The trustees of the four Cappiello-Rushmore Funds, saying that they could not find a suitable buyer for their floundering funds, have asked shareholders to approve liquidating all the funds in the $28 million Cappiello-Rushmore Trust complex.

The disclosure was made in a preliminary proxy filed Dec. 29 on behalf of the fund group.

The group includes the $15 million Cappiello-Rushmore Growth Fund, the $6 million Cappiello-Rushmore Emerging Growth Fund, the $6 million Cappiello-Rushmore Utility Income Fund and the $843,000 Cappiello-Rushmore Gold Fund.

Despite talks between fund executives and trustees of the funds with "several mutual fund organizations to explore the possibility of merging or otherwise consolidating the funds" or appointing a successor investment adviser, none of the discussions resulted in any purchase offers, said the proxy.

Consequently, at a Dec. 12 meeting of the board, the trustees of the Cappiello-Rushmore Trust decided it would be in the best interest of shareholders to recommend liquidation of the funds. A date for the shareholder meeting has not yet been set.

The funds have been co-owned since their inception in October 1992 by McCullough, Andrews & Cappiello, the investment management firm based in San Francisco and Lutherville, Md. and Rushmore Trust & Savings, FSB of Bethesda, Md. Frank Cappiello, president of McCullough, Andrews, has been the portfolio manager of the funds, while Rushmore Trust has provided the funds' administrative, transfer agency, and other services.

The funds were marketed by McCullough, Andrews but the partners agreed to spilt the marketing costs equally after Rushmore contributed $1 million to initially market the funds, said Cappiello in an interview.

But on Oct. 26, at a meeting of the fund's board of directors, executives at McCullough, Andrews announced that the firm intended to step down as the adviser to all four funds. At that board meeting, Cappiello resigned as trustee and chairman of the funds' board of trustees. Simultaneously, two other trustees, Dr. Peter Petersen and Peter DeAngelis, also resigned, according to the Dec. 29 proxy.

The decision to step down as the adviser to the funds stemmed from the October 1999 acquisition of Rushmore Trust by Friedman, Billings, Ramsey, said Cappiello. Friedman, Billings, Ramsey is a financial services holding company in Arlington, Va. It maintains an investment banking unit as well as an asset management unit, and is the sponsor of its own fund group, the FBR Family of Funds.

"We decided that either Rushmore or our firm would take the funds," said Cappiello. "We eventually decided that for consideration, we would turn over the management of the [Cappiello-Rushmore] funds."

Cappiello and his firm's executives decided that they did not want to own another fund group, said Cappiello. In the 1980s, Cappiello co-owned the Carnegie Cappiello Funds, a family of load funds, which was sold in 1990 to a consortium of brokerage firms, Cappiello said.

In the fund group's Oct. 27 prospectus, the remaining trustees said they intended to consider other options in light of the adviser's pending resignation. Those alternatives included the sale of the assets of the funds to another company, the appointment of a new, successor investment adviser, or the possible liquidation of the funds' assets. But according to the Dec. 29 proxy, while the fund group was put up for sale, there were no takers.

A spokesperson for Rushmore Trust had not returned phone calls.

All four of the Cappiello-Rushmore funds had been suffering large outflows of assets over the last several years and the erosion of assets accelerated in the last several months, the fund filings said. The depletion of assets consequently caused expense ratios to balloon, which hurt the funds' performance, according to the December proxy.

Information in the fund group's most recent prospectus filed on Oct. 27 showed the magnitude of the fund group's asset loss since at least 1996. With a total of $98 million under management as recently as June,1996, the four-fund group lost more than two-thirds of its assets over the ensuing 48-month period. At its peak, the fund group had grown to as large as $300 million, said Cappiello.

The Cappiello-Rushmore Emerging Growth Fund, once the largest fund in the group with assets in 1996 of $45 million, had seen assets shrink 76 percent to $10.7 million as of June of last year. The Cappiello-Rushmore Utility Income Fund had seen assets fall 62 percent, from $15.1 million to $5.7 million in just four years. The Cappiello-Rushmore Growth Fund's assets had fallen 53 percent, from $31.8 million in mid-1996 to $15.1 million as of this past June.

But the Cappiello-Rushmore Gold Fund had suffered the most, shrinking 86 percent from $6.1 million in 1996 to $843,000 as of June 30. The fund has been closed to new investments since March 10, 1998, according to the December proxy.

The four Cappiello-Rushmore funds are not the only funds carrying the Rushmore name and which Rushmore operates. There are four proprietary no-load funds in The Rushmore Funds series of funds, including two single-state municipal bond funds, a U.S. Government bond fund and the $291 million American Gas Index Fund. All four funds are advised by Money Management Associates of North Palm Beach, Fla., which, along with Rushmore Trust, was also acquired by Friedman, Billings, Ramsey in October, 1999.

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