering price will be determined by the Board of Directors of the
Fund, at the time and in the manner set forth in the Prospectus.
7. Distributor shall not, without the consent of the Fund, offer for
sale any Shares of the Fund other than Shares made available by the Fund under
this Agreement.
8. All orders for the purchase of Shares offered by the Distributor
for the account of the Fund shall be accepted at the time received by
Distributor, and at the offering price then in effect unless rejected by
Distributor or by the Fund. Distributor may not receive such orders subject to
acceptance or otherwise delay their execution. The Fund shall be promptly
advised of all such orders received, and shall make available proper
certificates for the Shares ordered for delivery against payment of the purchase
price. Certificates shall be delivered by the Fund only against receipt of the
purchase price, in Los Angeles, California Clearing House funds, subject to
deduction for the commissions of Distributor and Dealer as provided in Paragraph
9 of this Agreement. The provisions of this Paragraph 8 shall not operate to
impair the right of the Fund to withhold Shares from sale under the provisions
of Paragraph 4 of this Agreement, and Distributor or the Fund may reject any
order, provided that the Fund will indemnify Distributor against any loss
suffered by Distributor as the result of any order accepted in good faith by
Distributor which is rejected by the Fund, unless Distributor shall have
received, prior to acceptance of such order, notice from the Fund that such
order will be rejected, or that the Fund has determined to withhold Shares from
sale.
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9. As compensation for its services as selling agent under this
Agreement, Distributor and the Dealer shall receive a commission in an amount
equal to 8.5% of the public offering price referred to in Paragraph 6 of this
Agreement in single transactions involving less than $10,000.00, reduced in
single transactions involving more than $10,000.00 as follows:
Sales Commis- Distributor's Dealer's Share
sion as Per- Share of of Sales Com-
Amount of centage of Sales Commission mission as Per-
Single Offering as Percentage of centage of
Transaction Price Offering Price Offering Price
Less than $10,000 8.5% 1.5% 7%
$10,000 or more
but less than
$25,000 7.75% 1.5% 5.4%
$25,000 or more
but less than
$50,000 6.9% 1.5% 5.4%
$50,000 or more
but less than
$100,000 4.8% 1.05% 3.75%
$100,000 or more
but less than
$250,000 3.5% 0.75% 2.75%
$250,000 or more
but less than
$500,000 2.6% 0.60% 2.0%
$500,000 or more
but less than
$1,000,000 2.0% 0.50% 1.5%
$1,000,000 or more
but less than
$5,000,000 1.5% 0.375% 1.125%
$5,000,000 and over 1.0% 0.25% 0.75%
A single transaction for the purpose of this Agreement shall be as defined in
the then current Registration Statement and Prospectus filed with the Securities
and Exchange Commission.
10. The Fund agrees to use its best efforts to qualify and maintain
the qualification of an appropriate number of its Shares for sale under the laws
regulating the sale of securities in such States as shall be mutually agreed
upon by the Distributor and the Fund. Any such qualification may be terminated
or withdrawn by the Fund at any time in its discretion.
11. The Fund agrees to furnish Distributor a proper form of Prospectus
for use in offering the Shares under this Agreement, with such revisions thereof
and additions thereto as may be necessary from time to time during the period of
this Agreement in order that such form of Prospectus may be suitable and lawful
for use in connection with an offering of Shares in interstate commerce, and in
States in which Shares are qualified for offering.
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12. Insofar as they are used in connection with the sale and
distribution of the Shares, Distributor shall pay all costs and expenses
incurred in the preparation, printing and distribution of material required or
used in the sale, promotion, underwriting and distribution of the Shares,
including but not limited to all costs of printing and distribution only of
prospectuses, reports to shareholders and other similar material used in
connection with sales. Distributor shall also pay all other expenses in
connection with the offering for sale of Share to be made by it under this
Agreement, including the fees and expenses of its counsel and expenses of
obtaining proper licenses and authorizations to act as a dealer or salesman of
securities in the State of California and other States in which it may elect to
make such offerings as a dealer or salesman. The cost of carrying plan accounts
for the Fund's shareholders will be borne by the Fund; the cost of initiating
new share accounts, including the cost of initiating new investments in existing
accounts, will be borne by the Distributor. Distributor also agrees to pay the
service charge of the Fund's Custodian for each withdrawal check drawn in
connection with the Check-a-Month Payment Plan sponsored by the Fund.
Distributor agrees to pay for all costs and expenses incurred in the
preparation, printing, distribution and where necessary, filing with appropriate
Federal and State agencies, of all sales and advertising material and all
printed forms and data required or actually used in connection with the sale and
distribution of the Shares, whether contracts, order blanks, confirmation forms
or otherwise, but Distributor will not be responsible for expenses or costs in
connection with the qualification or registration of the Shares. Distributor
will not be liable or responsible for the preparation and distribution of proxy
statements.
13. Distributor agrees to submit to appropriate Federal and State
agencies, including the National Association of Securities Dealers, all sales
materials and forms prior to their use which are to be used in the sale,
promotion, underwriting and distribution of Shares, in compliance with such
rules as such agencies, including the National Association of Securities
Dealers, shall promulgate, and shall be solely responsible for any such material
prepared by Distributor which may be found not to be in compliance. Distributor
will inform the Fund what material is being used, and will send copies of all
such material to the Fund for its files.
14. Distributor agrees to render daily to the Fund (c/o Xx. Xxxxxxx
Xxxxxxxxxx, 000 Xxxx Xxxxxxxx Xxxxxx, Xxxxx Xxxxxxx, Xxxxxxxxxx) and to the
Fund's custodian the following: (1) statement of total number of Fund Shares
sold, giving gross sales amount, dealer discount, net amount due, Distributor
discount, and net to Fund; and (2) total number of Fund Shares redeemed and the
dollar amount thereof, and to cause the daily publication of the Fund's bid and
asked prices in the normal news media.
15. The Fund agrees and warrants that all registration statements from
time to time filed by it with the Securities and Exchange Commission will
contain all statements which are required to be stated therein, that all
Prospectuses will contain all statements required to be contained therein, and
will conform with the requirements of the Securities Act of 1933 as amended, and
the Investment Company Act of 1940 as amended, and the rules and regulations
thereunder; that no part of any registration statement or of any application for
qualification of said Shares under State securities laws will include, at the
time when it or they become effective, any untrue statement of a material fact,
or omit to state a material fact required to be stated thereunder, or necessary
to make the statements therein not misleading, and that no Prospectus will
include any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statement therein not misleading. Distributor
agrees that it will not in offering Shares for sale use any Prospectus or
advertising or sales material not approved in writing by the Fund, or make any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements, in the light of the circumstances under which
they are made, not misleading. The agreements and warranties of the Fund
contained in this Paragraph 15 are made for the benefit of and shall extend in
favor of each Dealer to whom sales are made through the Distributor, but only
upon the condition that such Dealer will not, in the offering of Shares for
sale, use any Prospectus or advertising or sales material not approved in
writing by the Fund and/or make any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading.
16. The Fund will immediately advise Distributor, confirming such
advice in writing, in the event of the issuance by the Securities and Exchange
Commission of any stop order suspending the effectiveness of any Registration
Statement or Prospectus, or the initiation of any proceedings for that purpose.
The Fund further agrees that if during the term of this Agreement the Securities
and Exchange Commission issues any such stop order it will make every reasonable
effort to obtain a lifting of such order at the earliest possible moment.
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17. This Agreement shall continue in effect until midnight, March 31,
1975, and from year to year thereafter, but only so long as such continuance is
specifically approved at least annually in accordance with the provisions of
Section 15 of the Investment Company Act of 1940, as amended. Notwithstanding
the foregoing, this Agreement may be sooner terminated without payment of
penalty as follows:
(a) Upon either party giving to the other
party at least sixty (60) days' written notice of an intent to terminate;
(b) Upon the giving of at least five (5) days'
written notice by either party to the other party, fixing an earlier termination
date, upon the happening of any of the following events:
(i) The issuance by the Securities and
Exchange Commission of a stop order suspending the effectiveness of any
Registration Statement covering the Shares to be offered for the account of the
Fund.
(ii) The institution of court proceedings
by the Securities and Exchange Commission or any other authority empowered to
regulate the sale of securities to prevent the offering or sale of Shares to be
offered by Distributor for the account of the Fund under this Agreement.
(iii) The institution by the National
Association of Securities Dealers of disciplinary proceedings against
Distributor or proceedings to suspend or cancel the membership of Distributor in
that organization.
18. The books and records of Distributor insofar as they related to
sales of the Fund's Shares shall be open to inspection during business hours by
the officers and authorized representatives of the Fund, and the books and
records of the Fund relating to the determination of the offering price of
Shares shall be open to inspection during business hours by the officers and
authorized representatives of Distributor.
19. This Agreement shall not be assignable by either party hereto, and
in the event of assignment shall automatically be terminated forthwith. Transfer
of voting control of Distributor shall constitute an assignment for purposes of
this Paragraph 19.
20. In the event that any provision of this Agreement is now or in the
future in violation of the Investment Act of 1940, as now or a mended and in
effect, or any present or future rule or regulation at any time placed in effect
thereunder by the Securities and Exchange Commission or a registered securities
association or other authority empowered to make rules or regulations under said
Act, and such violation or prospective violation is brought to the attention of
the parties hereto and is not thereafter immediately eliminated by amendment of
this Agreement, this Agreement may be terminated forthwith by either party by
written notice to the other. The opinion of counsel for either party to this
Agreement as to the existence of such violation or prospective violation shall
be conclusive and binding on both parties for the purpose of termination under
this Paragraph 20.
21. The Fund agrees to indemnify and hold harmless the Distributor,
and each of the persons, if any, who control the Distributor (within the meaning
of Section 15 of the Securities act of 1933), any officer or director of the
Distributor, against liability, joint or several, to any person acquiring any of
the Shares which may be based upon Section 11 or 12 of said Act, or any other
statue, or the common law, or otherwise, by reason of the Fund's failure to
comply with its agreements under Paragraph 15 hereof, or by reason of the
furnishing by the Fund for inclusion in any Registration Statement, Prospectus,
or Amendment thereof, or any application for qualification of securities under
any other State law of any information containing a misstatement of a material
fact or which omits to state a material fact necessary in order to make the
information furnished not misleading. Such indemnity shall include expenses
(including counsel fees and the cost of any investigation and preparation for
any litigation) whether or not resulting in any liability, provided, however,
(a) that in no case shall the Fund be liable unless the party claiming indemnity
under the provisions of this Paragraph 21 shall have notified the Fund in
writing thereof within ten (10) days after summons or other legal process has
been served on the party against whom claim is made or such party's duly
designated agent for service of process; and (b) that liability of the Fund
shall not extend to any misstatement or omission in such Registration Statement,
Prospectus, or Securities Application which is the result of or based upon
information supplied to the Fund by the Distributor.
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The Fund may at its option assume the defense of any suit brought to
enforce any such liability, but such defense shall be conducted by counsel of
good standing chosen by the Fund and satisfactory to the Distributor. If the
Fund elects to assume the defense of any such suit and retains counsel
satisfactory to the Distributor, the Distributor shall bear the fees and
expenses of any additional counsel retained by it; but in case the Fund does not
elect to assume the defense of any such suit, or if counsel retained by the Fund
is not satisfactory to the Distributor, the Fund will reimburse the Distributor
or the person or persons named as defendant in any such suit, for the fees and
expenses of any counsel retained by them.
The indemnification agreement contained in this Paragraph 21, and the
representations and warranties of the Fund in this Agreement shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of the Distributor or any person in control of the Distributor, and
shall survive the delivery of any Shares hereunder. The Fund agrees promptly to
notify the Distributor of the commencement of any litigation or proceedings
against it, or any of its officers and directors in connection with the issue or
sale of any of the Shares covered by any applicable Registration Statement.
22. The Distributor agrees to indemnify and hold harmless the Fund,
and each of the persons, if any, who control the Fund (within the meaning of
Section 15 of the Securities Act of 1933), and any officer or director of the
Fund, against liability, joint and several, to any person acquiring any of the
Shares which may be based upon Section 11 or 12 of said Act, or any other
statute, or the common law, or otherwise, by reason of Distributor's failure to
comply with its agreements under Paragraph 15 hereof, or by reason of the
furnishing by Distributor for inclusion in any Registration Statement,
Prospectus, or Amendment thereof or any application for qualification of
securities under any State law of any information containing a misstatement of a
material fact or which omits to state a material fact necessary in order to make
the information furnished not misleading. Such indemnity shall include expenses
(including counsel fees and the costs of any investigation and preparation for
any litigation) whether or not resulting in any liability, provided, however,
(a) that in no case shall Distributor be liable unless the party claiming
indemnity under the provisions of this Paragraph 22 shall have notified
Distributor in writing thereof within ten (10) days after summons or other legal
process shall have been served on the party against whom claim is made or such
party's duly designated agent for service of process; and (b) that liability of
the Distributor shall not extend to any misstatement or omission in such
Registration Statement, Prospectus or Securities Application which is the result
of or based upon information supplied by the Fund.
Distributor may at its option assume the defense of any suit brought
to enforce any such liability but such defense shall be conducted by counsel of
good standing chosen by Distributor and satisfactory to the Fund. If Distributor
elects to assume the defense of any such suit and retains counsel satisfactory
to the Fund the Fund shall bear the fees and expenses of any additional counsel
retained by it, but in case the Distributor does not elect to assume the defense
of any such suit, or if counsel retained by the Distributor is not satisfactory
to the Fund, Distributor will reimburse the Fund or the person or persons named
as defendant in any such suit, for the fees and expenses of any counsel retained
by them.
The indemnification agreement contained in this Paragraph 22, and the
representations and warranties of Distributor in this Agreement, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of the Fund or by any person in control of the Fund, and shall
survive the delivery of any Shares hereunder. Distributor agrees properly to
notify the Fund of the commencement of any litigation or proceedings against it,
or any of its officers and directors, in connection with the issue or sale of
any of the Shares covered by any application Registration Statement.
23. The Fund agrees to disclose this Agreement to the Securities and
Exchange Commission upon its execution, and approval by the Board of Directors
of the Fund.
24. Notwithstanding anything to the contrary herein contained, no
provision of this Agreement protects or purports to protect Distributor against
any liability to the Fund or its security holders to which Distributor would
otherwise be subject by reason of wilful misfeasance, bad faith, or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
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25. Any and all notices required hereunder by or from either party
shall be in writing and shall be served by registered mail, postage prepaid.
Notices to the Fund shall be sent to 000 Xxxxxx Xxxxxx, Xxxxx Xxxxxxx,
Xxxxxxxxxx 00000, and to Distributor at P. O. Xxx 000, Xxxx Xxxxx, Xxxxxxxxxx
00000. Either party may change the foregoing addresses by the service on the
other party of a written notice specifying the new address or addresses to which
notices are to be sent.
26. Distributor agrees not to act as principal underwriter of another
fund.
27. This Agreement shall be executed in two counterparts, each of
which shall be an original.
The parties hereto have caused this Agreement to be executed in their
corporate names by their duly authorized officers, and their corporate seals to
be affixed as of the day and year hereinbefore set forth.
INVESTORS RESEARCH FUND, INC. DIVERSIFIED SECURITIES INC.
By_________/S/______________ By____________/S/____________
Xxxx X. Xxxxx Xxxxxx X. Xxxxxx
By_________/S/______________ By____________/S/____________
Xxxxxxx X. Xxxxxxx Xxxxxx X. Xxxxxxxxxx
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