UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7625 / January 11, 1999 INVESTMENT COMPANY ACT OF 1940 Release No. 23638 / January 11, 1999 INVESTMENT ADVISERS ACT OF 1940 Release No. 1782 / January 11, 1999 ADMINISTRATIVE PROCEEDING File No. 3-9804 ORDER INSTITUTING PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND CEASE-AND-DESIST ORDERS : In the Matter of : : CRAIG S. VANUCCI AND : BRIAN K. ANDREW, : : Respondents. : : I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that pursuant to Section 9(b) of the Investment Company Act of 1940, as amended ("Investment Company Act") and Section 203(f) of the Investment Advisers Act of 1940, as amended ("Advisers Act"), and public cease-and-desist proceedings pursuant to Section 8A of the Securities Act of 1933, as amended ("Securities Act") and Section 203(k) of the Advisers Act, be instituted against Craig S. Vanucci ("Vanucci") and Brian K. Andrew ("Andrew") (together, "Respondents"). II. In anticipation of the institution of these proceedings, Respondents have submitted Offers of Settlement ("Offers") which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein, except the findings in paragraph III.<>. below, which Respondents admit, Respondents, each of whom admits the Commission’s jurisdiction over him and over the subject matter of this proceeding, hereby consent to the entry of this Order Instituting Public Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and Cease-and-Desist Orders ("Order") making the findings and imposing the remedial sanctions set forth below. Accordingly, IT IS ORDERED that proceedings pursuant to Section 8A of the Securities Act, Section 9(b) of the Investment Company Act, and Sections 203(f) and 203(k) of the Advisers Act be, and they hereby are, instituted. III. On the basis of this Order and the Offers, the Commission makes the following findings: A. Community Bankers Mutual Fund, Inc. ("Community Bankers"), of Boston, Massachusetts, is a now-inactive open-end management investment company organized as a series company and offering a single series known as the U.S. Government Money Market Fund ("the Fund"). Community Bankers has been registered with the Commission since 1989. The Fund’s prospectus and Statement of Additional Information ("SAI") stated that it would attempt to maintain a constant net asset value ("NAV") of $1.00 per share. B. Prospect Hill Advisers, Inc. ("Prospect Hill") is a now- dissolved corporation formerly registered with the Commission as an investment adviser. From at least February 1993 until May 1993 Prospect Hill served as a consultant to the Fund. During this period, Respondents, as officers of Prospect Hill, made investment recommendations to the Fund’s adviser. From May 1993 until about July 1994 Prospect Hill served as sub- adviser to the Fund, and Respondents, as officers of Prospect Hill, acted as the Fund’s portfolio managers, exercising discretionary authority to make investments on behalf of the Fund. The actions of Prospect Hill and, in turn, Respondents as the Fund’s portfolio managers were subject to the supervision of the Fund’s adviser, Community Assets Management, Inc. ("CAM"). C. From October 1, 1991, until September 25, 1994, Community Bankers offered and sold interests in the Fund, principally to small community banks seeking an alternative to lending money overnight on deposit at Federal Reserve banks at the federal funds rate. The Fund had total net assets of approximately $150 million at its largest point. D. At all relevant times the Fund was a money market fund, seeking to maintain a stable NAV and valuing its portfolio securities at amortized cost. From at least February 1993 until September 25, 1994, the Fund’s prospectus stated that it would attempt to obtain "the highest possible yield consistent with liquidity and preservation of capital." Similarly, the Fund’s marketing materials stressed that the Fund: (1) invested in "the most creditworthy securities available"; (2) "feature[d] the Safety of US Government Obligations"; and (3) allowed investors to "increase income without adding risk." The Fund represented the intention to maintain a stable NAV to investors, further stating that there was no assurance that the Fund could maintain a constant NAV of $1.00 per share. E. The Fund "broke the dollar" (i.e., failed to maintain a $1.00 per share NAV) as a result of having a substantial percentage (about 27-1/2 percent) of its assets invested in certain adjustable-rate derivative securities. These so-called structured notes (the "Notes") were in all cases either issued by an agency of the United States government or guaranteed as to principal by the United States government or an agency thereof. The Notes declined in value during late March 1994. As a result of the decline in value, the Fund liquidated beginning September 26, 1994, eventually paying investors $0.961 per share. The total loss to shareholders was approximately $2.5 million, before the recovery of additional funds in the settlement of a private lawsuit brought by some of the investors in the Fund. F. From February 1993 until early March 1994, Respondents (acting in their capacities as employees of Prospect Hill, the Fund’s sub-adviser) caused the Fund to purchase certain of the Notes for the Fund’s portfolio. In early March 1994 the Notes comprised about 27-1/2 percent of the Fund’s assets. Beginning in late March 1994 the market value of the Notes fell sharply due to the substantial increase in short-term interest rates in early 1994. This fall in market value caused the Fund to "break the dollar." The value of the Notes did not recover by the time of their sale in October 1994. G. At 27-1/2 percent of the Fund’s assets, the Notes were unsuitable investments for the Fund because they were too risky and volatile for a money market fund, such as the Fund, seeking to maintain a stable NAV. At no time did the Fund disclose that the level of the Notes held by the Fund would make it likely that the Fund would be unable to maintain a NAV of $1.00 per share. As a result, during March 1994 the Fund’s representations regarding the character of its portfolio, as described in paragraph III.<>. above, became untrue. H. Respondents willfully violated Section 206(2) of the Advisers Act in that, from about February 1993 to about March 1994, in their capacities as employees of the Fund’s sub-adviser, they engaged in transactions, practices, or courses of business which operated as a fraud or deceit upon the Fund and Fund shareholders, by having caused the Fund to purchase certain of the Notes, which, constituting about 27-1/2 percent of the assets in the Fund, were unsuitable for the Fund. I. Respondents, in their capacities as employees of the Fund’s sub-adviser, caused a violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act in that, directly or indirectly, in the offer or sale of Fund shares, by the use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails, Community Bankers (1) obtained money or property by means of an untrue statement of a material fact or an omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, and (2) engaged in a transaction, practice, or course of business which operated or would operate as a fraud or deceit upon the purchaser of such shares. As part of the foregoing conduct and activities, Respondents, in their capacities as employees of the Fund’s sub-adviser, caused the Fund’s representations regarding the character of its portfolio, as described in paragraph III.<>. above, to be untrue by causing the Fund to invest about 27-1/2 percent of its assets in the unsuitable Notes. IV. In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified by Respondents in their respective Offers. Accordingly, IT IS ORDERED that: A. Respondents Vanucci and Andrew cease and desist from committing or causing any violation and any future violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 206(2) of the Advisers Act; and B. Respondents Vanucci and Andrew shall, within ten days of the entry of this Order, each pay a civil money penalty in the amount of $30,000 to the United States Treasury. Such payment shall be (A) made by United States postal money order, certified check, bank cashier’s check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies Vanucci or Andrew, respectively, as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Daniel F. Shea, Securities and Exchange Commission, 1801 California St., Suite 4800, Denver, CO 80202. C. Effective the thirtieth day after the issuance of this Order, Respondent Vanucci shall be prohibited from becoming an associated person of any investment adviser or affiliated person of any investment company, unless and until the investment adviser where he is an associated person, on the date of the issuance of the Order, provides a written summary of such Order to each and every client invested in the registered investment companies or other portfolios he is advising on that date, such summary having been approved by the Commission’s Central Regional Office prior to dissemination. Moreover, Respondent Vanucci shall be prevented from serving as an associated person of any investment adviser or affiliated person of any investment company unless any investment adviser where he is an associated person at any time during the period of one year from the date of the issuance of the Order provides a written summary of the Order, approved by the Commission’s Central Regional Office, to all known prospective investors in the portfolios he advises prior to the time any such investor makes a decision to invest in any such portfolio. D. Effective the thirtieth day after the issuance of this Order, Respondent Andrew shall be prohibited from becoming an associated person of any investment adviser or affiliated person of any investment company, unless and until the investment adviser where he is an associated person, on the date of the issuance of the Order, provides a written summary of such Order to each and every client invested in the registered investment companies or other portfolios he is advising on that date, such summary having been approved by the Commission’s Central Regional Office prior to dissemination. Moreover, Respondent Andrew shall be prevented from serving as an associated person of any investment adviser or affiliated person of any investment company unless any investment adviser where he is an associated person at any time during the period of one year from the date of the issuance of the Order provides a written summary of the Order, approved by the Commission’s Central Regional Office, to all known prospective investors in the portfolios he advises prior to the time any such investor makes a decision to invest in any such portfolio. By the Commission. Jonathan G. Katz Secretary