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Commission File No.
Commission File No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
and
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
Active Asset Allocation Funds
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(Exact Name of Registrant as Specified in Charter)
500 Chesterfield Center, Suite 250, Chesterfield, Missouri 63017
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(Address of Principal Executive Offices-Zip Code)
Registrant's Telephone Number, including Area Code: (314)530-7575
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Jeffrey J. Unterreiner, Chairman and President
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500 Chesterfield Center, Suite 250, Chesterfield, Missouri 63017
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(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as
practicable after the effective date of this Registration Statement.
It is proposed that this filing will become effective (check
appropriate box).
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
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/ / on (date) pursuant to paragraph (b) of Rule 485.
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/ XXX / 60 days after filing pursuant to paragraph (a)(1).
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/ / on (date) pursuant to paragraph (a)(1).
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/ / 75 days after filing pursuant to paragraph (a)(2).
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/ / on (date) pursuant to paragraph (a)(2) on Rule 485.
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If appropriate, check the following box:
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/ / This post-effective amendment designates a new effective date
----- for a previously filed post-effective amendment.
Pursuant to Rule 24f-2(a)(1), Registrant hereby declares that it is registering
under the Securities Act of 1933 an indefinite number of its shares of
beneficial interest of a series of the Registrant which has been designated
OPTI-flex(R) DYNAMIC FUND.
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The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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ACTIVE ASSET ALLOCATION FUNDS'
OPTI-flex(R) DYNAMIC FUND
CROSS REFERENCE SHEET TO FORM N-1A
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Part A.
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Item A. Prospectus Caption
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1 Cover Page
2 Highlights
Synopsis of Financial Information
3 Not Applicable
4 The Trust and its Management
Investment Objective and Risks
5 The Trust and its Management
5A Performance
6(a) Other Information - Shares of Beneficial Interest
6(b) Not Applicable
6(c) Other Information - Shares of Beneficial Interest
6(d) Not Applicable
6(e) Highlights
6(f)(g) Income Dividends and Taxes
6(h) Not Applicable
7(a) The Trust and its Management
7(b) How Net Asset Value is Determined
How to Buy Shares
7(c) How To Buy Shares
Exchange Privilege
Other Shareholder Services
7(d) How To Buy Shares
Highlights
7(e) How To Buy Shares
7(f) Distribution Plan
8(a) How To Make Withdrawals (Redemptions)
8(b) How To Make Withdrawals (Redemptions)
8(c) Shareholder Accounts
8(d) How To Make Withdrawals (Redemptions)
9 Not Applicable
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ACTIVE ASSET ALLOCATION FUNDS
OPTI-flex(R) DYNAMIC FUND
500 Chesterfield Center, Suite 250
Chesterfield, MO 63017
800-873-3371
314-530-7575
The Active Asset Allocation Funds are organized as a business trust
(the "Trust") consisting of one portfolio (the "OPTI-flex(R) Dynamic Fund" or
the "Fund"). The Fund's objective is to seek a high total return over the
long-term consistent with exhibiting less investment risk than a portfolio
consisting solely of common stocks. In seeking to meet its objective, the Fund
allocates its assets for investment, primarily through mutual funds, among the
following market segments: domestic and foreign stocks, domestic and foreign
bonds, money market instruments and gold.
ADDITIONAL INFORMATION
This Prospectus sets forth basic information about the Trust and the
Fund that a prospective investor should know before investing and it should be
retained for future reference. A STATEMENT OF ADDITIONAL INFORMATION, dated
__________, 1996, has been filed with the Securities and Exchange Commission and
is incorporated herein by reference. The Statement of Additional Information is
available upon request and without charge by contacting the Trust at the address
given above or by calling 1-800-325-3539 or (614) 766-7000.
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.
TABLE OF CONTENTS Page
Highlights................................ 2
Synopsis of Financial Information......... 3
Performance............................... 4
Investment Objective and Policies......... 4
Securities and Investment Practices....... 6
The Trust and Its Management.............. 12
How To Buy Shares......................... 14
How To Make Withdrawals (Redemptions)..... 16
Other Shareholder Services................ 17
Shareholder Accounts...................... 18
Distribution Plan......................... 18
Income Dividends and Taxes................ 19
How Net Asset Value is Determined......... 21
Performance Information and Reports....... 21
Other Information......................... 22
INVESTMENT ADVISER: PROACTIVE MONEY MANAGEMENT, INC.
PROSPECTUS DATED _________, 1996
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HIGHLIGHTS
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INVESTMENT OBJECTIVES: OPTI-flex(R) Dynamic Fund's investment objective is
to seek a high total return over the long-term consistent with exhibiting less
investment risk than a portfolio consisting solely of common stocks. In seeking
to meet its objective, the Fund allocates its assets for investment, primarily
through mutual funds, among the following market segments: domestic and foreign
stocks, domestic and foreign bonds, money market instruments and gold. See
"Investment Objective and Policies."
LIQUIDITY: As an open-end investment company, the Fund continuously offers
and redeems shares of beneficial interest at the next determined net asset value
per share. See "How to Buy Shares" and "How to Make Withdrawals (Redemptions)."
NON-DIVERSIFICATION: The Fund is by definition a non-diversified fund. It
may invest more than 5% of its assets in the securities of a single issuer,
including a single mutual fund. The Fund may invest all of its assets in the
shares of other mutual funds.
SALES CHARGES: Shares are sold at net asset value without an initial sales
charge but if redeemed within one year of purchase, a contingent deferred sales
charge equal to 1% of the lesser of the current market value or the cost of the
shares being redeemed will apply. See "Synopsis of Financial Information," "How
to Buy Shares" and "How to Make Withdrawals (Redemptions)."
MINIMUM INVESTMENT: A minimum investment of $5,000 is required to open an
account, except an IRA account for which the minimum is $4,000. Subsequent
investments must be at least $100. The Fund has the right to redeem the shares
in an account and pay the proceeds to the shareholder if the value of the
account drops below $2,500 ($2,000 for an IRA) because of shareholder
redemptions. The shareholder will be given 30 days written notice and an
opportunity to restore the account to $2,500 ($2,000 for an IRA). See "How to
Buy Shares", "Other Shareholder Services" and "Shareholder Accounts."
INVESTMENT ADVISER AND MANAGER: Proactive Money Management, Inc. is the
Fund's Investment Adviser and Manager (the "Investment Adviser" or the
"Manager"). The Manager has been an investment adviser to individuals, trusts
and corporations for a total of ten years. See "The Trust and Its Management."
SHARES AVAILABLE THROUGH: The Fund's transfer agent, Mutual Funds Service
Co. ("MFSCO"). See "The Trust and Its Management."
DISTRIBUTION PLAN: The Fund has adopted a Rule 12b-1 distribution plan for
using as much as 75/100 of 1% of net assets annually to aid in the distribution
of shares. The Fund has adopted a service plan for using as much as 25/100 of 1%
of net assets annually to aid in the distribution of shares. See "Distribution
Plan."
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HOW TO BUY SHARES: Complete the New Account Application and forward with
payment as directed. Orders accompanied by payment (ordinary check, bank check,
bank wire, and money order) are accepted immediately and priced at the next
determined net asset value per share after receipt of the order. See "How to Buy
Shares" and "How Net Asset Value is Determined."
SHAREHOLDER INQUIRIES: Shareholder inquiries should be directed to the Fund
by writing the Fund c/o Mutual Funds Service Co., 6000 Memorial Drive, Dublin,
Ohio 43017, or calling 1-800-325-3539. To protect the confidentiality of
shareholder accounts, information relating to a specific account will be
disclosed pursuant to a telephone inquiry if the shareholder identifies the
account by account number or by the taxpayer identification number listed on the
account.
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SYNOPSIS OF FINANCIAL INFORMATION
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Shareholder Transaction Expenses
Maximum Initial Sales Charge Imposed
on Purchases (as a percentage
of offering price).......................... none
Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage
of offering price).............................. none
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, as applicable)1....................... 1.00%
Redemption Fees (as a percentage of amount
redeemed, if applicable)........................ none
Exchange Fee....................................... none
Annual Account Maintenance Fee (for
accounts under $10,000)..................... $10.00
Annual Fund Operating Expenses
(As a percentage of average net assets)
Management Fees.................................... 0.75%
12b-1 Fees......................................... 0.75%
Other Expenses*.................................... 0.65%
Service Fees2............................... 0.25%
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TOTAL FUND OPERATING EXPENSES 2.40%
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Cumulative Expenses
Paid for the Period of:
Example:
1 Year 3 Years
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You would pay the following expense on a $1,000 investment,
assuming (1) a 5% annual return throughout the period
and (2) redemption at the end of each time period: $34 $75
You would pay the following expenses on the same $1,000 investment assuming no
redemption at the end of the period:
$24 $75
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*"Other Expenses" is based on estimated amounts for the current fiscal year.
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1 A deferred sales charge on the shares of the Fund applies only if redemption
occurs within one year from purchase. See page 15.
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2 100% of the service fee is allocated to National Association of Securities
Dealers, Inc. ("NASD") member firms (including securities dealers that may be
affiliates of the Distributor) for continuous personal service by such members
to investors in the Fund, such as responding to shareholder inquiries, quoting
net asset values, providing current marketing material and attending to other
shareholder matters.
The expense table is meant to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The Fund does not impose an exchange fee or redemption fee. For more
complete descriptions of the various costs and expenses of the Fund see "The
Trust and Its Management" and "Distribution Plan."
The table and hypothetical examples above are for illustrative purposes
only. The investment rate of return and expenses should not be considered a
representation of past or future performance as actual rates of return and
expenses may be more or less than the rate and amounts shown.
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PERFORMANCE
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The OPTI-flex(R) Dynamic Fund was organized on May 3, 1996 and has had no
investment activity prior to the date of this Prospectus.
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INVESTMENT OBJECTIVE AND POLICIES
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The Fund's investment objective is to seek a high total return over the
long-term consistent with exhibiting less investment risk than a portfolio
consisting solely of common stocks. In seeking to meet its objective, the Fund
allocates its assets for investment, primarily through mutual funds, among the
following market segments: domestic and foreign stocks, domestic and foreign
bonds, money market instruments and gold (the gold segment includes the
securities of companies principally engaged in exploration, mining, processing,
distributing or dealing in gold and other precious metals and minerals).
At least 65% of the Fund's assets will be invested in open-end investment
companies, commonly called mutual funds; however, up to 25% of the Fund's assets
may be invested in closed-end investment companies and up to 10% of the Fund's
assets may be invested in direct investments. Direct investments will be limited
to domestic securities. For this purpose, American Depository Receipts will be
considered domestic securities.
The Fund's investment adviser, Proactive Money Management, Inc., allocates
the Fund's assets among these types of mutual funds, closed-end investment
companies and direct investments in proportions which reflect the anticipated
returns and risks of each of these the following market segments (stocks, bonds,
money market instruments and gold). There are no restrictions on the amount of
the Fund's assets which may be invested in each of these following market
segments. Normally, the Fund expects to invest its assets among many of these
market segments. Some types of investments, such as index funds, can fall into
more than one of these the following market segments. The Fund may also make
other investments that do not fall within these the following market segments.
The Manager may use various investment techniques to
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hedge a portion of the Fund risk, but there is no guarantee that these
strategies will be utilized on a timely basis or that they will work as the
Manager intends.
Although the Fund may invest in any mutual fund investing in one or more of
the market segments described above, the Fund will typically invest in the
following types of mutual funds: U.S. emerging growth, blue chip, small
capitalization stock funds and industry sector funds; international and global
stock funds (including developed and emerging markets, regional funds and
country specific funds) and international and global bond funds; U.S. Government
securities funds and high yield bond funds; gold and precious metals funds and
money market funds. Since the Fund is subject to the risks of each investment
type, the Fund and its performance are affected by many factors. See "Securities
and Investment Practices" for a description of the mutual funds and other
securities in which the Fund invests and other investment practices of the Fund.
The Manager will vary the percentage of the Fund's assets invested in each
type of security or underlying fund based upon the mix of such securities or
funds that the Manager believes will be most likely to achieve the Fund's
investment objective. In allocating assets among market segments, the Manager
will employ both fundamental and technical analysis to assess relative risk and
reward potential throughout the financial markets, with the objective of
providing shareholders the best opportunity for achieving the highest total
return consistent with reduced risk over the long-term. Generally, in seeking
the Fund's objective, the Manager will alter the composition of the Fund's
portfolio as economic and market trends change. The Fund's portfolio is expected
to vary considerably among the various market segments as these changes occur.
The Manager substantially underweights investment segments that it believes have
above average market risk with below average market potential over the short
term; and it overweights investment segments that it believes represent above
average market potential with below average market risk. By allocating its
investments in this manner, the Fund believes it will not be exposed to the same
degree of market risk as a fund which, for example, invests in only one market
segment. However, the allocation process is not limited to determining the
degree to which the Fund's assets should be invested in the different market
segments. The Manager continually explores opportunities in various subclasses
of assets: geoeconomic considerations (i.e., foreign versus domestic),
maturities of fixed income securities (i.e., "short term" versus "long term"),
market capitalization (i.e., "blue chip" versus small capitalization), and
sector rotation (i.e., "high tech" versus staple industries).
The Fund may purchase "no-load" mutual funds, which are sold and purchased
without a sales charge, "institutional funds" that normally have below average
expenses and higher minimum investment amounts and "load" mutual funds, but only
if the load, or sales commission, is by previous agreement waived for purchases
or sales made by the Fund. However, when the Manager believes it is appropriate,
the Fund may also purchase mutual funds that charge a redemption fee of up to 1%
for short-term sales, but not mutual funds that charge a sales load upon
redemption.
The Manager selects underlying funds in which to invest based, in part, on
their investment objectives and policies, their investment adviser and portfolio
manager, and on analysis of their past performance (absolute, relative and
risk-adjusted). The Manager also considers other
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factors in the selection of funds, including, but not limited to, fund size,
liquidity, expense ratio, quality of shareholder service, reputation and tenure
of portfolio manager, general composition of its investment portfolio and
current and expected portfolio holdings. Many mutual funds in which the Fund
invests may not share the same investment objective as the Fund. Typically, the
Fund will invest its assets in mutual funds from several different mutual funds
families, managed by a variety of investment advisers, and utilizing a variety
of different investment objectives.
An investor in the Fund should recognize that he may invest directly in
mutual funds and that by investing in mutual funds indirectly through the Fund,
he will bear not only his proportionate share of the expenses of the Fund
(including operating costs and investment advisory and administrative fees) but
also indirectly similar expenses of the underlying mutual funds.
The Fund may employ defensive strategies and hedging strategies described
under "Hedging Strategies," page 10. When the Manager expects a period of
significant market decline, part or all of the Fund's assets may be hedged
and/or liquidated and reinvested in money market instruments or funds until the
Manager determines that there no longer exists a significant risk of substantial
market decline.
Futures contracts likewise involve some risk. It is possible that the
contract(s) selected by the Manager will not follow exactly the price movement
of the securities covered by the contract. If this occurs, the objective of the
hedging strategy may not be successful.
The Fund diversifies across investment types more than most mutual funds.
However, like any other mutual fund, the Fund does not constitute a complete
investment program. When you sell your Fund shares, they may be worth more or
less than what you paid for them.
The investment objectives and policies of the Fund are not fundamental and
may be changed by the Trustees of the Trust without approval of the Fund's
shareholders. No such change would be made in the Fund without 30 days prior
written notice to shareholders. See "Securities and Investment Practices" for a
description of the securities in which the Fund invests and other investment
practices of the Fund.
Additional information about the investment policies of the Fund appears in
the Statement of Additional Information. There can be no assurance that the
investment objective of the Fund will be achieved.
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SECURITIES AND INVESTMENT PRACTICES
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The following pages contain more detailed information about types of
instruments in which the Fund may invest, strategies the Manager may employ in
pursuit of the Fund's investment objective, and a summary of related risks. Any
restrictions listed supplement those discussed earlier. A complete listing of
the Fund's limitations and more detailed information about the Fund's
investments are contained in the Fund's Statement of Additional Information.
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The Manager may not buy all of these instruments or mutual funds or use
all of these techniques unless it believes that they are consistent with the
Fund's investment objective and policies.
The Fund's assets are spread among mutual funds and other securities
representing several of the following market segments, moderating both the risk
and return potential of stock, bond, money market and gold funds and other
securities in which the Fund invests.
While the Fund invests in stock, bond, money market and gold mutual
funds and other securities in varying proportions, investors should not construe
the Fund as a balanced investment program offering relatively stable allocations
among these asset classes. Because the allocation strategy of the Manager may,
at certain times, result in a portfolio with a primary emphasis on stock mutual
funds, the Fund may from time to time exhibit a level of volatility which is
more consistent with a stock portfolio than a balanced portfolio. However, over
the long-term, the volatility of the Fund's total return is expected to be less
than that of a stock portfolio.
Investors should also be aware that the investment results of the Fund
depend upon the Manager's ability to anticipate correctly the relative
performance and risk of stocks, bonds and money market instruments and gold.
Historical evidence indicates that correctly timing portfolio allocations among
these market segments has been a difficult strategy to implement. While the
Manager has experience in active asset allocation, there can be no assurance
that the Manager will correctly anticipate relative asset class performance in
the future on a consistent basis. The Fund's short-term investment results would
suffer, for example, if only a small portion of the Fund's assets were allocated
to stock mutual funds during a significant stock market advance, or if a major
portion of its assets were allocated to stock mutual funds during a market
decline. Likewise, the Funds' short-term investment results would also suffer if
the Fund were substantially invested in bond mutual funds at a time when
interest rates increased.
Although the Fund seeks to reduce its overall risk by diversifying
among different types of mutual funds, the Fund aggressively invests in a wide
variety of mutual funds, including stocks and bonds issued in developed and
developing countries and derivative transactions. Since the Fund is subject to
the risks of each investment type, the Fund and its performance are affected by
many factors.
STOCK SEGMENT. The Fund may invest directly in, or in one or more stock
funds owning, domestic and foreign equity securities including common stocks and
warrants. Common stocks, the most familiar type, represent an equity (ownership)
interest in a corporation. Although equity securities have a history of
long-term growth in value, their prices fluctuate based on changes in a
company's financial condition and on overall market and economic conditions.
Smaller companies are especially sensitive to these factors.
BOND SEGMENT. The Fund may invest directly in, or in one or more bond
funds owning, domestic and foreign debt securities. Bonds and other debt
instruments are used by issuers to borrow money from investors. The issuer pays
the investor a fixed or variable rate of interest, and must repay the amount
borrowed at maturity. Some debt securities, such as zero coupon bonds,
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do not pay current interest, but are purchased at a discount from their face
values. In general, bond prices rise when interest rates fall, and vice versa.
Debt securities, loans, and other direct debt have varying degrees of quality
and varying levels of sensitivity to changes in interest rates. Longer-term
bonds are generally more sensitive to interest rate changes than short-term
bonds. Lower-quality debt securities (sometimes called "junk bonds") are
considered to have speculative characteristics and involve greater risk of
default or price changes due to changes in the issuer's creditworthiness, or
they may already be in default. The market prices of these securities may
fluctuate more than higher-quality securities and may decline significantly in
periods of general economic difficulty.
MONEY MARKET SEGMENT. The Fund may invest directly in, or in one or more
money market funds owning, money market instruments. Money market instruments
are high-quality instruments that present minimal credit risk. They may include
U.S. government obligations, commercial paper and other short-term corporate
obligations, and certificates of deposit, bankers' acceptances, bank deposits,
repurchase agreements and other financial institution obligations. These
instruments may carry fixed or variable interest rates. In a repurchase
agreement, the Fund or an underlying money market fund in which the Fund invests
buys a security at one price and simultaneously agrees to sell it back at a
higher price. Delays or losses could result if the other party to the agreement
defaults or becomes insolvent.
Private placement commercial paper ("Rule 144A securities") consists of
unregistered securities which are traded in public markets to qualified
institutional investors, such as the Fund or underlying money market funds in
which the Fund invests. The Fund or the underlying fund's risk is that the
universe of potential buyers for the securities, should the Fund or the
underlying fund desire to liquidate a position, is limited to qualified dealers
and institutions, and therefore such securities could have the effect of being
illiquid.
GOLD SEGMENT. The Fund may invest directly in, or in one or more mutual
funds owning, securities of companies engaged in exploration, mining,
processing, distributing or dealing in gold or other precious metals and
minerals. In addition to investments directly in those securities or mutual
funds, the Fund may invest in securities indexed to the price of gold or other
precious metals.
The price of gold and other precious metals and minerals is affected by
broad economic and political conditions. The price of gold and other precious
metal securities can face substantial short-term volatility caused by
unpredictable monetary policies and economic and political developments, such as
currency devalutions or revaluations; increased environmental costs; the
potential effect of the concentration of the sources of supply of gold and
control over the sale of gold; changes in U.S. or foreign tax, currency or
mining laws; and trade restrictions between countries.
EXPOSURE TO FOREIGN MARKETS. The Fund is normally exposed to foreign
markets. The Fund may invest in one or more mutual funds owning foreign
securities, foreign currencies, and securities issued by U.S. entities with
substantial foreign operations. These types of securities may involve additional
risks and considerations. These include risks relating to political or
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economic conditions in foreign countries, fluctuations in foreign currencies,
withholding or other taxes, operational risks, increased regulatory burdens, and
the potentially less stringent investor protection and disclosure standards of
foreign markets. Additionally, governmental issuers of foreign securities may be
unwilling to repay principal and interest when due, and may require that the
conditions for payment be renegotiated. All of these factors can make foreign
investments, especially those in developing countries, more volatile.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in
which payment and delivery for the securities take place at a future date. The
market value of a security could change during this period, which could affect
the Fund's yield.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
the Manager, under the supervision of the Board of Trustees, to be illiquid,
which means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities and some other securities may be subject to
legal restrictions. Difficulty in selling securities may result in a loss or may
be costly to the Fund.
INVESTMENT IN OPEN-END INVESTMENT COMPANIES. The Fund, together with any
"affiliated persons" as defined in the Investment Company Act of 1940 (the "1940
Act") may purchase only up to 3% of the total outstanding securities of any
underlying fund. Accordingly, when affiliated persons hold shares of any of the
underlying funds, the Fund's ability to invest fully in shares of those funds is
restricted, and the Manager must then in some instances, select alternative
investments that would not have been its first choice.
In the event the Fund holds more than one percent (1%) of an underlying
fund's shares, the 1940 Act provides that the underlying fund will be obligated
to redeem only one percent (1%) of the underlying fund's outstanding shares
during any period of less than 30 days. To the extent that, due to this
restriction, the Fund is unable at its discretion to dispose of shares of an
underlying fund, the Fund would not be able to protect itself against a decline
in value of such shares during the period such restrictions remains in effect.
Any shares of an underlying fund held by the Fund in excess of one percent (1%)
of the underlying fund's outstanding shares will be considered not readily
marketable securities that, together with other such securities, may not exceed
10% of the Fund's net assets.
The Manager has no control over, or day-to-day knowledge of, the investment
decisions of the underlying funds. It is possible that the management of one
underlying fund may be purchasing a particular security at or near the same time
that the Fund or the management of another underlying fund is selling the same
security. This would result in an indirect expense to the Fund without
corresponding economic or investment benefit.
INVESTMENT IN CLOSED-END INVESTMENT COMPANIES. The Fund may invest up to
25% of its assets in "closed-end" investment companies (or "closed-end funds"),
subject to the investment restrictions set forth below. Typically, the common
shares of closed-end funds are offered to the public in a one-time initial
public offering by a group of underwriters who retain a spread or underwriting
commission. Such securities are then listed for trading on a national securities
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exchange or in the over-the-counter markets. Because the common shares of
closed-end funds cannot be redeemed upon demand to the issuer like the shares of
an open-end investment company (such as each Fund), investors seek to buy and
sell common shares of closed-end funds in the secondary market. The common
shares of closed-end funds may trade at a price per share which is more or less
than the net asset value per share, the difference representing the "market
premium" and the "market discount" of such common shares, respectively.
There can be no assurance that a market discount on common shares of any
closed-end fund will ever decrease. In fact, it is possible that this market
discount may increase and the Fund may suffer realized or unrealized capital
losses due to further decline in the market price of the securities of such
closed-end funds, thereby adversely affecting the net asset value of that funds'
shares. Similarly, there can be no assurance that the common shares of
closed-end funds which trade at a premium will continue to trade at a premium or
that the premium will not decrease subsequent to a purchase of such shares by
the Fund. The Fund may also invest in preferred shares of closed-end funds.
NON-DIVERSIFICATION. The Fund is by definition a non-diversified fund. It
may have more than five percent of its assets invested in one fund or the
securities of one issuer. If the underlying fund or issuer performs poorly, this
could negatively impact the value of the Fund. Thus, there is no guarantee that
a shareholder will receive the full amount of his investment upon the redemption
of shares. The Fund does, however, seek to minimize the risk of loss through
diversification and, at times, the use of hedging techniques and defensive
investment strategies. Hedging involves risks which are not present in some
other mutual funds with similar objectives (See "Hedging Strategies.")
LEVERAGE AND CONCENTRATION. Although the Fund will normally invest in a
number of underlying mutual funds, this practice will not eliminate investment
risk. To the extent that the Fund invests in underlying funds which leverage
investments or concentrate investments in one industry, an investment in the
Fund will indirectly entail the additional risks associated with these
practices. Leveraged mutual funds may have higher volatility than the over-all
market or other mutual funds. This may result in greater gains or losses than
the over-all market or other non-leveraged mutual funds. Mutual funds which
concentrate investments in a single industry lack normal diversification and are
exposed to losses stemming from negative industry-wide developments.
HEDGING STRATEGIES. The Fund may engage in hedging transactions in carrying
out their investment policies. A hedging program may be implemented for the
following reasons: (1) To protect the value of specific securities owned or
intended to be purchased while the Manager is implementing a change in a
specific investment position; (2) To protect portfolio values during periods of
extraordinary risk without incurring transaction costs associated with buying or
selling actual securities; and (3) To utilize the "designated hedge" provisions
of Sub-Chapter M of the Internal Revenue Code as a permitted means of avoiding
taxes that would otherwise have to be paid on gains from the sale of portfolio
securities.
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<PAGE> 13
In hedging the Fund's portfolio assets, the Fund may, subject to certain
restrictions, purchase and sell (write): (a) options on stocks and stock
indices, stock index futures and options thereon, (b) options on U.S. Government
Securities, futures contracts on U.S. Government Securities and options on
futures contracts on commodities indices, currencies and currency indices. Any
options written by the Fund must be fully "covered" options. In addition, in
hedging the Fund's portfolio assets, the Fund may invest in mutual funds that
the Manager expects to perform inversely to the market.
Derivatives are financial instruments whose performance is derived, at
least in part, from the performance of an underlying asset, security or index.
Accordingly, these financial futures contracts or related options used by the
Fund to implement its hedging strategies are considered derivatives. The value
of derivatives can be affected significantly by even small market movements,
sometimes in unpredictable ways. They do not necessarily increase risk, and may
in fact reduce risk.
Put and call option contracts involve some risk. For example, the total
premium paid for an option contract could be lost if the Fund does not sell the
contract or exercise the contract prior to its expiration date.
The Fund will not engage in transactions in financial futures contracts or
related options for speculation but only as a hedge against changes in the
market value of securities held in its Fund, or which it intends to purchase,
and where the transactions are economically appropriate to the reduction of
risks inherent in the ongoing management of the Fund. For certain regulatory
purposes, the Commodity Futures Trading Commission ("CFTC") limits the types of
futures positions that can be taken in conjunction with the management of a
securities Fund for mutual funds, such as the Fund. All futures transactions for
the Fund will consequently be subject to the restrictions on the use of futures
contracts established in CFTC rules, such as observation of the CFTC's
definition of "hedging." In addition, whenever the Fund establishes a long
futures position, it will set aside cash or cash equivalents equal to the
underlying commodity value of the long futures contracts held by the Fund.
Although all futures contracts involve leverage by virtue of the margin system
applicable to trading on futures exchanges, the Fund will not, on a net basis,
have leverage exposure on any long futures contracts that it establishes because
of the cash set aside requirement. All futures transactions can produce a gain
or a loss when they are closed, regardless of the purpose for which they have
been established. Unlike short futures contracts positions established to
protect against the risk of a decline in value of existing securities holdings,
the long futures positions established by the Fund to protect against
reinvestment risk are intended to protect the Fund against the risks of
reinvesting Fund assets that arise during periods when the assets are not fully
invested in securities.
The Fund may not purchase or sell financial futures or purchase related
options if immediately thereafter the sum of the amount of margin deposits on
the Fund's existing futures positions and premiums paid for related options
would exceed 5% of the market value of the Fund's total assets.
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<PAGE> 14
The Fund expects that any gain or loss on hedging transactions will be
substantially offset by any gain or loss on the securities underlying the
contracts or being considered for purchase. There can be no guaranty that the
Fund will be able to realize this objective.
PORTFOLIO TURNOVER
Because the Manager may employ flexible defensive investment strategies
when market trends are not considered favorable, the Manager may occasionally
change the entire portfolios in the Fund. High transaction costs could result
when compared with other funds. Trading may also result in realization of net
short-term capital gains upon which shareholders may be taxed at ordinary tax
rates when distributed from a Fund.
The active asset allocation approach of the Fund can produce high
portfolio turnover ratios when calculated in accordance with SEC rules.
The Fund's annual portfolio turnover rate is not expected to exceed 300%.
The Fund intends to comply with the short-term trading restrictions of
Subchapter M of the Internal Revenue Code of 1986, as amended, although these
restrictions could inhibit a rapid change in the Fund's investments.
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THE TRUST AND ITS MANAGEMENT
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The Trust was organized as a Massachusetts business trust on May 3, 1996.
The Fund is a non-diversified open-end management company. The Trust's offices
are at 500 Chesterfield Center, Suite 250, Chesterfield, MO 63017. The business
and affairs of the Trust are under the direction of its Board of Trustees.
The Fund has retained the services of Proactive Money Management, Inc. as
investment adviser (the "Manager"). The Manager has been an investment adviser
to individuals, trusts and corporations for a total of ten years. The Manager
serves the Fund pursuant to an Investment Advisory Contract under the terms of
which it has agreed to provide an investment program within the limitations of
the Fund's investment policies and restrictions, and to furnish all executive,
administrative, and clerical services required for the transaction of Fund
business, other than accounting services and services which are provided by the
Fund's custodian, transfer agent, independent accountants and legal counsel.
The Manager was incorporated in January, 1980 and maintains its offices at
500 Chesterfield Center, Suite 250, Chesterfield, MO 63017. As of April 1, 1996,
the Manager held discretionary investment authority over approximately $125
million of assets. The Manager is controlled by C. Martin Unterreiner and Janice
B. Unterreiner through ownership of voting common stock. C. Martin Unterreiner,
a director and the President of the Manager, is a Trustee of the Trust.
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<PAGE> 15
The Manager earns an annual fee, payable in monthly installments, from the
Fund at the rate of 0.75% of the Fund's first $500,000,000 in average net assets
and 0.65% of the Fund's average net assets in excess of $500,000,000. This fee
may be higher than the fee charged to most other investment companies.
Accounting, stock transfer, and dividend disbursing services are provided
to the Fund by Mutual Funds Service Co., 6000 Memorial Drive, Dublin, Ohio
43017. Mutual Funds Service Co. also serves as Administrator to the Fund
pursuant to an Administration Services Agreement. Services provided to the Fund
include coordinating and monitoring any third party services to the Fund;
providing the necessary personnel to perform administrative functions for the
Fund; assisting in the preparation, filing and distribution of proxy materials,
periodic reports to Trustees and shareholders, registration statements and other
necessary documents. The Fund incurs an annual fee, payable monthly, of .05% of
the Fund's average net assets, subject to a minimum annual fee of $30,000. These
fees are reviewable annually by the Trustees of the Trust.
A broker-dealer may use a portion of the commissions paid by the Fund to
reduce the Fund's expenses. The Manager may take into account sales of shares of
the Fund in selecting broker-dealers to effect portfolio transactions on behalf
of the Fund.
OPTI-flex(R) is a registered trademark owned and used by C. Martin
Unterreiner, a portfolio manager for the Fund, since 1984 to identify the
various OPTImum-flexible money management programs for which he has ultimate
responsibility. He reserves the right to withdraw from the Fund the use of the
"OPTI-flex(R)" name in the event of termination of the Investment Advisory
Contract between the Manager and the Trust.
Information concerning the Trustees and officers of the Trust appears in
the Statement of Additional Information.
PORTFOLIO MANAGERS
C. Martin Unterreiner and Katherine R. Kearins are the portfolio managers
primarily responsible for the day to day management of the Fund.
C. Martin Unterreiner is a Trustee and Vice President of the Trust, and has
been a director and the President of the Manager since its incorporation in
January, 1980. Mr. Unterreiner controls the Manager through ownership of voting
common stock. He is a graduate of St. Louis University where he earned a
Bachelor of Science degree in Commerce with a concentration in Economics and a
master's degree in Education with a minor in Finance.
Katherine R. Kearins is a Trustee and Treasurer of the Trust, and a
director, Executive Vice President and Chief Global Investment Strategist of the
Manager. Ms. Kearins has been associated with the Manager since February, 1994.
She earned a Bachelor of Science degree in Business Administration with a major
in Finance from the University of Missouri. She has undertaken studies in the
MBA program at Maryville University.
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<PAGE> 16
DISTRIBUTOR
Proactive Financial Services, Inc. (the "Distributor"), 500 Chesterfield
Center, Suite 250, Chesterfield, Missouri 63017, serves as the distributor of
the shares of the Fund. Jeffrey J. Unterreiner, the President and the sole
director of the Distributor, is a Trustee and Chairman and President of the
Trust.
The Manager may select the Distributor to execute transactions for the
Fund, provided that the commissions, fees or other remuneration received by the
Distributor are reasonable and fair compared to those paid to other brokers in
connection with comparable transactions.
TRANSFER AGENT
Mutual Funds Service Co. ("MFSCO"), 6000 Memorial Drive, Dublin, Ohio 43017
is a corporation organized under the laws of the State of Ohio and provides
stock transfer, dividend disbursing and accounting and administrative services
to the Fund.
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HOW TO BUY SHARES
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Minimum Investment -- The minimum investment to open an account is $5,000,
except an Individual Retirement Account (IRA) which has a $4,000 minimum.
Subsequent investments in any account may be made in amounts of at least $100.
Annual Maintenance Fee -- The Fund reserves the right to deduct an annual
maintenance fee of $10.00 from each account with a value of less than $10,000.
It is expected that accounts will be valued on the first trading day of the Fund
following April 15. The fee, which is payable to the transfer agent, is designed
to offset in part the relatively higher costs of servicing smaller accounts.
You may open an account and make an investment by purchasing shares through
securities dealers having sales agreements with the Distributor. A minimum
investment of $5,000 ($4,000 for an IRA) is required to establish an account in
the Fund. The minimum for subsequent investments in the Fund is $100.
Direct purchase orders may be made by submitting a check. In the case of a
new account, fill out the New Account Application accompanying this Prospectus.
A check payable to the Fund must accompany the New Account Application. Payments
may be made by check or Federal Reserve Draft payable to the Fund and should be
mailed to the following address: THE OPTI-flex(R) DYNAMIC FUND, C/O MUTUAL FUNDS
SERVICE CO., P. O. BOX 7177, DUBLIN, OHIO 43017.
Should an order to purchase shares be canceled because your check does not
clear, you will be responsible for any resulting losses or fees incurred in the
transaction. All orders for the purchase of shares are subject to acceptance or
rejection by the Fund or by the Distributor. Direct
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<PAGE> 17
purchase orders received by MFSCO by 4:00 p.m., Eastern time, are confirmed at
that day's public offering price. Direct purchase orders received by MFSCO
after 4:00 p.m., Eastern time, are confirmed at the public offering price on
the following business day.
Wire orders for shares of the Fund received by dealers prior to 4:00 p.m.,
Eastern time, and received by MFSCO before 5:00 p.m., Eastern time, on the same
day are confirmed at that day's public offering price. Orders received by
dealers after 4:00 p.m., Eastern time, are confirmed at the public offering
price on the following business day. It is the dealer's obligation to place the
order with MFSCO before 5:00 p.m., Eastern time, and to forward payment to Star
Bank, N.A., the Custodian for the Fund.
If the wire order is for a new account, you must telephone the Fund prior
to making your initial investment. Call 1-800-325-3539, or (614) 766-7000.
Advise the Fund of the amount you wish to invest and obtain an account number
and instructions. Money sent by a single wire can only be invested in one Fund.
Have your bank wire federal funds to:
Star Bank, N.A. Cinti/Trust
ABA #: 042-00001-3
Attention: The Active Asset Allocation Funds
Credit Account Number (account
number for Fund as follows):
OPTI-flex(R) DYNAMIC FUND-- Account Number ____
Account Name (your name)
Your OPTI-flex(R) Dynamic Fund account number
Direct purchase orders received by MFSCO by 4:00 p.m., Eastern time, are
confirmed at that day's net asset value. Direct investments received by MFSCO
after 4:00 p.m. and orders received by dealers after 5:00 p.m. are confirmed at
the net asset value next determined on the following business day.
No stock certificates will be issued. Instead, an account with MFSCO is
established for each investor and all shares purchased or received, including
those acquired through the reinvestment of dividends and distributions, are
registered on the books of the Fund and credited to such account.
The Fund will not permit redemptions until it receives the New Account
Application in good order.
SUBSEQUENT INVESTMENTS -- Subsequent investments in an existing account in
the Fund may be made by mailing a check payable to OPTI-flex(R) Dynamic Fund.
Please include your account number on the check and mail as follows:
THE ACTIVE ASSET ALLOCATION FUNDS
C/O MUTUAL FUNDS SERVICE CO.
P. O. BOX 7177
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<PAGE> 18
DUBLIN, OHIO 43017
Subsequent investments may also be made by bank wire as described above. It
is necessary to notify the Fund prior to each wire purchase. Wires sent without
notifying the Fund will result in a delay of the effective date of your
purchase.
PURCHASING SHARES: The shares have no initial sales charge but are subject
to a contingent deferred sales charge if redeemed within one year from purchase.
Contingent deferred sales charges and fees are set forth in the "Synopsis of
Financial Information" on page 3 of this Prospectus.
The shares are sold at net asset value without an initial sales charge but
if redeemed within one year of purchase (the "CDSC Period") a contingent
deferred sales charge ("CDSC") equal to 1.00% of the lesser of the current
market value or the cost of the shares being redeemed will apply. No CDSC will
be imposed on shares acquired by reinvestment of distributions. In determining
whether a CDSC is applicable, it will be assumed that a redemption is made first
of shares derived from reinvestment of distributions and second of shares
purchased during the CDSC Period. The shares bear an asset based service fee of
0.25% and a Rule 12b-1 fee of 0.75%. The shares provide the benefit of putting
all of an investor's dollars to work from the time the investment is made. All
CDSC's imposed on redemptions are paid to the Distributor.
SALES CHARGE WAIVERS: The Fund may waive the CDSC on redemption following
the death of a shareholder, or if a shareholder becomes unable to engage in any
substantial gainful activity by reason of a medically determinable physical or
mental impairment which can be expected to result in death or be of
long-continued and indefinite duration; and when a total or partial redemption
is made in connection with a distribution from IRAs or other qualified
retirement plans after attaining age 59-1/2. See "Other Shareholder Services -
Systematic Withdrawal Program" and the Statement of Additional Information.
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HOW TO MAKE WITHDRAWALS (REDEMPTIONS)
- --------------------------------------------------------------------------------
Shares are redeemed and funds withdrawn at net asset value per share, and
there are no redemption fees. (See "How Net Asset Value Is Determined.")
BY MAIL -- A shareholder may redeem shares by mailing a written request in
good order to The Active Asset Allocation Funds, c/o Mutual Funds Service Co.,
P. O. Box 7177, Dublin, OH 43017. Good order means that the request must be
signed by the shareholder(s) and the signature(s) must be guaranteed by an
eligible guarantor institution (a bank, broker-dealer, credit union, securities
exchange, clearing agency or savings association). Further documentation may be
required as to the authority of the person requesting redemption of shares held
of record in the name of corporations or trustees, and other fiduciaries.
Amounts withdrawn are mailed without charge to the address printed on your
account statement.
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<PAGE> 19
BY BANK WIRE -- A shareholder may redeem by telephone by placing a wire
redemption through a securities dealer. Wire redemption requests received by
dealers prior to 4:00 p.m., Eastern time, and received by MFSCO before 5:00
p.m., Eastern time on the same day, are confirmed at that day's net asset value
per share. Direct wire redemption requests must be received by 4:00 p.m. to be
confirmed at that day's net asset value.
Neither the Fund nor Mutual Funds Service Co. will be responsible for any
loss, expense, or cost arising from any telephone redemption request made
according to the authorization set forth in the New Account Application if they
reasonably believe such request to be genuine and follow reasonable procedures
designed to verify the identity of the person requesting the redemption. If
Mutual Funds Service Co. fails to follow reasonable procedures, Mutual Funds
Service Co. or the Fund may be liable for losses due to unauthorized or
fraudulent transactions. Mutual Funds Service Co. will provide each investor
seeking telephone redemption privileges with a personalized security code which,
along with other information, will be required of the caller upon request of a
telephone redemption. Other information may also be required and calls may be
recorded.
WHEN REDEMPTIONS ARE EFFECTIVE -- Redemptions are made at the net asset
value per share next determined after receipt of a redemption request in good
order. (See "How Net Asset Value Is Determined.")
WHEN PAYMENTS ARE MADE -- Shares are redeemed at their net asset value per
share next determined after receipt by MFSCO of the redemption request in the
form described above, less, any applicable contingent deferred sales charge.
Payment is normally made within seven days after the redemption request,
provided that payment in redemption of shares purchased by check will be
effected only after the check has been collected, which may take up to fifteen
(15) days from the purchase date. Those who wish to eliminate this delay may
purchase shares of the Fund by certified check or wire.
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OTHER SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC ACCOUNT BUILDER: Regular investments in the Fund of $100 or more
will be deducted from a shareholder's checking or savings account and invested
in shares of the Fund. A shareholder's bank must be a member of the Automated
Clearing House (ACH). Shareholders wishing to add to their investment account
must complete the Automatic Account Builder section of the New Account
Application. There is no additional charge for this service.
SYSTEMATIC WITHDRAWAL PROGRAM: A Systematic Withdrawal Program is offered
for any investor who wishes to receive regular distributions of $100 or more
from his account. The investor must either own or purchase shares having a value
of at least $10,000 and advise the Fund in writing of the amount to be
distributed and the desired frequency, i.e., monthly, quarterly or annually.
This option may be exercised by completing the appropriate section of the New
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<PAGE> 20
Account Application. The investor should realize that if withdrawals exceed
income dividends, the invested principal may be depleted.
Systematic withdrawals will be subject to the contingent deferred sales
charge with the following exceptions. No CDSC will be imposed on withdrawals:
(1) that are made in connection with a distribution from an IRA or other
qualified retirement plan after attaining age 59-1/2; or (2) on an amount which
will not exceed 10% annually of the "initial account value" -- i.e., the value
of the Fund account at the time the shareholder elects to participate in the
systematic withdrawal program and thereafter, the value of the account as of the
first day of any calendar year. The investor may make additional investments and
may change or stop the program at any time. There is no charge for this program.
- --------------------------------------------------------------------------------
SHAREHOLDER ACCOUNTS
- --------------------------------------------------------------------------------
The Fund maintains an account for each shareholder in full and fractional
shares. The Fund reserves the right to reject any purchase order, and to waive
minimum purchase requirements.
CONFIRMATION STATEMENT -- All purchase and sale transactions, and dividend
reinvestments, are confirmed promptly after they become effective.
ACCOUNTS BELOW MINIMUM -- The Fund reserves the right to redeem shares in
any account for their then current net asset value and pay the proceeds to the
shareholder if at any time the account has shares valued at less than $2,500
($2,000 for an IRA) as a result of redemptions by the shareholder. Before a
redemption is processed, the shareholder will be allowed 30 days after written
notice from the Fund to make an additional investment sufficient to bring the
value of shares in the account to $5,000 ($4,000 for an IRA).
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DISTRIBUTION PLAN
- --------------------------------------------------------------------------------
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations under the Investment
Company Act of 1940, as amended (the "1940 Act"). Under the provisions of the
Distribution Plan, the Fund makes payments to the Distributor based on an annual
percentage of 0.75% of the average daily value of the net assets of the shares.
The Fund has adopted a service plan (the "Service Plan"). Under the
provisions of the Service Plan, the Fund makes payments to the Distributor based
on an annual percentage of 0.25% of the average daily value of the net assets of
the shares.
Some or all of the service fees are used to reimburse securities dealers
(including securities dealers that may be affiliates of the Distributor) for
personal services and/or the maintenance of
18
<PAGE> 21
shareholder accounts. A portion of any initial commission paid to dealers for
the sale of shares of the Fund represents payment for personal services and/or
the maintenance of shareholder accounts by such dealers. Dealers who have sold
shares are eligible for further reimbursement after the first twelve months
during which the shares have been held of record by such dealer as nominee for
its clients (or by such clients directly). Any service fees received by the
Distributor and not allocated to dealers may be applied by the Distributor in
reduction of expenses incurred by it directly for personal services and
the maintenance of shareholder accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to securities dealers for selling such shares. Any distribution
fees received by the Distributor and not allocated to dealers may be applied by
the Distributor in connection with sales or marketing efforts, including special
promotional fees and cash and noncash incentives based upon sales by securities
dealers.
The Manager may use its resources to pay expenses associated with the sale
of the Fund's shares. This may include payments to parties such as banks or
broker-dealers that provide shareholder support services or engage in the sale
of the Fund's shares. However, the Fund does not pay the Manager any separate
fees for this service.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures which each Fund may incur under the Distribution
Plan and the Service Plan to a total of 1%, of which 0.75% may be used to pay
distribution expenses and 0.25% may be used to pay shareholder service fees. The
NASD rules also limits the aggregate amount which the Fund may pay for such
distribution costs to 6.25% of gross share sales of a class since the inception
of any asset-based sales charge plus interest at the prime rate plus 1% on
unpaid amounts thereof (less any contingent deferred sales charge). Such
limitation does not apply to shareholder service fees.
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INCOME DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
It is the policy of the Fund to distribute substantially all of its net
income. The Fund also intends to distribute its net capital gains, if any, to
its shareholders annually.
The Fund declares and pays dividends from net investment income, if any, on
an annual basis. All such dividends of net income are automatically reinvested
in additional shares at the net asset value on the last business day of each
month. A shareholder may elect to receive such dividends in cash either by
checking the appropriate box on the New Account Application, or by notifying the
Fund in writing.
The Internal Revenue Code of 1986 imposes on the Fund a nondeductible
excise tax unless the Fund distributes annually at least 98% of its net
investment income earned during the calendar year, at least 98% of capital gain
net income realized in the 12 months preceding November 10, and any
undistributed balances from the previous year. In addition, the Tax Reform Act
of 1986 (the "Tax Act") provides that any dividend declared by a Fund in
October, November, or December and paid in January will be deemed to have been
paid by the Fund and to
19
<PAGE> 22
have been received by each shareholder in December. Distribution dates and the
amounts paid, if any, are subject to determination by the Board of Trustees.
Dividends and capital gains distributions are ordinarily taxable to
shareholders in the year distributed. However, under the Tax Act, the Fund is
permitted to make distributions up to February 1 and have them apply to the
previous tax year. The Fund expects to make such a distribution in future years.
A shareholder is taxed on capital gains and income realized by the Fund,
regardless of the length of time he has been a shareholder. Thus a shareholder
may receive capital gains distributions shortly after purchasing shares, and
this will reduce the market value of the shares by the amount of the
distribution. The shareholder will not be able to recognize the resultant loss
in value for tax purposes until the shares are sold at a later date. In the case
of some mutual funds this effect can be substantial. In the case of the Fund,
which is more likely to change its portfolio and therefore tends not to realize
large capital gains accumulated over a long period of time, the effect is not
expected to be substantial.
Dividends and capital gains distributions are taxable to the shareholder
whether received in cash or reinvested in additional shares. Shareholders not
otherwise subject to tax on their income will not be required to pay tax on
amounts distributed to them. Each shareholder will receive a statement annually
informing him of the amount of the income and capital gains which have been
distributed during the calendar year.
The Fund also intends to comply with Subchapter M of the Internal Revenue
Code, which imposes such restrictions as (1) appropriate diversification of its
portfolio of investments; (2) realization of 90% of its annual gross income from
dividends, interest, and gains from the sale of securities and (3) realization
of less than 30% of gross income from gains on the sale of securities held less
than three months. The Fund might deviate from this policy, and incur a tax
liability, if this were necessary to fully protect shareholder values.
The foregoing discussion of taxes is limited to federal income taxes.
Distributions, whether in cash or in kind may be subject to state and local
taxes. Shareholders are urged to consult their tax advisers regarding specific
questions relating to federal, state, and local taxes.
The Fund is required to withhold and remit to the federal government 31% of
any reportable payments (which may include dividends, capital gains
distributions, if any, and redemptions) paid to certain shareholders. In order
to avoid this withholding requirement, each shareholder must certify on the New
Account Application that the social security or taxpayer identification number
is correct and that the shareholder is not currently subject to backup
withholding or is exempt from backup withholding.
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<PAGE> 23
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HOW NET ASSET VALUE IS DETERMINED
- -------------------------------------------------------------------------------
Net asset value per share is determined at each closing of the New York
Stock Exchange each day the Exchange is open for business and each other day
during which there is a sufficient degree of trading that the current net asset
value of the Fund's shares might be materially affected by changes in the value
of the securities held by the Fund. Net asset value is obtained by dividing the
value of the Fund's assets, less its liabilities, by the total number of its
shares of beneficial interest outstanding at the time.
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PERFORMANCE INFORMATION AND REPORTS
- --------------------------------------------------------------------------------
The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to shareholders or prospective
shareholders. Performance information may include the Fund's investment results
and/or comparisons of its investment results to the Standard & Poor's 500
Composite Stock Price Index, Dow Jones World Stock Index or other various
unmanaged indices or results of other mutual funds or investment or savings
vehicles. The Fund's investment results as used in such communications will be
calculated on a total rate of return basis in the manner set forth below. From
time to time, fund rankings may be quoted from various sources, such as Lipper
Analytical Services, Inc.
The Fund may provide period and average annualized "total return"
quotations. A Fund's "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Period total return
may be annualized. Average annual total return smoothes out variations in
performance and takes into account any applicable initial or contingent deferred
sales charges.
An annualized total return is a compounded total return which assumes that
the period total return is generated over a one-year period, and that all
dividends and capital gain distributions are reinvested. An annualized total
return will be slightly higher than a period total return if the period is
shorter than one year, because of the assumed reinvestment.
Unlike some bank deposits or other investments which pay a fixed yield for
a stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Fund and
changes in the Fund's expenses. In addition, during certain periods for which
total return quotations may be provided, the Manager may have voluntarily agreed
to waive portions of its fees on a month-to-month basis. Such waivers will have
the effect of increasing the Fund's net income (and therefore its total return)
during the period such waivers are in effect.
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<PAGE> 24
Shareholders will receive financial reports semi-annually that include the
Fund's financial statements, including listings of investment securities held by
the Fund at those dates. Annual reports are audited by independent accountants.
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
SHARES OF BENEFICIAL INTEREST
The Trust's Declaration of Trust permits the Trust to offer and sell an
unlimited number of full and fractional shares of beneficial interest in each of
the Trust's existing funds and to create additional funds. All shares have a par
value of $.10 per share, are fully paid, non-assessable and fully transferable
when issued. All shares are issued as full or fractional shares.
A fraction of a share has the same rights and privileges as a full share.
Each Fund of the Trust issues its own series of shares of beneficial interest.
The shares of each Fund represent an interest only in the Fund's assets (and
profits or losses) and in the event of liquidation, each share of a particular
Fund would have the same rights to dividends and assets as every other share of
the Fund. The Trust's Board of Trustees may authorize the creation of additional
series under the Declaration of Trust, each of which would invest its assets in
separate, individually managed portfolios.
Each full or fractional share has a proportionate vote. On some issues,
such as the election of Trustees, all shares of the Trust vote together as one
series. On an issue affecting a particular Fund, only its shares vote as a
separate series. An example of such an issue would be a fundamental investment
restriction pertaining to only one Fund. In voting on a Distribution Plan,
approval of the Plan by the shareholders of a particular Fund would make the
Plan effective as to that Fund, whether or not it had been approved by the
shareholders of any other Fund.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss as a
result of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Fund itself was unable to meet its
obligations.
When matters are submitted for shareholder vote, shareholders of each Fund
will have one vote for each full share held and proportionate, fractional votes
for fractional shares held. A separate vote of a Fund is required on any matter
affecting the Fund on which shareholders are entitled to vote. Shareholders of
one Fund are not entitled to vote on a matter that does not affect that Fund but
that does require a separate vote of any other Fund. There normally will be no
meetings of shareholders for the purpose of electing Trustees unless and until
such time as less than a majority of Trustees holding office have been elected
by shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Any Trustee may be removed
from office upon the vote of shareholders holding at least two-thirds of the
Trust's outstanding shares at a meeting called for that purpose. The Trustees
are required to call such a meeting upon the written request of shareholders
holding at least 10% of the Trust's
22
<PAGE> 25
outstanding shares. Shareholders have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees of the
Fund by a specified number of shareholders) the right to communicate with other
shareholders in connection with requesting a meeting of shareholders for the
purpose of removing one or more Trustees.
As stated in "Investment Objective and Policies," except as otherwise
expressly provided herein, the Fund's investment objective and policies are not
fundamental and may be changed by the Trustees without shareholder approval.
(No such change would be made, however, without 30 days written notice to
shareholders.)
23
<PAGE> 26
INVESTMENT ADVISER
Proactive Money Management, Inc.
DISTRIBUTOR
Proactive Financial Services, Inc.
ADDRESS OF FUND, ADVISER & DISTRIBUTOR
500 Chesterfield Center, Suite 250
Chesterfield, MO 63017
800-873-3371
314-530-7575
CUSTODIAN
Star Bank, N.A.
Star Bank Center
425 Walnut Street
Cincinnati, OH 45202
TRANSFER AGENT & DIVIDEND
DISBURSING AGENT
Mutual Funds Service Co.
6000 Memorial Drive
Dublin, OH 43017
800-494-FLEX
614-766-7074 (in Central Ohio)
LEGAL COUNSEL
Armstrong, Teasdale, Schlafly & Davis
One Metropolitan Square
St. Louis, MO 63102-2740
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, OH 43215
<PAGE> 27
ACTIVE ASSET ALLOCATION FUNDS
OPTI-flex(R) DYNAMIC FUND
PROSPECTUS
_____________, 1996
2
<PAGE> 28
ACTIVE ASSET ALLOCATION FUNDS'
OPTI-flex(R) DYNAMIC FUND
CROSS REFERENCE SHEET TO FORM N-1A
----------------------------------
Part B.
- -------
Item No. Statement of Additional Information
- -------- -----------------------------------
10 Cover Page
11 Table of Contents
12 Not applicable
13 Investment Policies and Related Matters
14(a)(b) Officers and Trustees
14(c) Not applicable
15(a)(b) Not applicable
15(c) Officers and Trustees
16(a)(b) Investment Adviser and Manager
16(c) Purchase and Sale of Portfolio Securities
16(d) Not applicable
16(e) Not applicable
16(f) The Distributor
16(g) Not applicable
16(h) Description of the Trust
16(i) Not applicable
17 Purchase and Sale of Portfolio Securities
18(a) Description of the Trust
18(b) Not applicable
19(a) Additional Purchase and Redemption Information
19(b) Valuation of Portfolio Securities
Additional Purchase and Redemption Information
19(c) Not applicable
20 Distributions and Taxes
21(a) The Distributor
21(b) The Distributor
3
<PAGE> 29
21(c) Not applicable
22(a) Not applicable
22(b) Calculation of Total Return
23 Not applicable
4
<PAGE> 30
OPTI-flex(R) DYNAMIC FUND
A Fund of ACTIVE ASSET ALLOCATION FUNDS Trust
Statement of Additional Information Dated , 1996
--------------------------------------------------
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus of OPTI-flex(R) Dynamic Fund dated
___________, 1996. A copy of the Prospectus may be obtained from OPTI-flex(R)
Dynamic Fund, c/o Mutual Funds Service Co., 6000 Memorial Drive, Dublin, Ohio
43017, or by calling: 1-800-325-3539. Capitalized terms used and not otherwise
defined herein have the same meanings as defined in the Prospectus.
TABLE OF CONTENTS
-----------------
Page
----
Investment Policies and Related Matters 2
General 2
The Fund's Portfolio 2
Investment Restrictions 2
Portfolio Turnover 14
Purchase and Sale of Fund Securities 14
Valuation of Fund Securities 15
Calculation of Total Return 16
Additional Purchase and Redemption Information 17
Distribution and Taxes 17
Investment Adviser and Manager 18
Officers and Trustees 20
The Distributor 22
Individual Retirement Accounts (IRA) 23
Description of the Trust 23
Appendix. 25
Investment Adviser Transfer Agent
- ------------------ --------------
Proactive Money Management, Inc. Mutual Funds Service Co.
Distributor
- -----------
Proactive Financial Services, Inc.
5
<PAGE> 31
INVESTMENT POLICIES AND RELATED MATTERS
GENERAL
- -------
The investment policies set forth below in this section represent the
Fund's policies as of the date of this Statement of Additional Information. The
investment policies are not fundamental and they may be changed by the Trustees
of the Trust without shareholder approval. (No such change would be made,
however, without 30 days written notice to shareholders.)
Because the Manager intends to employ flexible asset allocation investment
strategies when market trends are not considered favorable, the Manager may
occasionally change the entire portfolio of the Fund. High transaction costs
could result when compared with other funds.
The Fund intends to comply with the short-term trading restrictions of
Subchapter M of the Internal Revenue Code of 1986, as amended, although these
restrictions could inhibit a rapid change in the Fund's investments.
THE FUND'S PORTFOLIO
- --------------------
The Manager will select mutual funds for inclusion in the Fund on the basis
of the industry classifications represented in their portfolios, their specific
portfolio holdings, their performance records, their expense ratios, and the
compatibility of their investment policies and objectives with those of the
Fund.
The Manager utilizes an asset allocation system for deciding when to invest
in mutual funds or alternatively in other investments such as are described
below.
In purchasing shares of other mutual funds, the Fund will agree to vote the
shares in the same proportion as the vote of all other holders of such shares.
The Fund has adopted certain investment restrictions which cannot be
changed except with the vote of a majority of the Fund's issued and outstanding
shares. These restrictions are described elsewhere in this Statement of
Additional Information. The Fund is permitted to invest more than 5% of its
assets in the securities of any one issuer; is permitted to purchase the shares
of other investment companies (mutual funds); and may invest more than 25% of
its assets in any one industry.
The Fund may invest in common stocks based upon the criteria described in
its investment objectives. The Fund may invest in (or enter into repurchase
agreements with banks and broker-dealers with respect to) corporate bonds, U.S.
Government securities, commercial paper, certificates of deposit or other money
market instruments. The Fund may engage in hedging transactions to the extent
and for the purposes set forth in the Fund's Prospectus.
6
<PAGE> 32
INVESTMENT RESTRICTIONS
- -----------------------
The investment restrictions below have been adopted by the Trust with
respect to the Fund as fundamental policies. Under the Investment Company Act of
1940 (the "Act"), a "fundamental" policy may not be changed without the vote of
a majority of the outstanding voting securities of the Fund which is defined in
the Act as the lesser of (a) 67 percent or more of the shares present at a
shareholder meeting if the holders of more than 50 percent of the outstanding
shares are present or represented by proxy, or (b) more than 50 percent of the
outstanding shares ("Majority Vote"). The percentage limitations contained in
the restrictions listed below apply at the time of the purchase of the
securities. Whenever the Fund is requested to vote on a change in the investment
restrictions, the Trust will hold a meeting of the Fund shareholders and will
cast its votes as instructed by the shareholders.
The Fund may not:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the Fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not exceeding
33-1/3% of its total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that come to exceed this amount will be
reduced within three days (not including Sundays and holidays) to the extent
necessary to comply with the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that the
Fund may be deemed to be an underwriter within the meaning of the Securities Act
of 1933 in the disposition of restricted securities;
(4) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business);
(5) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from purchasing or selling options and futures contracts or from investing
in securities or other instruments backed by physical commodities); or
The following investment limitations are not fundamental and may be changed
without shareholder approval.
(i) The Fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to the
securities sold short, and provided that transactions in futures contracts and
options are not deemed to constitute selling securities short.
7
<PAGE> 33
(ii) The Fund does not currently intend to purchase securities on margin,
except that the Fund may obtain such short-term credits as are necessary for the
clearance of transactions, and provided that margin payments in connection with
futures contracts and options on futures contracts shall not constitute
purchasing securities on margin.
(iii) The Fund may borrow money only from a bank or from a registered
investment company or portfolio for which Proactive Money Management, Inc. or an
affiliate serves as investment adviser. The Fund will not purchase any security
while borrowings representing more than 5% of its total assets are outstanding.
(iv) The Fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities that are
deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued.
(v) The Fund does not currently intend to purchase interests in real estate
investment trusts that are not readily marketable or interests in real estate
limited partnerships that are not listed on an exchange or traded on the NASDAQ
National Market System if, as a result, the sum of such interests and other
investments considered illiquid under limitation (iv) would exceed 10% of the
fund's net assets.
(vi) The Fund does not currently intend to purchase the securities of any
issuer (other than siecurities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than 5% of
its total assets would be invested in the securities of business enterprises
that, including predecessors, have a record of less than three years of
continuous operation.
(vii) The Fund does not currently intend to purchase warrants, valued at
the lower of cost or market, in excess of 5% of the Fund's net assets. Included
in that amount, but not to exceed 2% of the Fund's net assets, may be warrants
that are not listed on the New York Stock Exchange or the American Stock
Exchange. Warrants acquired by the Fund in units or attached to securities are
not subject to these restrictions.
(viii) The Fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
ASSET ALLOCATION. The money market segment includes all types of domestic
and foreign securities. Money market instruments may include corporate debt
securities, such as commercial paper and notes; government securities issued by
U.S. or foreign governments or their agencies or instrumentalities: bank
deposits and other financial institution obligations: repurchase agreements
involving any type of security; and other similar short-term instruments. These
instruments may be denominated in U.S. dollars or foreign currency.
8
<PAGE> 34
The bond segment includes all varieties of domestic and foreigh
fixed-income securities. The Manager will seek to maximize total return
within the bond class by adjusting the Fund's investments in securities with
different credit qualities, maturities, and coupon or dividend rates, and by
seeking to take advantage of yield differentials between securities. Securities
in this class may include bonds, notes, adjustable-rate preferred stocks,
convertible bonds, domestic and foreign government and government agency
securities, zero coupon bonds, and other intermediate and long-term securities.
As with the money market segment, these securities may be denominated in U.S.
dollars or foreign currency. The Fund may also invest in lower quality,
high-yielding debt securities (commonly referred to as "junk bonds").
The stock segment includes domestic and foreign equity securities of all
types. The Manager seeks a high total return within this asset class by actively
allocating assets to industry sectors expected to benefit from major trends, and
to individual stocks that the Manager believes to have superior investment
potential. When the Manager selects equity securities, it considers both growth
and anticipated dividend income. Securities in the stock class may include
common stocks, fixed-rate preferred stocks (including convertible preferred
stocks), warrants, rights, depository receipts, securities of closed-end
investment companies, and other equity securities issued by companies of any
size, located anywhere in the world.
In making asset allocation decisions, the Manager will evaluate projections
of risk, market conditions, economic conditions, volatility, yields, and
returns. The Manager's management will use database systems to help analyze past
situations and trends, research in each of the asset classes to help in
securities selection, portfolio management professionals to determine asset
allocation and to select mutual funds, closed-end investment companies and
individual securities, and its own credit analysis as well as credit analyses
provided by rating services.
DELAYED-DELIVERY TRANSACTIONS. The Fund may buy and sell securities on a
delayed-delivery or when issued basis. These transactions involve a commitment
by the Fund to purchase or sell specific securities at a predetermined price or
yield, with payment and delivery taking place after the customary settlement
period for that type of security. Typically, no interest accrues to the
purchaser until the security is delivered. The Fund may receive fees for
entering into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, the Fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because the Fund is not required to pay for securities until the
delivery date, these risks are in addition to the risks associated with the
Fund's other investments. If the Fund remains substantially fully invested at a
time when delayed-delivery purchases are outstanding, the delayed-delivery
purchases may result in a form of leverage. When delayed-delivery purchases are
outstanding, the Fund will set aside appropriate liquid assets in a segregated
custodial account to cover its purchase obligations. When a fund has sold a
security on a delayed-delivery basis, the Fund does not participate in further
gains or losses with respect to the security. If the other party to a
delayed-delivery transaction fails to deliver or pay
9
<PAGE> 35
for the securities, the Fund could miss a favorable price or yield opportunity,
or could suffer a loss.
The Fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
EXPOSURE TO FOREIGN MARKETS. The Fund does not have a limitation on the
amount of Fund assets that may be invested in foreign securities. Foreign
securities, foreign currencies, and securities issued by U.S. entities with
substantial foreign operations may involve significant risks in addition to the
risks inherent in U.S. investments. The value of securities denominated in
foreign currencies and of dividends and interest paid with respect to such
securities will fluctuate based on the relative strength of the U.S. dollar.
Foreign investments involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments, and
may be affected by actions of foreign governments adverse to the interests of
U.S. investors. Such actions may include the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There is no assurance that the
Manager will be able to anticipate these potential events or counter their
effects. These risks are magnified for investments in developing countries,
which may have relatively unstable governments, economies based on only a few
industries, and securities markets that trade a small number of securities.
Economies of particular countries or areas of the world may differ
favorably or unfavorably from the economy of the United States. Foreign markets
may offer less protection to investors than U.S. markets. It is anticipated that
in most cases the best available market for foreign securities will be on an
exchange or in over-the-counter markets located outside of the United States.
Foreign stock markets, while growing in volume and sophistication, are generally
not as developed as those in the United States, and securities of some foreign
issuers (particularly those located in developing countries) may be less liquid
and more volatile than securities of comparable U.S. issuers. Foreign security
trading practices, including those involving securities settlement where Fund
assets may be released prior to receipt of payment, may result in increased risk
in the event of a failed trade or the insolvency of a foreign broker-dealer, and
may involve substantial delays. In addition, the costs of foreign investing,
including withholding taxes, brokerage commissions and custodial costs, are
generally higher than for investing in U.S. securities. In general, there is
less overall governmental supervision and regulation of securities exchanges,
brokers, and listed companies than in the United States. It may also be
difficult to enforce legal rights in foreign countries. Foreign issuers are
generally not bound by uniform accounting, auditing, and financial reporting
requirements and standards of practice comparable to those applicable to U.S.
issuers.
Some foreign securities impose restrictions on transfer within the United
States or to U.S. persons. Although securities subject to such transfer
restrictions may be
10
<PAGE> 36
marketable abroad, they may be less liquid than foreign securities of the same
class that are not subject to such restrictions.
American Depository Receipts (ADR's) are certificates evidencing ownership
of shares of a foreign issuer. These certificates are issued by depository banks
and generally trade on an established market in the United States or elsewhere.
The underlying shares are held in trust by a custodian bank or similar financial
institution in the issuer's home country. The depository bank may not have
physical custody of the underlying securities at all times and may charge fees
for various services, including forwarding dividends and interest and corporate
actions. ADR's are an alternative to directly purchasing the underlying foreign
securities in their national markets and currencies. However, ADR's continue to
be subject to many of the risks associated with investing directly in foreign
securities. These risks include foreign exchange risk as well as the political
and economic risks of the underlying issuer's country.
FOREIGN CURRENCY TRANSACTIONS. The Fund may conduct foreign currency
transactions on a spot (i.e., cash) basis or by entering into forward contracts
to purchase or sell foreign currencies at a future date and price. The Fund will
convert currency on a spot basis from time to time, and investors should be
aware of the costs of currency cIonversion. Although foreign exchange dealers
generally do not charge a fee for conversion, they do realize a profit based on
the difference 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
resell that currency to the dealer. Forward contracts are generally traded in an
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. The parties to a forward contract may
agree to offset or terminate the contract before its maturity, or may hold the
contract to maturity and complete the contemplated currency exchange.
The Fund may use currency forward contracts for any purpose consistent with
its investment objective. The following discussion summarizes the principal
currency management strategies involving forward contracts that could be used by
the Fund. The Fund may also use indexed securities, and options and futures
contracts relating to foreign currencies for the same purposes.
When the Fund agrees to buy or sell 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
U.S. dollars, of the amount of foreign currency involved in the underlying
security transaction, the Fund will be able to protect itself against an adverse
change in foreign currency values between the date the security is purchased or
sold and the date on which payment is made or received. This technique is
sometimes referred to as a "settlement hedge" or "transaction hedge." The Fund
may also enter into forward contracts to purchase or sell a foreign currency in
anticipation of future purchases or sales of securities denominated in foreign
currency, even if the specific investments have not yet been selected by the
Manager.
11
<PAGE> 37
The Fund may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if a
fund owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge, sometimes referred
to as a "position hedge," would tend to offset both positive and negative
currency fluctuations, but would not offset changes in security values caused by
other factors. A fund could also hedge the position by selling another currency
expected to perform similarly to the pound sterling - for example, by entering
into a forward contract to sell Deutschemarks in return for U.S. dollars. This
type of hedge, sometimes referred to as a "proxy hedge," could offer advantages
in terms of cost, yield, or efficiency, but generally would not hedge currency
exposure as effectively as a simple hedge into U.S. dollars. Proxy hedges may
result in losses if the currency used to hedge does not perform similarly to the
currency in which the hedged securities are denominated.
The Fund may enter into forward contracts to shift its investment exposure
from one currency into another This may include shifting exposure from U.S.
dollars to a foreign currency, or from one foreign currency to another foreign
currency. For example, if a fund held investments denominated in Deutschemarks,
the fund could enter into forward contracts to sell Deutschemarks and purchase
Swiss Francs. This type of strategy, sometimes known as a "cross-hedge," will
tend to reduce or eliminate exposure to the currency that is sold, and increase
exposure to the currency that is purchased, much as if the fund had sold a
security denominated in one currency and purchased an equivalent security
denominated in another. Cross-hedges protect against losses resulting from a
decline in the hedged currency, but will cause the fund to assume the risk of
fluctuations in the value of the currency it purchases.
Under certain conditions, SEC guidelines require mutual funds to set aside
appropriate liquid assets in a segregated custodial account to cover currency
forward contracts. As required by SEC guidelines, the Fund will segregate assets
to cover currency forward contracts, if any, whose purpose is essentially
speculative. The Fund will not segregate assets to cover forward contracts
entered into for hedging purposes, including settlement hedges, position hedges,
and proxy hedges.
Successful use of currency management strategies will depend on the
Manager's skill in analyzing and predicting currency values. Currency management
strategies may substantially change a fund's investment exposure to changes in
currency exchange rates, and could result in losses to the Fund if currencies do
not perform as the Manager anticipates. For example, if a currency's value rose
at a time when the Manager had hedged a fund by selling that currency in
exchange for dollars, the Fund would be unable to participate in the currency's
appreciation. If the Manager hedges currency exposure through proxy hedges, the
Fund could realize currency losses from the hedge and the security position at
the same time if the two currencies do not move in tandem. Similarly, if the
Manager increases the Fund's exposure to a foreign currency, and that currency's
value declines, the Fund will realize a loss. There is no assurance that the
Manager's use of currency management strategies will be advantageous to the Fund
or that it will hedge at an appropriate time.
12
<PAGE> 38
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Fund will comply with
guidelines established by the Securities and Exchange Commission with respect to
coverage of options and futures strategies by mutual funds, and if the
guidelines so require will set aside appropriate liquid assets in a segregated
custodial account in the amount prescribed. Securities held in a segregated
account cannot be sold while the futures or option strategy is outstanding,
unless they are replaced with other suitable assets. As a result, there is a
possibility that segregation of a large percentage of the Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
COMBINED POSITIONS. The Fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to adjust
the risk and return characteristics of the overall position. For example, the
Fund may purchase a put option and write a call option on the same underlying
instrument in order to construct a combined position whose risk and return
characteristics are similar to selling a futures contract. Another possible
combined position would involve writing a call option at one strike price and
buying a call option at a lower price, in order to reduce the risk of the
written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the Fund's current or
anticipated investments exactly. The Fund may invest in options and futures
contracts based on securities with different issuers, maturities, or other
characteristics from the securities in which they typically invest, which
involves a risk that the options or futures position will not track the
performance of the Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term inteIrest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. The Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in the Fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
13
<PAGE> 39
FUTURES CONTRACTS. When the Fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When the
Fund sells a futures contract, it agrees to sell the underlying instrument at a
specified future date. The price at which the purchase and sale will take place
is fixed when the Fund enters into the contract. Some currently available
futures contracts are based on specific securities, such as U.S. Treasury bonds
or notes, and some are based on indices of securities prices, such as the
Standard & Poor's Composite Index of 500 Stocks (S&P 500). Futures can be held
until their delivery dates, or can be closed out before then if a liquid
secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase the Fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if it had purchased the
underlying instrument directly. When the Fund sells a futures contract, by
contrast, the value of its futures position will tend to move in a direction
contrary to the market. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument bad been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the contract
is held until the delivery date. However, both the purchaser and seller are
required to deposit "initial margin" with a futures broker, known as a futures
commission merchant (FCM) when the contract is entered into. Initial margin
deposits are typically equal to a percentage of the contract's value. If the
value of either party's position declines, that party will be required to make
additional "variation margin" payments to settle the change in value on a daily
basis. The party that has a gain may be entitled to receive all or a portion of
this amount. Initial and variation margin payments do not constitute purchasing
securities on margin for purposes of the Fund's investment limitations. In the
event of the bankruptcy of an FCM that holds margin on behalf of the Fund, the
Fund may be entitled to retum of margin owed to it only in proportion to the
amount received by the FCM's other customers, potentially resulting in losses to
the Fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The Fund has filed a
notice of eligibility for exclusion from the definition of the term "commodity
pool operator" with the Commodity Futures Trading Commission (CFTC) and the
National Futures Association which regulate trading in the futures markets. The
Fund intends to comply with Rule 4.5 under the Commodity Exchange Act, which
limits the extent to which the Fund can commit assets to initial margin deposits
and option premiums.
The above limitations on the Fund investments in futures contracts and
options, and the Fund's policies regarding futures coIntracts and options
discussed elsewhere in this Statement of Additional Information, may be changed
as regulatory agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract at
any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are
14
<PAGE> 40
not close to the underlying instrument's current price. In addition, exchanges
may establish daily price fluctuation limits for options and futures contracts,
and may halt trading if a contract's price moves upward or downward more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for the Fund
to enter into new positions or close out existing positions. If the secondary
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
potentially could require the Fund to continue to hold a position until delivery
or expiration regardless of changes in its value. As a result, the Fund's access
to other assets held to cover its options or futures positions could also be
impaired.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except that they
are traded on exchanges (and have margin requirements) and are standardized as
to contract size and delivery date. Most currency futures contracts call for
payment or delivery in U.S. dollars. The underlying instrument of a currency
option may be a foreign currency, which generally is purchased or delivered in
exchange for U.S. dollars, or may be a futures contract. The purchaser of a
currency call obtains the right to purchase the underlying currency, and the
purchaser of a currency put obtains the right to sell the underlying currency.
The uses and risks of currency options and futures are similar to options
and futures relating to securities or indices, as discussed above. The Fund may
purchase and sell currency futures and may purchase and write currency options
to increase or decrease their exposure to different foreign currencies. The Fund
may also purchase and write currency options in conjunction with each other or
with currency futures or forward contracts. Currency futures and options values
can be expected to correlate with exchange rates, but may not reflect other
factors that affect the value of a fund's investments. A currency hedge, for
example, should protect a Yen-denominated security from a decline in the Yen,
but will not protect the Fund against a price decline resulting from
deterioration in the issuer's creditworthiness. Because the value of the Fund's
foreign-denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match the amount of currency options
and futures to the value of the Fund's investments exactly over time.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and strike
price, the terms of over-the-counter (OTC) options (options not traded on
exchanges) generally are established through negotiation with the other party to
the option contract. While this type of arrangement allows the Fund greater
flexibility to tailor an option to its needs. OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed by the
clearing organization of the exchanges where they are traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Fund
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the Fund pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments,
15
<PAGE> 41
including specific securities, indices of securities prices, and futures
contracts. The Fund may terminate its position in a put option it has purchased
by allowing it to expire or by exercising the option. If the option is allowed
to expire, the Fund will lose the entire premium it paid. If the Fund exercises
the option, it completes the sale of the underlying instrument at the strike
price. The Fund may also terminate a put option position by closing it out in
the secondary market at its current price, if a liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium paid, plus related
transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
option if security prices fall. At the same time the buyer can expect to suffer
a loss if security prices do not rise sufficiently to offset the cost of the
option.
WRITING PUT AND CALL OPTIONS. When the Fund writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the Fund assumes the obligation to pay the strike price
for the option's underlying instrument if the other party to the option chooses
to exercise it. When writing an option on a futures contract, the Fund will be
required to make margin payments to an FCM as described above for futures
contracts. The Fund may seek to terminate its position in a put option it writes
before exercise by closing out the option in the secondary market at its current
price. If the secondary market is not liquid for a put option the Fund has
written, however, the Fund must continue to be prepared to pay the strike price
while the option is outstanding, regardless of price changes, and must continue
to set aside assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received. If
security prices remain the same over time, it is likely that the writer will
also profit, because it should be able to close out the option at a lower price.
If security prices fall, the put writer would expect to suffer a loss. This loss
should be less than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should mitigate the
effects of the decline.
Writing a call option obligates the Fund to sell or deliver the option's
underlying instrument. in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for
16
<PAGE> 42
the strike price, even if its current value is greater, a call writer gives up
some ability to participate in security price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they are
valued. Under the supervision of the Board of Trustees, the Manager determines
the liquidity of the Fund's investments and, through reports from the Manager,
the Board monitors investments in illiquid instruments. In determining the
liquidity of the Fund's investments, the Manager may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of dealers
and prospective purchasers in the marketplace, (3) dealer undertakings to make a
market, (4) the nature of the security (including any demand or tender
features), and (5) the nature of the marketplace for trades (including the
ability to assign or offset the Fund's rights and obligations relating to the
investment).
Investments currently considered by the Fund to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days, and over-the-counter options. Also, the Manager may
determine some restricted securities, and emerging market securities to be
illiquid. However, with respect to over-the-counter options the Fund writes, all
or a portion of the value of the underlying instrument may be illiquid depending
on the assets held to cover the option and the nature and terms of any agreement
the Fund may have to close out the option before expiration.
In the absence of market quotations, illiquid investments are priced at
fair value as determined in good faith by the Board of Trustees. If through a
change in values, net assets, or other circumstances, the Fund were in a
position where more than 10% of its net assets was invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.
INDEXED SECURITIES. The Fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators. Indexed
securities typically, but not always, are debt securities or deposits whose
value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. Gold-indexed securities, for example, typically provide
for a maturity value that depends on the price of gold, resulting in a security
whose price tends to rise and fall together with gold prices. Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed securities
may be positively or negatively indexed; that is, their maturity value may
increase when the specified currency value increases, resulting in a security
that performs similarly to a foreign-denominated instrument, or their maturity
value may decline when foreign currencies increase, resulting in a security
whose price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
17
<PAGE> 43
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the United
States and abroad. At the same time indexed securities are subject to the credit
risks associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
government agencies. The Manager will use its judgment in determining whether
indexed securities should be treated as money market instruments, bonds, stocks,
or as a separate asset class for purposes of the Fund's investment allocations,
depending on the individual characteristics of the securities. Indexed
securities may be more volatile than the underlying instruments.
LOWER-QUALITY DEBT SECURITIES. The market for lower-quality debt securities
may be thinner and less active than that for higher-quality debt securities,
which can adversely affect the prices at which the former are sold. If market
quotations are not available, lower-quality debt securities will be valued in
accordance with procedures established by the Board of Trustees, including the
use of outside pricing services. Judgment plays a greater role in valuing
high-yield corporate debt securities than is the case for securities for which
more external sources for quotations and last-sale information are available.
Adverse publicity and changing investor perceptions may affect the ability of
outside pricing services to value lower-quality debt securities and the Fund's
ability to dispose of these securities.
Since the risk of default is higher for lower-quality debt securities, the
Manager's research and credit analysis are an especially important part of
managing securities of this type held by the Fund. In considering investments
for the Fund, the Manager will attempt to identify those issuers of
high-yielding securities whose financial condition is adequate to meet future
obligations, has improved, or is expected to improve in the future. The
Manager's analysis focuses on relative values based on such factors as interest
or dividend coverage, asset coverage, earnings prospects, and the experience and
managerial strength of the issuer.
The Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be in
the best interest of the Fund's shareholders.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund purchases a
security and simultaneously commits to sell that security back to the original
seller at an agreed-upon price. The resale price reflects the purchase price
plus an agreed-upon incremental amount which is unrelated to the coupon rate or
maturity of the purchased security. The securities purchased by the Fund are
used to collateralize the repurchase obligation. As such, they are held in an
account of the Fund at a bank, marked-to-market daily, and maintained at a value
at least equal to the sale price plus the accrued incremental amount. While it
does not presently appear possible to eliminate all risks from these
transactions (particularly the possibility that the value of the underlying
security will be less than the resale price, as well as delays and costs to a
fund in connection with
18
<PAGE> 44
bankruptcy proceedings), it is the Fund's current policy to engage in repurchase
agreement transactions with parties whose creditworthiness has been reviewed and
found satisfactory by the Manager.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
the Fund may be obligated to pay all or part of the registration expense and a
considerable period may elapse between the time it decides to seek registration
and the time it may be permitted to sell a security 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 seek registration of the security.
SHORT SALES. The Fund may enter into short sales with respect to stocks
underlying its convertible security holdings. For example, if the Manager
anticipates a decline in the price of the stock underlying a convertible
security the Fund holds, it may sell the stock short. If the stock price
subsequently declines, the proceeds of the short sale could be expected to
offset all or a portion of the effect of the stock's decline on the value of the
convertible security. The Fund currently intends to hedge no more than 15% of
its total assets with short sales on equity securities underlying its
convertible security holdings under normal circumstances.
When the Fund enters into a short sale, it will be required to set aside
securities equivalent in kind and amount to those sold short (or securities
convertible or exchangeable into such securities) and will be required to hold
them aside while the short sale is outstanding. The Fund will incur transaction
costs, including interest expense, in connection with opening, maintaining, and
closing short sales.
ZERO COUPON BONDS. Zero coupon bonds do not make interest payments;
instead, they are sold at a deep discount from their face value and are redeemed
at face value when they mature. Because zero coupon bonds do not pay current
income, their prices can be very volatile when interest rates change. In
calculating its dividIends, the Fund takes into account as income a portion of
the difference between a zero coupon bond's purchase price and its face value.
19
<PAGE> 45
PORTFOLIO TURNOVER
- ------------------
Turnover rates are primarily a function of the Manager's response to market
conditions. In the Manager's opinion, it may be in the best interest of the Fund
to change its portfolio to a fully or partially defensive position at various
times during the year. This defensive investment strategy can produce high
portfolio turnover ratios when calculated in accordance with SEC rules.
The portfolio turnover rate for the Fund is not expected to exceed 300% in
the current year.
PURCHASE AND SALE OF PORTFOLIO SECURITIES
- -----------------------------------------
The Manager is authorized to place orders for the purchase and sale of
portfolio securities, and will do so in accordance with the policies described
below. The Manager is also responsible for the placement of transaction orders
for other accounts for which it or its affiliates act as investment adviser. In
selecting broker-dealers, subject to applicable limitations of the federal
securities laws, the Manager considers various relevant factors, including, but
not limited to: the size and type of the transaction; the nature and character
of the markets for the security to be purchased or sold; the execution
efficiency, settlement capability, and financial condition of the broker-dealer
firm; the broker-dealer's execution services rendered on a continuing basis; the
reasonableness of any commissions; and arrangements for payment of Fund
expenses. Generally, commissions for investments traded on foreign exchanges
will be higher than for investments traded on U.S. exchanges and may not be
subject to negotiation.
The Fund may execute portfolio transactions with broker-dealers who provide
research and execution services to the Fund or other accounts over which the
Manager or its affiliates exercise investment discretion. Such services may
include advice concerning the value of securities; the advisability of investing
in, purchasing, or selling securities; and the availability of securities or the
purchasers or sellers of securities. In addition, such broker-dealers may
furnish analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and performance of accounts;
effect securities transactions, and perform functions incidental thereto (such
as clearance and settlement).
The receipt of research from broker-dealers that execute transactions on
behalf of the Fund may be useful to the Manager in rendering investment
management services to the Fund or its other clients, and conversely, such
research provided by broker-dealers who have executed transaction orders on
behalf of other clients may be useful to the Manager in carrying out its
obligations to the Fund. The receipt of such research has not reduced the
Manager's normal independent research activities; however, it enables the
Manager to avoid the additional expenses that could be incurred if the Manager
tried to develop comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of
20
<PAGE> 46
commissions charged by other broker-dealers in recognition of their research and
execution services. In order to cause the Fund to pay such higher commissions,
the Manager must determine in good faith that such commissions are reasonable in
relation to the value of the brokerage and research services provided by such
executing broker-dealers, viewed in terms of a particular transaction or the
Manager's overall responsibilities to the Fund and its other clients. In
reaching this determination, the Manager will not attempt to place a specific
dollar value on the brokerage and research services provided, or to determine
what position of the compensation should be related to those services.
The Manager is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance in the
distribution of shares of the Fund to the extent permitted by law. The Manager
may use research services provided by and place agency transactions with the
Distributor, if the commissions are fair, reasonable, and comparable to
commissions charged by non-affiliated, qualified brokerage firms for similar
services.
The Manager may allocate brokerage transactions to broker-dealers who have
entered into arrangements with the Manager under which the broker-dealer
allocates a portion of the commissions paid by the Fund toward payment of the
Fund's expenses, such as transfer agent fees or custodian fees. The transaction
quality must, however, be comparable to those of other qualified broker-dealers.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members of
national securities exchanges from executing exchange transactions for accounts
which they or their affiliates manage, unless certain requirements are
satisfied. Pursuant to such requirements, the Board of Trustees has authorized
the Manager to execute portfolio transactions on national securities exchanges
in accordance with approved procedures and applicable SEC rules.
The Fund's Trustees periodically review the Manager's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the commissions paid by the Fund over
representative periods of time to determine if they are reasonable in relation
to the benefits to the Fund.
From time to time, the Trustees will review whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
The Fund seeks to recapture soliciting broker-dealer fees on the tender of
portfolio securities, but at present no other recapture arrangements are in
effect. The Trustees intend to continue to review whether recapture
opportunities are available and are legally permissible and, if so, to determine
in the exercise of their business judgment whether it would be advisable for
each fund to seek such recapture.
VALUATION OF PORTFOLIO SECURITIES
- ---------------------------------
Securities owned by the Fund and listed or traded on any national
securities exchange are valued at each closing of the New York Stock Exchange on
the basis of the
21
<PAGE> 47
last sale on such exchange each day that the exchange is open for business. If
there is no sale on that day, or if the security is not listed, it is valued at
its last bid quotation on the exchange or, in the case of unlisted securities,
as obtained from an established market maker. Futures contracts are valued on
the basis of the cost of closing out the liability; i.e., at the settlement
price of a closing contract or at the asked quotation for such a contract if
there is no sale. Money market instruments (certificates of deposit, commercial
paper, etc.) in the Fund are valued either at amortized cost or at original cost
plus accrued interest, both of which approximate current value. Fixed income
securities are priced at the current quoted bid price. However, U.S. Government
Securities and other fixed income securities may be valued on the basis of
prices provided by an independent pricing service when such prices are believed
to reflect the fair market value of such securities. The prices provided by a
pricing service are determined without regard to bid or last sale prices but
take into account securities prices, yields, maturities, call features, ratings,
institutional size trading in similar groups of securities and developments
related to specific securities. Portfolio securities for which market quotations
are not readily available are to be valued by the Manager in good faith at its
own expense under the direction of the Trustees.
Other assets, which include cash, prepaid and accrued items and amounts
receivable as income on investments and from the sale of portfolio securities,
are carried at book value, as are all liabilities. Liabilities include accrued
expenses, sums owed for securities purchased, and dividends payable.
CALCULATION OF TOTAL RETURN
- ---------------------------
From time to time, the Fund may advertise its average annual total returns
for various periods of time. When applicable, the periods of time shown will be
for a one-year period; a five-year period (or relevant portion thereof) and
since inception. The calculation assumes the reinvestment of all dividends and
distributions. Examples of the total return calculation for the Fund will assume
a hypothetical investment of $1,000 at the beginning of each period.
It is computed by finding the average annual compounded rates of return
over the length of the base periods that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
P (1+T)n = ERV
P = initial investment of $1,000
T = average annual total return
n = Number of years
ERV = ending redeemable value at the
end of the base period
OPTI-flex(R) DYNAMIC FUND:
22
<PAGE> 48
<TABLE>
<CAPTION>
Total Return
--------------------------------------
1 Year 5 Years
Since Inception
Period Ended Period Ended Period Ended
December 31, 1996 December 31, 1996 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Value of Account
At end of Period $ 0 $ 0 $ 0
Value of Account
At beginning of Period 1,000.00 1,000.00 1,000.00
-------- -------- --------
Base Period Return $ 0 $ 0 $ 0
Average Total Return 0 0 0
</TABLE>
23
<PAGE> 49
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
All redemptions in kind shall be of readily marketable securities.
AUTOMATIC ACCOUNT BUILDER. An investor may arrange to have a fixed amount
of $100 or more automatically invested in shares of the Fund monthly by
authorizing his or her bank account to be debited to invest specified dollar
amounts in shares of the Fund. The investor's bank must be a member of the
Automatic Clearing House System. Stock certificates are not issued to Automatic
Account Builder participants.
Further information about these programs and an application form can be
obtained from the Distributor.
SYSTEMATIC WITHDRAWAL PROGRAM. A systematic withdrawal plan is available
for shareholders having shares of the Fund with a minimum value of $10,000,
based upon the offering price. The plan provides for monthly, quarterly or
annual checks in any amount, but not less than $100 (which amount is not
necessarily recommended). Except as otherwise provided in the Prospectus, to the
Iextent such withdrawals exceed the current net asset value of reinvested
dividends, they may be subject to the contingent deferred sales charge. See "How
to Buy Shares" and "Other Shareholder Services" in the Prospectus.
Dividends and/or distributions on shares held under this plan are invested
in additional full and fractional shares at net asset value. The Transfer Agent
acts as agent for the shareholder in redeeming sufficient full and fractional
shares to provide the amount of the periodic withdrawal payment. The plan may be
terminated at any time.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares are
inadvisable because of the applicable sales charges to the withdrawal of the
Fund's shares. Each shareholder should consult his or her own tax adviser with
regard to the tax consequences of the plan, particularly if used in connection
with a retirement plan.
DISTRIBUTIONS AND TAXES
-----------------------
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, the Manager may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested until you
provide the Manager with alternate instructions.
24
<PAGE> 50
DIVIDENDS. A portion of the Fund's income may qualify for the
dividends-received deduction available to corporate shareholders to the extent
that the Fund's income is derived from qualifying dividends. Because the Fund
may earn other types of income, such as non-qualifying dividends and short-term
capital gains, the percentage of dividends from the Fund that qualifies for the
deduction generally will be less than 100%. The Fund will notify corporate
shareholders annually of the percentage of Fund dividends that qualifies for the
dividends-received deduction. A portion of the Fund's dividends derived from
certain U.S. government obligations may be exempt from state and local taxation.
The Fund will send each shareholder a notice in January describing the tax
status of dividends and capital gain distributions for the prior year.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by the Fund
on the sale of securities and distributed to shareholders of the Fund are
federally taxable as long-term capital gains regardless of the length of time
shareholders have held their shares. If a shareholder receives a long-term
capital gain distribution on shares of the Fund and such shares are held six
months or less and are sold at a loss, the portion of the loss equal to the
amount of the long-term capital gain distribution will be considered a long-term
loss for tax purposes.
Short-term capital gains distributed by the Fund are taxable to
shareholders as dividends, not as capital gains. Distributions from short-term
capital gains do not qualify for the dividends-received deduction.
FOREIGN TAXES. Foreign governments may withhold taxes on dividends and
interest paid with respect to foreign securities. Because the Fund does not
currently anticipate that securities of foreign issuers will constitute more
than 25% of its total assets at the end of its fiscal year, shareholders should
not expect to claim a foreign tax credit or deduction on their federal income
tax returns with respect to foreign taxes withheld.
TAX STATUS OF THE FUND. The Fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be liable
for federal tax on income and capital gains distributed to shareholders. In
order to qualify as a regulated investment company and avoid being subject to
federal income or excise taxes at the Fund level, the Fund intends to distribute
substantially all of its net investment income (consisting of the income it
earns from its investment in the Portfolio, less expenses) and net realized
capital gains within each calendar year as well as on a fiscal year basis. The
Fund intends to comply with other tax rules applicable to regulated investment
companies, including a requirement that capital gains from the sale of
securities held less than three months constitute less than 30% of the Fund's
gross income for each fiscal year. Gains from futures contracts and options are
included in this 30% calculation, which may limit the Fund's investments in such
instruments.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting the Fund and its shareholders, and no
attempt has been made to discuss individual tax consequences. In addition to
federal income taxes, shareholders may be subject to state and local taxes on
Fund distributions. Investors
25
<PAGE> 51
should consult their tax advisers to determine whether the Fund is suitable to
their particular tax situation.
INVESTMENT ADVISER AND MANAGER
------------------------------
Proactive Money Management, Inc. (the "Manager") is the investment adviser
and manager for, and has an Investment Advisory Contract with, the Fund.
Pursuant to the Investment Advisory Contract with the Fund, the Manager,
subject to the supervision of the Fund's Board of Trustees and in conformity
with the stated objective and policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities. In connection
therewith, the Manager is obligated to keep certain books and records of the
Fund. The Manager also administers the Fund's corporate affairs, and in
connection therewith, furnishes the Fund with office facilities, together with
those ordinary clerical and bookkeeping services which are not being furnished
by Star Bank, N.A., the Portfolio's custodian and Mutual Funds Service Co., the
Fund's transfer and disbursing agent. The management services of the Manager are
not exclusive under the terms of the Investment Advisory Agreement and the
Manager is free to, and does, render management services to others.
The Manager and the Distributor have entered into a marketing agreement
under which the Manager pays the Distributor an amount equal to one-third of the
investment advisory fees received by the Manager from the Fund in consideration
for the Distributor furnishing marketing services on behalf of the Fund.
The Investment Advisory Contract for the Fund was separately approved by a
vote of a majority of the Trustees, including a majority of those Trustees who
are not "interested persons" (as defined in the Investment Company Act of 1940)
of the Fund. The Investment Advisory Contract is to remain in force so long as
renewal thereof is specifically approved at least annually by a majority of the
Trustees or by vote of a majority of the issued and outstanding shares of the
Fund, and in either case by vote of a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) at a
meeting called for the purpose of voting on such renewal.
The Investment Advisory Contract provides that the Manager will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which the Investment Advisory
Contract relates except for a loss resulting from willful misfeasance, bad
faith, gross negligence or reckless disregard of duty. The Investment Advisory
Contract will terminate automatically if assigned and may be terminated without
penalty at any time upon 60 days' prior written notice by Majority Vote of the
Fund, by the Trustees of the Fund, or by the Manager.
The Fund pays: the fees of the Trust's independent auditors, legal counsel,
custodian, transfer agent and accountants; insurance premiums; the fees and
expenses of Trustees who do not receive compensation from the Manager;
association dues; the cost of printing and mailing confirmations, prospectuses,
proxies, proxy statements, notices and
26
<PAGE> 52
reports to existing shareholders; state registration fees; distribution expenses
within the percentage limitations of the shares' distribution and service plan,
including the cost of printing and mailing of prospectuses and other materials
incident to soliciting new accounts; and other miscellaneous expenses.
Expenses of the Fund also include all fees under its Accounting and
Administrative Service Agreement; the expenses connected with the execution,
recording and settlement of security transactions; fees and expenses of the
Fund's custodian for all services to the Fund, including safekeeping of funds
and securities and maintaining required books and accounts; expenses of
preparing and mailing reports to investors and to governmental offices and
commissions; expenses of meetings of investors and Trustees; the advisory fees
payable to the Manager under the Investment Advisory Contract and other
miscellaneous expenses.
The Manager earns an annual fee, payable in monthly installments, from the
Fund at the rate of 0.75% of the Fund's first $500,000,000 in average net assets
and 0.65% of the Fund's average net assets in excess of $500,000,000.
Proactive Money Management, Inc. was incorporated in January, 1980 and
maintains its principal offices at 500 Chesterfield Center, Suite 250,
Chesterfield, MO 63017. The Manager is controlled by C. Martin Unterreiner and
Janice B. Unterreiner through the ownership of voting common stock. The
Manager's officers and directors, and the principal offices are as set forth as
follows: C. Martin Unterreiner, President and a Director; Katherine R. Kearins,
Vice President and a Director; Karen A. Scott, Treasurer and a Director; Hope L.
Wickline, Secretary; and Jeffrey J. Unterreiner, a Director. C. Martin
Unterreiner is Vice President and a Trustee of the Trust. Katherine R. Kearins
is Treasurer and a Trustee of the Trust. Jeffrey J. Unterreiner is Chairman,
President and a Trustee of the Trust. Hope L. Wickline is Assistant Secretary of
the Trust.
OFFICERS AND TRUSTEES
---------------------
The Trustees and executive officers of the Trust are listed below. Except
as indicated, each individual has held the office shown or other offices in the
same company for the last five years. Unless otherwise noted, the business
address of each Trustee and officer is 500 Chesterfield Center, Suite 250,
Chesterfield, MO 63017, which is also the address of the Manager. Those Trustees
who are "interested persons" (as defined in the Investment Company Act of 1940)
by virtue of their affiliation with either the Portfolio, the Trust or the
Manager are indicated by an asterisk (*).
The Trust is managed by its Trustees and officers. Their names, positions
and principal occupations during the past five years are listed below:
Position Principal
Name and Address and Age Held Occupation
- ------------------------ ---- ----------
27
<PAGE> 53
<TABLE>
<CAPTION>
<S> <C> <C>
Jeffrey J. Unterreiner*+, 27 Trustee/Chairman and President, Proactive
President Financial
Services, Inc. since October, 1994;
Registered
Representative, FFP,
Securities, Inc., a
broker-dealer, from
May, 1990 to
October,1994.
C. Martin Unterreiner*+, 56 Trustee/Vice President President and a Director,
Proactive Money
Management, Inc.
Katherine R. Kearins*+, 29 Trustee/Treasurer Vice President and a
Director,
Proactive Money
Management, Inc.
since February, 1994;
Senior
Accounting Analyst,
Storz Instrument Co., an
opthalmic manufacturing company,
from September, 1992
to February, 1994; Accounting
Analyst, IBM
Corp., a computer
company, from
June, 1989 to July,
1992.
</TABLE>
28
<PAGE> 54
<TABLE>
<CAPTION>
<S> <C> <C>
Henry J. Bingham, 65 Trustee Executive Managing
99 Park Avenue Director, Van
New York, NY 10016 Eck Associates Corp.,
Van Eck Global Funds
an investment adviser,
since 1984.
Peter B. Mauthe, 40 Trustee President, CORE
CORE Asset Management Asset Management, an
19700 Fairchild, Suite 120 investment adviser,
Irvine, CA 92715 from June, 1993 to
present;
President, MK Asset
Management,
an investment adviser,
from January,
1984 to June 1993.
Patricia A. Houtz, 45 Trustee President, Jupiter
Jupiter Group, Inc. Group, Inc., a
120 Country Club Drive market timing/mutual
Incline Village, NV 89450 fund switching
subscription advisory
service, from
1992 to present;
Principal, First
Affiliated Securities, a
broker-dealer,
from 1990 to 1992.
Raymond E. Doerr, 73 Trustee Retired, formerly
534 Fairways Circle Engineering
St. Louis, MO 63141 Director for
Monsanto Company, a
chemical company.
Retired
November, 1982.
Patrick L. Durbin, 49 Trustee Chief Executive
7320 N. Mopac, Suite 312 Officer, Plan View,
Austin, TX 78731 Inc., a computer
software company,
since 1988.
</TABLE>
29
<PAGE> 55
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Peter J. Krussel*+, 23 Secretary Registered
representative, Proactive
Financial Services,
Inc., since May,
1994; student at
Quincy University,
from 1989 to 1994.
Tonjua G. Donnelly*+, 26 Assistant Treasurer Executive
Administrator, Proactive
Financial Services,
Inc., since
November, 1994;
Clerk, Magna
Group, June, 1992 to
November,
1994; student,
University of
Missouri, from 1988
to June, 1992.
Hope L. Wickline*+, 30 Assistant Secretary Compliance Officer
and Secretary,
Proactive Money
Management, Inc.,
since June, 1994;
Employment
Security Deputy,
State of Missouri,
from March, 1994 to
June, 1994;
Data Control
Technician II,
State of Kansas, from
August, 1991
to February, 1994.
<FN>
*"Interested Person" of the Trust (as defined in the Investment Company Act of 1940).
+500 Chesterfield Center, Suite 250, Chesterfield, MO 63017.
</TABLE>
C. Martin Unterreiner is Jeffrey J. Unterreiner's father. Jeffrey J.
Unterreiner is a director of Proactive Money Management, Inc.
The Trust pays each Trustee who is not an "interested person" an annual fee
of $2,000, plus $500 for each meeting of the Board of Trustees attended. Messrs.
Doerr, Mauthe and Bingham comprise the Audit Committee for the Trust. Each
member of the
30
<PAGE> 56
Audit Committee is paid $250 for each meeting of the Audit Committee attended.
All other officers and Trustees serve without compensation from the Trust.
The Trustees and officers of the Fund own, in the aggregate, less than 1%
of the Fund's total outstanding shares.
THE DISTRIBUTOR
---------------
Proactive Financial Services, Inc. (the "Distributor"), 500 Chesterfield
Center, Suite 250, Chesterfield, MO 63017, acts as the distributor of the shares
of the Fund.
Pursuant to a plan of distribution (the "Plan") adopted by the Fund under
Rule 12b-1 under the 1940 Act and an underwriting agreement (the Underwriting
Agreement), the Distributor incurs the expenses of distributing the Fund's
shares. See "Distribution Plan" in the Prospectus.
On May 3, 1996, the Board of Trustees, including a majority of the Trustees
who are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plan or in any agreement related to
the Plan (the Rule 12b-1 Trustees), at a meeting called for the purpose of
voting on the Plan, adopted a plan of distribution for the shares of the Fund.
The Distributor also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of shares. See "How to Buy
Shares" in the Prospectus.
The Plan continues in effect from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Trustees,
including a majority vote of the Rule 12b-1 Trustees, cast in person at a
meeting called for the purpose of voting on such continuance. The Plan may be
terminated at any time, without penalty, by the vote of a majority of the
Trustees who are not interested persons or by the vote of the holders of a
majority of the outstanding shares of the Fund. The Plan may not be amended to
increase materially the amounts to be spent for the services described therein
without approval by the shareholders, and all material amendments are required
to be approved by the Board of Trustees in the manner described above. The Fund
will not be contractually obligated to pay expenses incurred under the Plan if
it is terminated or not continued.
Pursuant to the Plan, the Board of Trustees will review at least quarterly
a written report of the distribution expenses incurred on behalf of the shares
of the Fund by the Distributor. The report includes an itemization of the
distribution expenses and the purposes of such expenditures. In addition, as
long as the Plan remains in effect, the selection and nomination of Trustees who
are not interested persons of the Fund shall be committed to the Trustees who
are not interested persons of the Fund.
Pursuant to the Underwriting Agreement, the Fund has agreed to indemnify
the Distributor to the extent permitted by applicable law against certain
liabilities under the
31
<PAGE> 57
Securities Act of 1933 and the Investment Company Act of 1940. The Underwriting
Agreement was approved by the Board of Trustees, including a majority of the
Rule 12b-1 Trustees, on May 3, 1996.
INDIVIDUAL RETIREMENT ACCOUNTS (IRA)
------------------------------------
IRA accounts have a $4,000 minimum purchase requirement. Information
concerning contribution limitations for IRA accounts are described below.
Limitation on Deductible Contributions - Under prior law an individual with
earned income, not yet 70 1/2 years of age, was allowed a deductible IRA
contribution, limited to the lesser of earned income or $2,000. Effective for
years beginning after December 31, 1986, applicable law limits the deductibility
of IRA contributions where the taxpayer is a participant in an
employer-sponsored retirement plan and had adjusted gross income (AGI) in excess
of $40,000 (joint) and $25,000 (single). For every dollar that AGI exceeds these
limits, the maximum deduction is reduced by twenty cents. Thus, a joint filer
with AGI greater than $50,000 who is covered by an employer sponsored plan will
not be able to make a deductible IRA contribution. The deductible limits for
individuals not covered by an employer-sponsored plan were not changed.
Nondeductible Contributions- Individuals who may not make a deductible
contribution due to the limits noted above, may continue to make nondeductible
contributions subject to the prior $2,000 limitation. The earnings on such
contributions will still accumulate on a tax deferred basis. Individuals will be
required to report such contributions on their tax returns.
Rollover Contributions-Individuals who receive certain lump-sum
distributions from employer-sponsored retirement plans may make roll-over
contributions to an IRA and by doing so defer taxes on the distribution and
shelter any investment earnings.
A Spousal IRA is also available.
DESCRIPTION OF THE TRUST
------------------------
TRUST ORGANIZATION. The assets of the Trust received for the issue or sale
of the shares of the Fund and all income, earnings, profits, and proceeds
thereof, subject only to the rights of creditors, are especially allocated to
the Fund and constitute the underlying assets of the Fund.
SHAREHOLDER AND TRUSTEE LIABILITY. The Trust is an entity of the type
commonly known as a "Massachusetts business trust." Under Massachusetts law,
shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of the trust. The Declaration of Trust
provides that the Trust shall not have any claim against shareholders except for
the payment of the purchase price of shares and requires that each agreement,
obligation, or instrument entered into or executed by the Trust or the Trustees
include a provision limiting the obligations created thereby to the Trust and
its assets.
32
<PAGE> 58
The Declaration of Trust provides for indemnification out of the Fund's
property of any shareholder held personally liable for the obligations of the
Fund. The Declaration of Trust also provides that each Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Fund and satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. The Manager believes that, in view of the above, the risk of
personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or wrongdoing, but
nothing in the Declaration of Trust protects Trustees against any liability to
which they would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of their office.
VOTING RIGHTS. The Fund's capital consists of shares of beneficial
interest. As a shareholder, you receive one vote for each share you own. The
shares have no preemptive or conversion rights; the voting and dividend rights,
and the right of redemption, are described in the Prospectus. Shares are fully
paid and nonassessable, except as set forth under the heading "Shareholder and
Trustee Liability" above. Shareholders representing 10% or more of the Trust or
the Fund may, as set forth in the Declaration of Trust, call meetings of the
Trust or the Fund for any purpose related to the Trust or Fund, as the case may
be, including, in the case of a meeting of the entire Trust, the purpose of
voting on removal of one or more Trustees. The Trust or the Fund may be
terminated upon the sale of its assets to another open-end management investment
company, or upon liquidation and distribution of its assets, if approved by vote
of the holders of a majority of the Trust or the Fund, as determined by the
current value of each shareholder's investment in the Fund or Trust. If not so
terminated, the Trust and the Fund will continue indefinitely.
CUSTODIAN. Star Bank, N.A., 425 Walnut Street, Cincinnati, OH 45202, is
custodian of the assets of the Fund. The custodian is responsible for the
safekeeping of the Fund's assets and the appointment of subcustodian banks and
clearing agencies. The custodian takes no part in determining the investment
policies of the Fund or in deciding which securities are purchased or sold by
the Fund. The Fund may, however, invest in obligations of the custodian and may
purchase or sell securities from or to the custodian.
AUDITOR. KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio
43215, serves as the Trust's independent accountant. The auditor examines
financial statements for the Fund and provides other audit, tax, and related
services.
33
<PAGE> 59
PART C
------
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements
Not Applicable.
Statements and schedules other than those listed above are omitted because they
are not required, or because the information required is included in the
financial statements or notes thereto.
(b) Exhibits:
---------
1. Declaration of Trust is filed herewith.
2. By-laws of the Trust is filed herewith.
3. Not Applicable.
4. Not Applicable.
5. Investment Advisory Agreement, dated May 3, 1996, between
Proactive Money Management, Inc. and Registrant with regard
to the Fund, is filed herewith.
6. Underwriting Agreement between Proactive Financial Services,
Inc. and Registrant, dated May 3, 1996, is filed herewith.
7. Not Applicable.
8. Custody Agreement between Registrant and Star Bank, National
Association dated June 5, 1996 is filed herewith.
9. Administration Services Agreement between the Fund and
Mutual Funds Service Co. is filed herewith.
10. Opinion and Consent of Counsel to be filed by amendment.
11. Not Applicable.
12. Not Applicable.
34
<PAGE> 60
13. Investment Representation Letter of Initial Shareholder to
be filed by amendment.
14. Not Applicable.
15. The Distribution and Service Plan for the Fund, dated May 3,
1996, is filed herewith.
16. Schedule for computation of performance quotation is filed
herewith.
17. Not Applicable
18. Not Applicable.
19. Powers of Attorney of Trustees of Registrant are filed
herewith.
Item 25. Persons Controlled by or under Common Control with Registrant.
--------------------------------------------------------------
None.
Item 26. Number of Holders of Securities at , 1996.
--------------------------------------------------------------
Title of Number of
Class Fund Record Holders
-------- ---- --------------
Shares of OPTI-flex(R)
Beneficial Interest Dynamic Fund 1
Item 27. Indemnification
---------------
Reference is made to Section 5.3 of the Declaration of Trust
filed herewith. As provided therein, the Trust is required to
indemnify its officers and trustees against claims and
liability arising in connection with the affairs of the Trust,
except liability arising from breach of trust, bad faith,
willful misfeasance, gross negligence or reckless disregard of
duties. The Trust is obligated to undertake the defense of any
action brought against any officer, trustee or shareholder,
and to pay the expenses thereof if he or she acted in good
faith and in a manner he reasonably believed to in or not
opposed to the best interest of the Trust, and with respect to
any criminal action had no reasonable cause to believe his or
her conduct was unlawful. Other conditions are applicable to
the right of indemnification as set forth in the Declaration
of Trust. In applying these provisions, the Trust will comply
with the provisions of Investment Company Act.
35
<PAGE> 61
Item 28. Business and Other Connections of Investment Adviser.
-----------------------------------------------------
Not Applicable.
Item 29. Principal Underwriters.
-----------------------
(a) Not Applicable.
(b)
<TABLE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
------------------ --------------------- ---------------------
<S> <C> <C>
Jeffrey J. Unterreiner President, Secretary, Chairman and
500 Chesterfield Center, Treasurer and President
Suite 250 Director
Chesterfield, MO 63017
</TABLE>
(c) Not Applicable.
Item 30. Location of Accounts and Records.
---------------------------------
Registrant's Declaration of Trust, By-laws, and Minutes of
Trustees' and Shareholders' Meetings, and contracts and like
documents are in the physical possession of Mutual Funds
Service Co., the Registrant's fund accountant, administrator
and transfer agent, at 6000 Memorial Drive, Dublin, Ohio 43017
or Proactive Money Management, Inc., 500 Chesterfield Center,
Suite 250, Chesterfield, MO 63017. Certain custodial records
are in the custody of Star Bank, N.A., the Fund's custodian,
at 425 Walnut Street, Cincinnati, Ohio 45202. All other
records are kept in the custody of Proactive Money Management,
Inc. at 500 Chesterfield Center, Suite 250, Chesterfield, MO
63017 and Mutual Funds Service Co., 6000 Memorial Drive,
Dublin, OH 43017.
Item 31. Management Services.
--------------------
Not Applicable.
Item 32. Undertakings.
-------------
(a) Registrant undertakes to file an amendment to this
Registration Statement with certified financial
statements showing the initial capital received
before accepting subscriptions from any persons in
excess of 25 if Registrant proposes to raise its
initial capital pursuant to Section 14(a)(3) of the
1940 Act.
(b) Registrant undertakes to file a post-effective amendment,
including financial statements for the OPTI-flex(R)
Dynamic Fund which need
36
<PAGE> 62
not be certified, within four to six months following
commencement of operations.
(c) If the information called for by Item 5A of this
Registration Statement is contained in the latest annual
report to shareholders, Registrant undertakes to furnish
each person to whom a prospectus is delivered with a copy of
the Registrant's latest annual report to shareholders, upon
request and without charge.
(d) The Registrant undertakes to call a meeting of shareholders
for the purpose of voting upon the question of removal of
one or more trustees, if requested to do so by the holders
of at least 10% of the Registrant's outstanding shares, and
will assist communications among shareholders as set forth
within Section 16(c) of the 1940 Act.
37
<PAGE> 63
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Chesterfield, and the State of Missouri on the 5th
day of June, 1996.
ACTIVE ASSET ALLOCATION FUNDS
BY: /s/ Jeffrey J. Unterreiner
--------------------------
Jeffrey J. Unterreiner
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title
--------- -----
/s/ Jeffrey J. Unterreiner Chairman, President and Trustee
- --------------------------
Jeffrey J. Unterreiner
/s/ C. Martin Unterreiner Vice President and Trustee
- --------------------------
C. Martin Unterreiner
/s/ Katherine R. Kearins Treasurer, Principal Financial Officer,
- -------------------------- Principal Accounting Officer and Trustee
Katherine R. Kearins
Patrick L. Durbin* Trustee
- -------------------------
Patrick L. Durbin
Henry J. Bingham* Trustee
- --------------------------
Henry J. Bingham
Raymond E. Doerr* Trustee
- --------------------------
Raymond E. Doerr
Patricia A. Houtz* Trustee
- --------------------------
Patricia A. Houtz
Peter B. Mauthe* Trustee
- --------------------------
Peter B. Mauthe
*By: /s/ Jeffrey J. Unterreiner
--------------------------
38
<PAGE> 64
Jeffrey J. Unterreiner
Executed by Jeffrey J. Unterreiner on behalf
of those indicated pursuant to Powers of Attorney
39
<PAGE> 1
Exhibit 1
---------
ACTIVE ASSET ALLOCATION FUNDS
OPTI-flex(R) DYNAMIC FUND
----------------------------
DECLARATION OF TRUST
Dated as of May 3, 1996
40
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE I--Name and Definitions
--------------------
Section 1.1 Name 1
Section 1.2 Definitions 1
ARTICLE II--Trustees
--------
Section 2.1 Number of Trustees 3
Section 2.2 Term of Office of Trustees 3
Section 2.3 Resignation and Appointment of Trustees 3
Section 2.4 Vacancies 4
Section 2.5 Delegation of Power to Other Trustees 4
ARTICLE III--Powers of Trustees
------------------
Section 3.1 General 4
Section 3.2 Investments 5
Section 3.3 Legal Title 6
Section 3.4 Issuance and Repurchase of Securities 6
Section 3.5 Borrowing Money; Lending Trust Property 6
Section 3.6 Delegation; Committees 6
Section 3.7 Collection and Payment 7
Section 3.8 Expenses 7
Section 3.9 Manner of Acting/ By-Laws 7
Section 3.10 Miscellaneous Powers 7
Section 3.11 Principal Transactions 8
Section 3.12 Trustees and Officers as Shareholders 8
ARTICLE IV--Investment Adviser, Distributor, Administrator, Transfer
--------------------------------------------------------
Agent and Shareholder Servicing Agents
--------------------------------------
Section 4.1 Investment Adviser 9
Section 4.2 Distributor 9
Section 4.3 Administrator 9
Section 4.4 Transfer Agent and Shareholder Servicing
Agents 9
Section 4.5 Parties to Contract 10
ARTICLE V--Limitations of Liability of Shareholders, Trustees and
------------------------------------------------------
Others
------
Section 5.1 No Personal Liability of Shareholders, 10
Trustees, etc.
i
41
<PAGE> 3
Section 5.2 Non-Liability of Trustees, etc. 11
Section 5.3 Mandaotry Indemnification; Insurance 11
Section 5.4 No Bond Required of Trustees 12
Section 5.5 No Duty of Investigation; Notice in Trust
Instruments, etc. 13
Section 5.6 Reliance on Experts, etc. 13
ARTICLE VI--Shares of Beneficial Interest
-----------------------------
Section 6.1 Beneficial Interest 13
Section 6.2 Rights of Shareholders 14
Section 6.3 Trust Only 14
Section 6.4 Issuance of Shares 14
Section 6.5 Register of Shares 14
Section 6.6 Transfer of Shares 15
Section 6.7 Notices 15
Section 6.8 Voting Powers 15
Section 6.9 Series Designation 16
ARTICLE VII--Redemptions
-----------
Section 7.1 Redemptions 18
Section 7.2 Suspension of Right of Redemption 18
Section 7.3 Redemption of Shares; Disclosure of Holding 19
Section 7.4 Redemptions of Accounts of Less than 19
Minimum Amount
ARTICLE VIII--Determination of Net Asset Value, Net Income and 20
------------------------------------------------
Distributions
-------------
ARTICLE IX--Duration; Termination of Trust; Amendment; Mergers, etc.
-------------------------------------------------------
Section 9.1 Duration 20
Section 9.2 Termination of Trust 20
Section 9.3 Amendment Procedure 21
Section 9.4 Merger, Consolidation and Sale of Assets 22
Section 9.5 Incorporation, Reorganization 23
Section 9.6 Incorporation or Reorganization of Series 23
ARTICLE X--Reports to Shareholders and Shareholder Communications 23
------------------------------------------------------
ARTICLE XI--Miscellaneous
-------------
Section 11.1 Filing 23
Section 11.2 Governing Law 24
ii
42
<PAGE> 4
Section 11.3 Counterparts 24
Section 11.4 Reliance by Third Parties 24
Section 11.5 Provisions in Conflict with Law or Regulations 24
Section 11.6 Principal Office 24
APPENDIX I--Series Designation 27
------------------
iii
43
<PAGE> 5
DECLARATION OF TRUST
OF
ACTIVE ASSET ALLOCATION FUNDS
OPTI-flex(R) DYNAMIC FUND
Dated as of May 3, 1996
WHEREAS, the Trustees desire to establish a trust for the investment and
reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable Shares of Beneficial Interest (par value
$0.10 per share) ("Shares") issued in one or more series as hereinafter
provided;
NOW, THEREFORE, the Trustees hereby declare that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of holders, from time to time, of the Shares issued
hereunder and subject to the provisions hereof.
ARTICLE I
NAME AND DEFINITIONS
--------------------
SECTION 1.1. NAME. The name of the trust created hereby is "Active Asset
Allocation Funds".
SECTION 1.2. DEFINITIONS. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "ADMINISTRATOR" means a party furnishing services to the Trust pursuant
to any contract described in Section 4.3 hereof.
(b) "BY-LAWS" means the By-laws referred to in Section 3.9 hereof, as from
time to time amended.
(c) "COMMISSION" has the meaning given that term in the 1940 Act.
(d) "CUSTODIAN" means a party employed by the Trust to furnish services as
described in Article X of the By-Laws.
(e) "DECLARATION" means this Declaration of Trust as amended from time to
time. Reference in this Declaration of Trust to "Declaration", "hereof",
"herein", and "hereunder" shall be deemed to refer to this Declaration rather
than the article or section in which such words appear.
44
<PAGE> 6
(f) "DISTRIBUTOR" means a party furnishing service to the Trust pursuant to
any contract described in Section 4.2 hereof.
(g) "INTERESTED PERSON" has the meaning given that term in the 1940 Act.
(h) "INVESTMENT ADVISER" means a party furnishing services to the Trust
pursuant to any contract described in Section 4.1 hereof.
(i) "MAJORITY SHAREHOLDER VOTE" has the same meaning as the phrase "vote of
a majority of the outstanding voting securities" as defined in the 1940 Act,
except that such term may be used herein with respect to the Shares of the Trust
as a whole or the Shares of any particular series, as the context may require.
(j) "1940 ACT" means the Investment Company Act of 1940 and the Rules and
Regulations thereunder, as amended from time to time.
(k) "PERSON" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof,
whether domestic or foreign.
(l) "SHAREHOLDER" means a record owner of outstanding Shares.
(m) "SHARES" means the Shares of Beneficial Interest into which the
beneficial interest in the Trust shall be divided from time to time or, when
used in relation to any particular series of Shares established by the Trustees
pursuant to Section 6.9 hereof, equal proportionate transferable units into
which such series of Shares shall be divided from time to time. The term
"Shares" includes fractions of Shares as well as whole Shares.
(n) "SHAREHOLDER SERVICING AGENT" means a party furnishing services to the
Trust pursuant to any shareholder servicing contract described in Section 4.4
hereof.
(o) "TRANSFER AGENT" means a party furnishing services to the Trust
pursuant to any transfer agency contract described in Section 4.4 hereof.
(p) "TRUST" means the trust created hereby.
(q) "TRUST PROPERTY" means any and all property, real or personal, tangible
or intangible, which is owned or held by or for the account of the Trust or the
Trustees, including, without limitation, any and all property allocated or
belonging to any series of Shares pursuant to Section 6.9 hereof.
(r) "TRUSTEES" means the persons who have signed the Declaration, so long
as they shall continue in office in accordance with the terms hereof, and all
other persons who may from time to time by duly elected or appointed, qualified
and serving as Trustees
45
<PAGE> 7
in accordance with the provisions hereof, and reference herein to a Trustee or
the Trustees shall refer to such person or persons in their capacity as trustee
hereunder.
ARTICLE II
TRUSTEES
--------
SECTION 2.1. NUMBER OF TRUSTEES. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by a
majority of the Trustees, provided, however, that the number of Trustees shall
in no event be less than three nor more than 15.
SECTION 2.2. TERM OF OFFICE OF TRUSTEES. Subject to the provisions of
Section 16(a) of the 1940 Act, the Trustees shall hold office during the
lifetime of this Trust and until its termination as hereinafter provided; except
that (a) any Trustee may resign his trust (without need for prior or subsequent
accounting) by an instrument in writing signed by him and delivered to the other
Trustees, which shall take effect upon such delivery or upon such later date as
is specified therein; (b) any Trustee may be removed with cause, at any time by
written instrument signed by at least two-thirds of the remaining Trustees,
specifying the date when such removal shall become effective; (c) any Trustee
who has attained a mandatory retirement age established pursuant to any written
policy adopted from time to time by at least two-thirds of the Trustees shall,
automatically and without action of such Trustee or the remaining Trustees, be
deemed to have retired in accordance with the terms of such policy, effective as
of the date determined in accordance with such policy; (d) any Trustee who has
become incapacitated by illness or injury as determined by a majority of the
other Trustees, may be retired by written instrument signed by a majority of the
other Trustees, specifying the date of his retirement; and (e) a Trustee may be
removed at any meeting of Shareholders by a vote of two-thirds of the
outstanding Shares of each series. For purposes of the foregoing clause (b), the
term "cause" shall include, but not be limited to, failure to comply with such
written policies as may from time to time be adopted by at least two-thirds of
the Trustees with respect to the conduct of Trustees and attendance at meetings.
Upon the resignation, retirement or removal of a Trustee, or his otherwise
ceasing to be a Trustee, he shall execute and deliver such documents as the
remaining Trustees shall require for the purpose of conveying to the Trust or
the remaining Trustees any Trust Property held in the name of the resigning,
retiring or removed Trustee. Upon the incapacity or death of any Trustee, his
legal representative shall execute and deliver on his behalf such documents as
the remaining Trustees shall require as provided in the preceding sentence.
SECTION 2.3. RESIGNATION AND APPOINTMENT OF TRUSTEES. In case of the
declination, death, resignation, retirement, removal or inability of any of the
Trustees, or in case a vacancy shall, by reason of an increase in number, or for
any other reason, exist, the remaining Trustees shall fill such vacancy by
appointing such other individual as they in their discretion shall see fit. Such
appointment shall be evidenced by a written instrument signed by a majority of
the Trustees in office. Any such appointment shall not become
46
<PAGE> 8
effective, however, until the person named in the written instrument of
appointment shall have accepted in writing such appointment and agreed in
writing to be bound by the terms of the Declaration. Within twelve months of
such appointment, the Trustees shall cause notice of such appointment to be
mailed to each Shareholder at his address as recorded on the books of the
Trustees. An appointment of a Trustee may be made by the Trustees then in office
and notice thereof mailed to Shareholders as aforesaid in anticipation of a
vacancy to occur by reason of retirement, resignation or increase in number of
Trustees effective at a later date, provided that said appointment shall become
effective only at or after the effective date of said retirement, resignation or
increase in number of Trustees. The power of appointment is subject to the
provisions of Section 16(a) of the 1940 Act.
SECTION 2.4. VACANCIES. The death, declination, resignation, retirement,
removal or incapacity of the Trustees, or any one of them, shall not operate to
annul the Trust or to revoke any existing agency created pursuant to the terms
of this Declaration. Whenever a vacancy in the number of Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by the Declaration.
A written instrument certifying the existence of such vacancy signed by a
majority of the Trustees shall be conclusive evidence of the existence of such
vacancy.
SECTION 2.5. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six months at
any one time to any other time to any other Trustee or Trustees; provided that
in no case shall fewer than two Trustees personally exercise the powers granted
to the Trustees under the Declaration except as herein otherwise expressly
provided.
ARTICLE III
POWERS OF TRUSTEES
------------------
SECTION 3.1. GENERAL. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as the Trustees deem necessary, proper or desirable in order to
promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive. In construing the
provisions of the Declaration, the presumption shall be in favor of a grant of
power to the Trustees.
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The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
SECTION 3.2. INVESTMENTS. (a) The Trustees shall have the power:
(i) to conduct, operate and carry on the business of an investment company;
(ii) to subscribe for, invest in, reinvest in, purchase or otherwise
acquire, own, hold, pledge, sell, assign, transfer, exchange, distribute, lend
or otherwise deal in order dispose of U.S. and foreign currencies, any form of
gold or other precious metal, commodity contracts, any form of option contract,
contracts for the future acquisition or delivery of fixed income or other
securities, shares of, or any other interest in, any investment company as
defined in the Investment Company Act of 1940, and securities and related
derivatives of every nature and kind, including, without limitation, all types
of bonds, debentures, stocks, negotiable or non-negotiable instruments,
obligations, evidences of indebtedness, certificates of deposit or indebtedness,
commercial paper, repurchase agreements, bankers' acceptances, and other
securities of any kind, issued, created, guaranteed or sponsored by any and all
Persons, including, without limitation,
(A) states, territories and possessions of the United States and the
District of Columbia and any political subdivision, agency or instrumentality of
any such Person,
(B) the U.S. Government, any foreign government, any political subdivision
or any agency or instrumentality of the U.S. Government, any foreign government
or any political subdivision of the U.S. Government or any foreign government,
(C) any international or supranational instrumentality,
(D) any bank or savings institution, or
(E) any corporation, trust, partnership or other organization organized
under the laws of the United States or of any state, territory or possession
thereof, or under any foreign law;
or in "when issued" contracts for any such securities, to retain Trust assets in
cash and from time to time to change the securities or obligations in which the
assets of the Trust are invested; and to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such investments
of every kind and description, including, without limitation, the right to
consent and otherwise act with respect thereto, with power to designate one or
more Persons to exercise any of said rights, powers and privileges in respect of
any of said investments; and
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(iii) to carry on any other business in connection with or incidental to
any of the foregoing powers, to do everything necessary, proper or desirable for
the accomplishment of any purpose or the attainment of any object or the
furtherance of any power hereinbefore set forth, and to do every other act or
thing incidental or appurtenant to or connected with the aforesaid purposes,
objects or powers.
(b) The Trustees shall not be limited to investing in securities or
obligations maturing before the possible termination of the Trust, nor shall the
Trustees be limited by any law limiting the investments which may be made by
fiduciaries.
(c) Notwithstanding any other provision of this Declaration to the
contrary, the Trustee shall have the power in their discretion without any
requirement of approval by shareholders to either invest all or a portion of the
Trust Property, or sell all or a portion of the Trust Property and invest the
proceeds of such sales, in another investment company that is registered under
the 1940 Act.
SECTION 3.3. LEGAL TITLE. Legal title to all Trust Property shall be vested
in the Trustees as joint tenants except that the Trustees shall have power to
cause legal title to any Trust Property to be held by or in the name of one or
more of the Trustees, or in the name of the Trust, or in the name of any other
Person or nominee, on such terms as the Trustees may determine. The right, title
and interest of the Trustees in the Trust Property shall vest automatically in
each Person who may hereafter become a Trustee. Upon the resignation, removal or
death of a Trustee, such Trustee shall automatically cease to have any right,
title or interest in any of the Trust Property, and the right, title and
interest of such Trustee in the Trust Property shall vest automatically in the
remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
SECTION 3.4. ISSUANCE AND REPURCHASE OF SECURITIES. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in Shares and, subject
to the provisions set forth in Articles VII, VIII and IX and Section 6.9 hereof,
to apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds of the Trust or other Trust Property whether
capital or surplus or otherwise, to the full extent now or hereafter permitted
by the laws of the Commonwealth of Massachusetts governing business
corporations.
SECTION 3.5. BORROWING MONEY; LENDING TRUST PROPERTY. The Trustees shall
have power to borrow money or otherwise obtain credit and to secure the same by
mortgaging, pledging or otherwise subjecting as security the Trust Property, to
endorse, guarantee, or undertake the performance of any obligation, contract or
engagement of any other Person and to lend Trust Property.
SECTION 3.6. DELEGATION; COMMITTEES. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees or
agents of the Trust
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the doing of such things and the execution of such instruments either in the
name of the Trustee or the names of the Trustees or otherwise as the Trustees
may deem expedient.
SECTION 3.7. COLLECTION AND PAYMENT. Subject to Section 6.9 hereof, the
Trustees shall have power to collect all property due to the Trust; to pay all
claims, including taxes, against the Trust Property; to prosecute, defend,
compromise or abandon any claims relating to the Trust Property; to foreclose
any security interest securing any obligations, by virtue of which any property
is owed to the Trust; and to enter into releases, agreements and other
instruments.
SECTION 3.8. EXPENSES. Subject to Section 6.9 hereof, the Trustees shall
have the power to incur and pay any expenses which in the opinion of the
Trustees are necessary or incidental to carry out any of the purposes of the
Declaration, and to pay reasonable compensation from the funds of the Trust to
themselves as Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees.
SECTION 3.9. MANNER OF ACTING; BY-LAWS. Except as otherwise provided herein
or in the By-Laws, any action to be taken by the Trustees may be taken by a
majority of the Trustees present at a meeting of Trustees at which a quorum is
present, including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of a majority of the
Trustees. The Trustees may adopt By-Laws not inconsistent with this Declaration
to provide for the conduct of the business of the Trust and may amend or repeal
such By-Laws to the extent such power is not reserved to the Shareholders.
SECTION 3.10. MISCELLANEOUS POWERS. The Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem desirable for
the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate, and
appoint from their own number, and terminate, any one or more committees which
may exercise some or all of the power and authority of the Trustees as the
Trustees may determine; (d) purchase, and pay for out of Trust Property,
insurance policies insuring the Shareholders, the Administrator, Trustees,
officers, employees, agents, the Investment Adviser, the Distributor, selected
dealers or independent contractors of the Trust against all claims arising by
reason of holding any such position or by reason of any action taken or omitted
by any such Person in such capacity, whether or not constituting negligence, or
whether or not the Trust would have the power to indemnify such Person against
such liability; (e) establish pension, profit-sharing, Share purchase, and other
retirement, incentive and benefit plans for any Trustees, officers, employees or
agents of the Trust; (f) to the extent permitted by law, indemnify any person
with whom the Trust has dealings, including any Investment Adviser,
Administrator, Custodian, Distributor, Transfer Agent, Shareholder Servicing
Agent and any dealer, to such extent as the Trustees shall determine; (g)
guarantee indebtedness or
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contractual obligations of others; (h) determine and change the fiscal year of
the Trust and the method by which its accounts shall be kept; and (i) adopt a
seal for the Trust, provided, that the absence of such seal shall not impair the
validity of any instrument executed on behalf of the Trust.
SECTION 3.11. PRINCIPAL TRANSACTIONS. Except in transactions permitted
by the 1940 Act, or any order of exemption issued by the Commission, the
Trustees shall not, on behalf of the Trust, buy any securities (other than
Shares) from or sell any securities (other than Shares) to, or lend any assets
of the Trust to, any Trustee or officer of the Trust or any firm of which any
such Trustee or officer is a member acting as principal, or have any such
dealings with any Investment Adviser, Administrator, Shareholder Servicing
Agent, Custodian, Distributor or Transfer Agent or with any Interested Person,
or firm or company in which such Person is an Interested Person, as broker,
legal counsel, registrar, transfer agent, dividend disbursing agent or
custodian.
SECTION 3.12. TRUSTEES AND OFFICERS AS SHAREHOLDERS. Except as
hereinafter provided, no officer, Trustee or member of any advisory board of the
Trust, and no member, partner, officer, director or trustee of the Investment
Adviser, Administrator or of the Distributor, and no Investment Adviser,
Administrator or Distributor of the Trust, shall take long or short positions in
the securities issued by the Trust. The foregoing provision shall not prevent:
(a) The Distributor from purchasing Shares from the Trust if such
purchases are limited (except for reasonable allowances for clerical errors,
delays and errors of transmission and cancellation of orders) to purchases for
the purpose of filling orders for Shares received by the Distributor and
provided that orders to purchase from the Trust are entered with the Trust or
the Custodian promptly upon receipt by the Distributor of purchase orders for
Shares, unless the Distributor is otherwise instructed by its customer;
(b) The Distributor from purchasing Shares as agent for the account of
the Trust;
(c) The purchase from the Trust or from the Distributor of Shares by
any officer, Trustee or member of any advisory board of the Trust or by any
member, partner, officer, director or trustee of the Investment Adviser or of
the Distributor at a price not lower than the net asset value of the Shares at
the moment of such purchase, provided that any such sales are only to be made
pursuant to a uniform offer described in the current prospectus or statement of
additional information for the Shares being purchased; or
(d) The Investment Adviser, the Distributor, the Administrator, or any
of their officers, partners, directors or trustees from purchasing Shares prior
to the effective date of the Trust's Registration Statement under the Securities
Act of 1933, as amended, relating to the Shares.
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ARTICLE IV
INVESTMENT ADVISER, DISTRIBUTOR, ADMINISTRATOR, TRANSFER
--------------------------------------------------------
AGENT AND SHAREHOLDER SERVICING AGENTS
--------------------------------------
SECTION 4.1. INVESTMENT ADVISER. Subject to a Majority Shareholder Vote
of the Shares of each series affected thereby, the Trustees may in their
discretion from time to time enter into one or more investment advisory or
management contracts whereby the other party to each such contract shall
undertake to furnish the Trust such management, investment advisory, statistical
and research facilities and services, promotional activities, and such other
facilities and services, if any, with respect to one or more series of Shares,
as the Trustees shall from time to time consider desirable and all upon such
terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any provision of the Declaration, the Trustees may delegate to
the Investment Adviser authority (subject to such general or specific
instructions as the Trustees may from time to time adopt) to effect purchases,
sales, loans or exchanges of assets of the Trust on behalf of the Trustees or
may authorize any officer, employee or Trustee to effect such purchases, sales,
loans or exchanges pursuant to recommendations of the Investment Adviser (and
all without further action by the Trustees). Any of such purchases, sales, loans
or exchanges shall be deemed to have been authorized by all the Trustees. Such
services may be provided by one or more Persons.
SECTION 4.2. DISTRIBUTOR. The Trustees may in their discretion from
time to time enter into one or more distribution contracts providing for the
sale of Shares whereby the Trust may either agree to sell the Shares to the
other party to any such contract or appoint any such other party its sales agent
for such Shares. In either case, any such contract shall be on such terms and
conditions as the Trustees may in their discretion determine, provided that such
terms and conditions are not inconsistent with the provisions of the Declaration
or the By-Laws; and such contract may also provide for the repurchase or sale of
Shares by such other party as principal or as agent of the Trust and may provide
that such other party may enter into selected dealer and sales agreements with
registered securities dealers and depository institutions to further the purpose
of the distribution or repurchase of the Shares. Such services may be provided
by one or more Persons.
SECTION 4.3. ADMINISTRATOR. The Trustees may in their discretion from
time to time enter into one or more administrative services contracts whereby
the other party to each such contract shall undertake to furnish such
administrative services to the Trust as the Trustees shall from time to time
consider desirable and all upon such terms and conditions as the Trustees may in
their discretion determine, provided that such terms and conditions are not
inconsistent with the provisions of this Declaration or the By-Laws. Such
services may be provided by one or more Persons.
SECTION 4.4. TRANSFER AGENT AND SHAREHOLDER SERVICING AGENTS. The
Trustees may in their discretion from time to time enter into one or more
transfer agency and shareholder servicing contracts whereby the other party to
each such contract shall
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undertake to furnish such transfer agency and/or shareholder services to the
Trust or to shareholders of the Trust as the Trustees shall from time to time
consider desirable and all upon such terms and conditions as the Trustees may in
their discretion determine, provided that such terms and conditions are not
inconsistent with the provisions of this Declaration or the By-Laws. Such
services may be provided by one or more Persons. Except as otherwise provided in
the applicable shareholder servicing contract, a Shareholder Servicing Agent
shall be deemed to be the record owner of outstanding Shares beneficially owned
by customers of such Shareholder Servicing Agent for whom it is acting pursuant
to such shareholder servicing contract.
SECTION 4.5. PARTIES TO CONTRACT. Any contract of the character
described in Section 4.1, 4.2, 4.3 or 4.4 of this Article IV or any Custodian
contract as described in Article X of the By-Laws may be entered into with any
Person, although one or more of the Trustees or officers of the Trust may be an
officer, partner, director, trustee, shareholder, or member of such other party
to the contract, and no such contract shall be invalidated or rendered voidable
by reason of the existence of any such relationship; nor shall any Person
holding such relationship be liable merely by reason of such relationship for
any loss or expense to the Trust under or by reason of any such contract or
accountable for any profit realized directly or indirectly therefrom, provided
that the contract when entered into was not inconsistent with the provisions of
this Article IV or the By-Laws. The same Person may be the other party to
contracts entered into pursuant to Sections 4.1, 4.2, 4.3 and 4.4 above or any
Custodian contract as described in Article X of the By-Laws, and any individual
may be financially interested or otherwise affiliated with Persons who are
parties to any or all of the contracts mentioned in this Section 4.5.
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
-----------------------------------------
TRUSTEES AND OTHERS
-------------------
SECTION 5.1. NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, ETC. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard for his duty to such Person; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust. If any Shareholder, Trustee, officer,
employee, or agent, as such, of the Trust, is made a party to any suit or
proceeding to enforce any such liability, he shall not, on account thereof, be
held to any personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and liabilities to which such
Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder
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under this Section 5.1 shall not exclude any other right to which such
Shareholder may be lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided herein.
Notwithstanding any other provision of this Declaration to the contrary, no
Trust Property shall be used to indemnify or reimburse any Shareholder of any
Shares of any series other than Trust Property allocated or belonging to that
series.
SECTION 5.2. NON-LIABILITY OF TRUSTEES, ETC. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust or to any
Shareholder, Trustee, officer, employee, or agent thereof for any action or
failure to act (including without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except for his own
bad faith, willful misfeasance, gross negligence or reckless disregard of his
duties.
SECTION 5.3. MANDATORY INDEMNIFICATION; INSURANCE. (a) Subject to the
exceptions and limitations contained in paragraph (b) below:
(i) every person who is or has been a Trustee or officer of the Trust
shall be indemnified by the Trust, to the fullest extent permitted by law
(including the 1940 Act) as currently in effect or as hereafter amended, against
all liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim", "action", "suit", or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal, administrative or
other, including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust or the Shareholders by reason of
a final adjudication by the court or other body before which the proceeding was
brought that he engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Trust; or
(iii) in the event of a settlement involving a payment by a Trustee or
officer or other disposition not involving a final adjudication as provided in
paragraph (b)(i) or (b)(ii) above resulting in a payment by a Trustee or
officer, unless there has been either a determination that such Trustee or
officer did not engage in willful misfeasance, bad faith,
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gross negligence or reckless disregard of the duties involved in the conduct of
his office by the court or other body approving the settlement or other
disposition or by a reasonable determination, based upon a review of readily
available facts (as opposed to a full trial-type inquiry) that he did not engage
in such conduct:
(A) by vote of a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in office
act on the matter); or
(B) by written opinion of independent legal counsel.
(c) Subject to the provisions of the 1940 Act, the Trust may maintain
insurance for the protection of the Trust Property, its Shareholders, Trustees,
officers, employees and agents in such amount as the Trustees shall deem
adequate to cover possible tort liability (whether or not the Trust would have
the power to indemnify such Persons against such liability), and such other
insurance as the Trustees in their sole judgment shall deem advisable.
(d) The rights of indemnification herein provided shall be severable,
shall not affect any other rights to which any Trustee or officer may now or
hereafter be entitled, shall continue as to a Person who has ceased to be such a
Trustee or officer and shall inure to the benefit of the heirs, executors and
administrators of such Person. Nothing contained herein shall affect any rights
to indemnification to which personnel other than Trustees and officers may be
entitled by contract or otherwise under law.
(e) Expenses of preparation and presentation of a defense to any claim,
action, suit, or proceeding of the character described in paragraph (a) of this
Section 5.3 shall be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not entitled to indemnification
under this Section 5.3, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses arising out of
any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act on
the matter) or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 5.3 a "Disinterested Trustee" is one (i) who is
not an "Interested Person" of the Trust (including anyone who has been exempted
from being an "Interested Person" by any rule, regulation or order of the
Commission), and (ii) against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or had been pending.
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SECTION 5.4. NO BOND REQUIRED OF TRUSTEES. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
SECTION 5.5. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS,
ETC. No purchaser, lender, Shareholder Servicing Agent, Transfer Agent or other
Person dealing with the Trustees or any officer, employee or agent of the Trust
shall be bound to make any inquiry concerning the validity of any transaction
purporting to be made by the Trustees or by said officer, employee or agent or
be liable for the application of money or property paid, loaned, or delivered to
or on the order of the Trustees or of said officer, employee or agent. Every
obligation, contract, instrument, certificate, Share, other security of the
Trust or undertaking, and every other at or thing whatsoever executed in
connection with the Trust shall be conclusively presumed to have been executed
or done by the executors thereof only in their capacity as Trustees under the
Declaration or in their capacity as officers, employees or agents of the Trust.
Every written obligation, contract, instrument, certificate, Share, other
security of the Trust or undertaking made or issued by the Trustees shall recite
that the same is executed or made by them not individually, but as Trustees
under the Declaration, and that the obligations of any such instrument are not
binding upon any of the Trustees or Shareholders individually, but bind only the
trust estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind any of
the Trustees or Shareholders individually. The Trustees shall at all times
maintain insurance for the protection of the Trust Property, Shareholders,
Trustees, officers, employees and agents in such amount as the Trustees shall
deem adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.
SECTION 5.6. RELIANCE ON EXPERTS, ETC. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by the Investment Adviser, the Distributor,
Transfer Agent, any Shareholder Servicing Agent, selected dealers, accountants,
appraisers or other experts or consultant selected with reasonable care by the
Trustees, officers or employees of the Trust, regardless of whether such counsel
or expert may also be a Trustee.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
-----------------------------
SECTION 6.1. BENEFICIAL INTEREST. The interest of the beneficiaries
hereunder may be divided into transferable Shares, which may be divided into one
or more series as provided in Section 6.9 hereof. Each such series shall have
such class or classes of Shares as the Trustees may from time to time determine.
The number of Shares authorized hereunder is unlimited. All Shares issued
hereunder including, without limitation, Shares issued in
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connection with a dividend in Shares or a split of Shares, shall be fully paid
and non-assessable.
SECTION 6.2. RIGHTS OF SHAREHOLDERS. The ownership of the Trust
Property of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have not interest therein other than the beneficial interest conferred by their
Shares, and they shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor can they be called
upon to assume any losses of the Trust or suffer an assessment of any kind by
virtue of their ownership of Shares. The Shares shall be personal property
giving only the rights specifically set forth in the Declaration. The Shares
shall not entitle the holder to preference, pre-emptive, appraisal, conversion
or exchange rights, except as the Trustees may determine with respect to any
series of Shares.
SERIES 6.3. TRUST ONLY. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and the
Shareholders. It is not the intention of the Trustees to create a general
partnership, limited partnership, joint stock association, corporation, bailment
or any form of legal relationship other than a trust. Nothing in the Declaration
shall be construed to make the Shareholders, either by themselves or with the
Trustees, partners or members of a joint association.
SECTION 6.4. ISSUANCE OF SHARES. The Trustees, in their discretion may,
from time to time without vote of the Shareholders, issue Shares, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, and on such terms as the Trustees may deem best, and may deem best,
and may in such manner acquire other assets (including the acquisition of assets
subject to, and in connection with, the assumption of liabilities) and
businesses. In connection with any issuance of Shares, the Trustees may issue
fractional Shares. The Trustees may from time to time divide or combine the
Shares of any series into a greater or lesser number without thereby changing
their proportionate beneficial interests in Trust Property allocated or
belonging to such series. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or fractions of a Share.
SECTION 6.5. REGISTER OF SHARES. A register or registers shall be kept
at the principal office of the Trust or at an office of the Transfer Agent or
any one or more Shareholder Servicing Agents which register or registers, taken
together, shall contain the names and addresses of the Shareholders and the
number of Shares held by them respectively and a record of all transfers
thereof. Such register or registers shall be conclusive as to who are the
holders of the Shares and who shall be entitled to receive dividends or
distributions or otherwise to exercise or enjoy the rights of Shareholders. No
Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to him as herein or in the By-Laws
provided, until he has given his address to the Transfer Agent, the Shareholder
Servicing Agent which is the agent of record for such Shareholder, or such other
officer or agent of the Trustees as shall keep
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the said register for entry thereon. It is not contemplated that certificates
will be issued for the Shares; however, the Trustees, in their discretion, may
authorize the issuance of Share certificates and promulgate appropriate rules
and regulations as to their use.
SECTION 6.6. TRANSFER OF SHARES. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees, the Transfer Agent or
the Shareholder Servicing Agent which is the agent of record for such
Shareholder, of a duly executed instrument of transfer, together with any
certificate or certificates (if issued) for such Shares and such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery the transfer shall be recorded on the
register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent, Shareholder Servicing Agent or
registrar nor any officer, employee or agent of the Trust shall be affected by
any notice of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees, the Transfer
Agent or the Shareholder Servicing Agent which is the agent of record for such
Shareholder; but until such record is made, the Shareholder of record shall be
deemed to be the holder of such Shares for all purposes hereunder and neither
the Trustees nor any Transfer Agent, Shareholder Servicing Agent or registrar
nor any officer or agent of the Trust shall be affected by any notice of such
death, bankruptcy or incompetence, or other operation of law.
SECTION 6.7. NOTICES. Any and all notices to which any Shareholder may
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
SECTION 6.8. VOTING POWERS. The Shareholders shall have power to vote
only (i) for the removal of Trustees as provided in Section 2.2 hereof, (ii)
with respect to any investment advisory or management contract as provided in
Section 4.1 hereof, (iii) with respect to termination of the Trust as provided
in Section 9.2 hereof, (iv) with respect to any amendment of this Declaration to
the extent and as provided in Section 9.3 hereof, (v) with respect to any
merger, consolidation or sale of assets as provided in Sections 9.4 and 9.6
hereof, (vi) with respect to incorporation of the Trust or any series to the
extent and as provided in Sections 9.5 and 9.6 hereof, (vii) to the same extent
as the stockholders of a Massachusetts business corporation as to whether or not
a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders, and (viii) with respect to such additional matters relating to the
Trust with the Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable. Each whole Share shall be entitled
to one vote as to any matter on which it is entitled to vote and each fractional
Share shall be
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entitled to a proportionate fractional vote, except that Shares held in the
treasury of the Trust shall not be voted and except that all Shares shall be
voted by individual series on any matter submitted to a vote of the Shareholders
except as provided in Section 6.9(g) hereof. Shares shall be voted by individual
series on any matter submitted to a vote of the Shareholders of the Trust except
as provided in Section 6.9(g) hereof. There shall be no cumulative voting in the
election of Trustees. Until Shares are issued, the Trustees may exercise all
rights of Shareholders and may take any action, required by law, the Declaration
or the By-Laws to be taken by Shareholders. At any meeting of Shareholders of
the Trust or of any series of the Trust, a Shareholder Servicing Agent may vote
any shares as to which such Shareholder Servicing Agent is the agent of record
and which are not otherwise represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares
otherwise represented at the meeting in person or by proxy as to which such
Shareholder Servicing Agent is the agent of record. Any shares so voted by a
Shareholder Servicing Agent will be deemed represented at the meeting for quorum
purposes. The By-Laws may include further provisions for Shareholder votes and
meetings and related matters.
SECTION 6.9. SERIES DESIGNATION. As set forth in Appendix I hereto, the
Trustees have authorized the division of Shares into series, as designated and
established pursuant to the provisions of Appendix I and this Section 6.9. The
Trustees, in their discretion, may authorize the division of Shares into one or
more additional series, and the different series shall be established and
designated, and the variations in the relative rights, privileges and
preferences as between the different series shall be fixed and determined by the
Trustees upon and subject to the following provisions:
(a) All Shares shall be identical except that there may be such
variations as shall be fixed and determined by the Trustees between different
series as to purchase price, right of redemption and the price, terms and manner
of redemption, and special and relative rights as to dividends and on
liquidation.
(b) The number of authorized Shares and the number of Shares of each
series that may be issued shall be unlimited. The Trustees may classify or
reclassify any unissued Shares or any Shares previously issued and reacquired of
any series into one or more series that may be established and designated from
time to time. The Trustees may hold as treasury shares (of the same or some
other series), reissue for such consideration and on such terms as they may
determine, or cancel any Shares of any series reacquired by the Trust at their
discretion from time to time.
(c) All consideration received by the Trust for the issuance or sale of
Shares of a particular series, together with all assets in which such
consideration is invested or reinvested, all income and earnings thereon,
profits therefrom, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors of such series, and shall be so recorded upon the books of account
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of the Trust. In the event that there are any assets, income, earnings, profits,
proceeds, funds or payments which are not readily identifiable as belonging to
any particular series, the Trustees shall allocate them to and among any one or
more of the series established and designated from time to time in such manner
and on such basis as the Trustees, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive and binding
upon the Shareholders of all series for all purposes. No Shareholder of any
particular series shall have any claim on or right to any assets allocated or
belonging to any other series of Shares.
(d) The assets belonging to each particular series shall be charged
with the liabilities of the Trust in respect of that series and all expenses,
costs, charges and reserves attributable to that series, and any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular series shall be allocated
and charged by the Trustees to and among any one or more of the series
established and designated from time to time in such manner and on such basis as
the Trustees, in their sole discretion, deem fair and equitable. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive and
binding upon the Shareholders. Under no circumstances shall the assets allocated
or belonging to any particular series be charged with liabilities, expenses,
costs, charges or reserves attributable to any other series. All Persons who
have extended credit which has been allocated to a particular series, or who
have a claim or contract which has been allocated to any particular series,
shall look only to the assets of that particular series for payment of such
credit, claim or contract.
(e) The power of the Trustees to invest and reinvest the Trust Property
allocated or belonging to any particular series shall be governed by Section 3.2
hereof unless otherwise provided in the instrument of the Trustees establishing
such series which is hereinafter described.
(f) Each Share of a series shall represent a beneficial interest in the
net assets allocated or belonging to such series only, and such interest shall
not extend to the assets of the Trust generally. Dividends and distributions on
Shares of a particular series may be paid with such frequency as the Trustees
may determine, which may be monthly or otherwise, pursuant to a standing vote or
votes adopted only once or with such frequency as the Trustees may determine, to
the Shareholders of that series only, from such of the income and capital gains,
accrued or realized, from the assets belonging to that series, as the Trustees
may determine, after providing for actual and accrued liabilities belonging to
that series. All dividends and distributions on Shares of a particular series
shall be distributed PRO RATA to the Shareholders of that series in proportion
to the number of Shares of that series held by such Shareholders at the date and
time of record established for the payment of such dividends or distributions.
Shares of any particular series of the Trust may be redeemed solely out of Trust
Property allocated or belonging to that series.
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Upon liquidation or termination of a series of the Trust, Shareholders of such
series shall be entitled to receive a PRO RATA share of the net assets of such
series only.
(g) Notwithstanding any provision hereof to the contrary, on any matter
submitted to a vote of the Shareholders, all Shares then entitled to vote shall
be voted by individual series, except that (i) when required by the 1940 Act to
be voted in the aggregate, Shares shall not be voted by individual series, and
(ii) when the Trustees have determined that the matter affects the interests of
Shareholders of more than one series, Shareholders of all such affected series
shall vote in the aggregate.
(h) The establishment and designation of any series of Shares shall be
effective upon the execution by a majority of the Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such series, or as otherwise provided in such instrument. At any
time that there are no Shares outstanding of any particular series previously
established and designated, the Trustees may by an instrument executed by a
majority of their number abolish that series and the establishment and
designation thereof. Each instrument referred to in this paragraph shall have
the status of an amendment to this Declaration.
(i) Notwithstanding anything in this Declaration to the contrary, the
Trustees may, in their discretion, authorize the division of Shares of any
series into Shares of one or more classes or subseries of such series. All
Shares of a class or a subseries shall be identical with each other and with the
Shares of each other class or subseries of the same series except for such
variations between classes or subseries as may be approved by the Board of
Trustees and be permitted under the 1940 Act or pursuant to any exemptive order
issued by the Commission.
ARTICLE VIII
REDEMPTIONS
-----------
SECTION 7.1. REDEMPTIONS. In case any Shareholder at any time desires
to dispose of his Shares, he may deposit his certificate or certificates
therefor, duly endorsed in blank or accompanied by an instrument of transfer
executed in blank, or if the Shares are not represented by any certificate, a
written request or other such form of request as the Trustees may from time to
time authorize, at the office of the Transfer Agent, the Shareholder Servicing
Agent which is the agent of record for such Shareholder, or at the office of any
bank or trust company, either in or outside of the Commonwealth of
Massachusetts, which is a member of the Federal Reserve System and which the
said Transfer Agent or the said Shareholder Servicing Agent has designated in
writing for that purpose, together with an irrevocable offer in writing in a
form acceptable to the Trustees to sell the Shares represented thereby to the
Trust at the net asset value per Share thereof, next determined after such
deposit as provided in Section 8.1 hereof. Payment for said Shares shall be made
to the Shareholder within seven days after the date on which the deposit is
made, unless (i) the date of payment is postponed pursuant to Section 7.2
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hereof, or (ii) the receipt, or verification of receipt, of the purchase price
for the Shares to be redeemed is delayed, in either of which events payment may
be delayed beyond seven days.
SECTION 7.2. SUSPENSION OF RIGHT OF REDEMPTION. The Trust may declare a
suspension of the right of redemption or postpone the date of payment of the
redemption proceeds for the whole or any part of any period (i) during which the
New York Stock Exchange is closed other than customary weekend and holiday
closings, (ii) during which trading on the New York Stock Exchange is
restricted, (iii) during which an emergency exists as a result of which disposal
by the Trust of securities owned by it is not reasonably practicable or it is
not reasonably practicable for the Trust fairly to determine the value of its
net assets, or (iv) during which the Commission for the protection of
Shareholders by order permits the suspension of the right of redemption or
postponement of the date of payment of the redemption proceeds; provided that
applicable rules and regulations of the Commission shall govern as to whether
the conditions prescribed in (ii), (iii) or (iv) exist. Such suspension shall
take effect at such time as the Trust shall specify but not later than the close
of business on the business day next following the declaration of suspension,
and thereafter there shall be no right of redemption or payment of the
redemption proceeds until the Trust shall declare the suspension at an end,
except that the suspension shall terminate in any event on the first day on
which said stock exchange shall have reopened or the period specified in (ii) or
(iii) shall have expired (as to which, in the absence of an official ruling by
the Commission, the determination of the Trust shall b conclusive). In the case
of a suspension of the right of redemption, a Shareholder may either withdraw
his request for redemption or receive payment based on the net asset value
existing after the termination of the suspension.
SECTION 7.3. REDEMPTION OF SHARES; DISCLOSURE OF HOLDING. If the
Trustees shall, at any time and in good faith, be of the opinion that direct or
indirect ownership of Shares has or may become concentrated in any Person to an
extent which would disqualify the Trust, or any series of the Trust, as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"), then the Trustees shall have the power by lot or other means
deemed equitable by them (i) to call for redemption by any such Person a number
of Shares of the Trust, or such series of the Trust, sufficient to maintain or
bring the direct or indirect ownership of Shares of the Trust, or such series of
the Trust, into conformity with the requirements for such qualification, and
(ii) to refuse to transfer or issue Shares of the Trust, or such series of the
Trust, to any Person whose acquisition of the Shares of the Trust, or such
series of the Trust, would result in such disqualification. The redemption shall
be effected at the redemption price and in the manner provided in Section 7.1
hereof.
The Shareholders of the Trust shall upon demand disclose to the
Trustees in writing such information with respect to direct and indirect
ownership of Shares of the Trust as the Trustees deem necessary to comply with
the provisions of the Code, or to comply with the requirements of any other
authority. Upon the failure of a Shareholder to disclose such information and to
comply with such demand of the Trustees, the Trust shall
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have the power to redeem such Shares at a redemption price determined in
accordance with Section 7.1 hereof.
SECTION 7.4. REDEMPTIONS OF ACCOUNTS OF LESS THAN MINIMUM AMOUNT. The
Trustees shall have the power, and any Shareholder Servicing Agent with whom the
Trust has so agreed (or a subcontractor of such Shareholder Servicing Agent)
shall have the power, at any time to redeem Shares of any Shareholder at a
redemption price determined in accordance with Section 7.1 hereof if at such
time the aggregate net asset value of the Shares owned by such Shareholder is
less than a minimum amount as determined from time to time and disclosed in a
prospectus of the Trust or in the Shareholder Servicing Agent's (or
subcontractor's) agreement with its customer. A Shareholder shall be notified
that the aggregate value of his Shares is less than such minimum amount and
allowed 60 days to make an additional investment before redemption is processed.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
----------------------------
The Trustees, in their absolute discretion, may prescribe and shall set
forth in the By-Laws or in a duly adopted vote or votes of the Trustees such
bases and times for determining the per Share net asset value of the Shares or
net income, or the declaration and payment of dividends and distributions, as
they may deem necessary or desirable.
ARTICLE IX
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC.
------------------------
SECTION 9.1. DURATION. The Trust shall continue without limitation of
time but subject to the provisions of this Article IX.
SECTION 9.2. TERMINATION OF TRUST. (a) The Trust may be terminated (i)
by a Majority Shareholder Vote of its Shareholders, or (ii) by the Trustees by
written notice to the Shareholders. Any series of the Trust may be terminated
(i) by a Majority Shareholder Vote of the Shareholders of that series, or (ii)
by the Trustees by written notice to the Shareholders of that series. Upon the
termination of the Trust or any series of the Trust:
(i) The Trust or series of the Trust shall carry on no business except
for the purpose of winding up its affairs;
(ii) The Trustees shall proceed to wind up the affairs of the Trust or
series of the Trust and all the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust or series of the Trust shall have
been wound up, including the power to fulfill or discharge the contracts of the
Trust, collect the assets of the Trust or series of the
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Trust, sell, convey, assign, exchange, transfer or otherwise dispose of all or
any part of the remaining Trust Property of the Trust or series of the Trust to
one or more Persons at public or private sale for consideration which may
consist in whole or in part of cash, securities or other property of any kind,
discharge or pay the liabilities of the Trust or series of the Trust, and to do
all other acts appropriate to liquidate the business of the Trust or series of
the Trust; provided, that any sale, conveyance, assignment, exchange, transfer
or other disposition of all or substantially of the Trust Property of the Trust
or series of the Trust shall require Shareholder approval in accordance with
Section 9.4 or 9.6 hereof, respectively; and
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property of the Trust or series of the Trust, in
cash or in kind or partly in cash and partly in kind, among the Shareholders of
the Trust or series of the Trust according to their respective rights.
(b) After termination of the Trust or series of the Trust and
distribution to the Shareholders of the Trust or series of the Trust as herein
provided, a majority of the Trustees shall execute and lodge among the records
of the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder with respect to the Trust or series of the
Trust, and the rights and interests of all Shareholders of the Trust or series
of the Trust shall thereupon cease.
SECTION 9.3. AMENDMENT PROCEDURE. (a) This Declaration may be amended
by a Majority Shareholder Vote of the Shareholders or by any instrument in
writing, signed by a majority of the Trustees and consented to by the holders of
not less than a majority of the Shares of the Trust. The Trustees may also amend
this Declaration without the vote or consent of Shareholders to designate series
in accordance with Section 6.9 hereof, to change the name of the Trust, to
supply any omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, or to conform this Declaration to the
requirements of applicable federal laws or regulations or the requirements of
the regulated investment company provisions of the Internal Revenue Code of
1986, as amended, or to (i) change the state or other jurisdiction designated
herein as the state or other jurisdiction whose laws shall be the governing law
hereof, (ii) effect such changes herein as the Trustees find to be necessary or
appropriate (A) to permit the filing of this Declaration under the laws of such
state or other jurisdiction applicable to trusts or voluntary associations, (B)
to permit the Trust to elect to be treated as a "regulated investment company"
under the applicable provisions of the Internal Revenue Code of 1986, as
amended, or (C) to permit the transfer of shares (or to permit the transfer of
any other beneficial interests or shares in the Trust, however denominated), and
(iii) in conjunction with any amendment contemplated by the foregoing clause (i)
or the foregoing clause (ii) to make any and all such further changes or
modifications to this Declaration as the Trustees find to be necessary or
appropriate, any finding of the Trustees
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referred to in the foregoing clause (ii) or clause (iii) to be conclusively
evidenced by the execution of any such amendment by a majority of the Trustees,
but the Trustees shall not be liable for failing so to do.
(b) No amendment which the Trustees have determined would affect the
rights, privileges or interests of holders of a particular series of Shares, but
not the rights, privileges or interests of holders of all series of Shares
generally, and which would otherwise require a Majority Shareholder Vote under
paragraph (a) of this Section 9.3, may be made except with the vote or consent
by a Majority Shareholder Vote of Shareholders of such series.
(c) Notwithstanding any other provision of this Declaration to the
contrary, the Trustees shall have the power in their discretion without any
requirement of approval by shareholders to either invest all or a portion of the
Trust Property, or sell all or a portion of the Trust Property and invest the
proceeds of such sales, in another investment company that is registered under
the 1940 Act.
(d) Notwithstanding any other provision hereof, no amendment may be
made under this Section 9.3 which would change any rights with respect to the
Shares, or any series of Shares, by reducing the amount payable thereon upon
liquidation of the Trust or by diminishing or eliminating any voting rights
pertaining thereto, except with the Majority Shareholder Vote of the Shares or
that series of Shares. Nothing contained in this Declaration shall permit the
amendment of this Declaration to impair the exemption from personal liability of
the Shareholders, Trustees, officers, employees and agents of the Trust or to
permit assessments upon Shareholders.
(e) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid, and executed by a majority of the Trustees, shall be
conclusive evidence of such amendment when lodged among the records of the
Trust.
(f) Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of Shares of the Trust shall have become effective,
this Declaration may be amended in any respect by the affirmative vote of a
majority of the Trustees or by an instrument signed by a majority of the
Trustees.
SECTION 9.4. MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property (or all or substantially all of the Trust Property allocated or
belonging to a particular series of the Trust) including its good will, upon
such terms and conditions and for such consideration when and as authorized at
any meeting of Shareholders called for such purpose by the vote of the holders
of two-thirds of the outstanding Shares of all series of the Trust voting as a
single class, or of the affected series of the Trust, as the case may be, or by
an instrument
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or instruments in writing without a meeting, consented to by the vote of the
holders of two-thirds of the outstanding Shares of all series of the Trust
voting as a single class, or of the affected series of the Trust, as the case
may be; provided, however, that if such merger, consolidation, sale, lease or
exchange is recommended by the Trustees, the vote or written consent by Majority
Shareholder Vote shall be sufficient authorization; and any such merger,
consolidation, sale, lease or exchange shall be deemed for all purposes to have
been accomplished under and pursuant to the statutes of the Commonwealth of
Massachusetts. Nothing contained herein shall be construed as requiring approval
of Shareholders for any sale of assets in the ordinary course of the business of
the Trust.
SECTION 9.5. INCORPORATION, REORGANIZATION. With the approval of the
holders of a majority of the Shares outstanding and entitled to vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction, or any other trust, unit
investment trust, partnership, association or other organization to take over
all of the Trust Property or to carry on any business in which the Trust shall
directly or indirectly have any interest, and to sell, convey and transfer the
Trust Property to any such corporation, trust, partnership, association or
organization in exchange for the shares or securities thereof or otherwise, and
to lend money to, subscribe for the shares or securities of, and enter into any
contracts with any such corporation, trust, partnership, association or
organization in which the Trust holds or is about to acquire shares or any other
interest. Subject to Section 9.4 hereof, the Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law. Nothing contained in this Section 9.5 shall be
construed as requiring approval of Shareholders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organization or entities.
SECTION 9.6. INCORPORATION OR REORGANIZATION OF SERIES. With the
approval of a Majority Shareholder Vote of any series, the Trustees may sell,
lease or exchange all of the Trust Property allocated or belonging to that
series, or cause to be organized or assist in organizing a corporation or
corporations under the laws of any other jurisdiction, or any other trust, unit
investment trust, partnership, association or other organization, to take over
all of the Trust Property allocated or belonging to that series and to sell,
convey and transfer such Trust Property to any such corporation, trust, unit
investment trust, partnership, association, or other organization in exchange
for the shares or securities thereof or otherwise.
ARTICLE X
REPORTS TO SHAREHOLDERS AND SHAREHOLDER COMMUNICATIONS
------------------------------------------------------
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent trust
accountants.
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ARTICLE XI
MISCELLANEOUS
-------------
SECTION 11.1. FILING. This Declaration and any amendment hereto shall
be filed in the office of the Secretary of the Commonwealth of Massachusetts and
in such other place or places as may be required under the laws of the
Commonwealth of Massachusetts and may also be filed or recorded in such other
places as the Trustees deem appropriate. Each amendment so filed shall state or
be accompanied by a certificate signed and acknowledged by a Trustee stating
that such action was duly taken in the manner provided herein, and unless such
amendment or such certificate sets forth some later time for the effectiveness
of such amendment, such amendment shall be effective upon its filing. A restated
Declaration, integrating into a single instrument all of the provisions of the
Declaration which are then in effect and operative, may be executed from time to
time by a majority of the Trustees and shall, upon filing with the Secretary of
the Commonwealth of Massachusetts, be conclusive evidence of all amendments
contained therein and may thereafter be referred to in lieu of this original
Declaration and the various amendments thereto.
SECTION 11.2. GOVERNING LAW. This Declaration is executed by the
Trustees and delivered in the Commonwealth of Massachusetts and with reference
to the laws thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
according to the laws of said Commonwealth.
SECTION 11.3. COUNTERPARTS. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
SECTION 11.4. RELIANCE BY THIRD PARTIES. Any certificate executed by an
individual who, according to the records of the Trust, is a Trustee hereunder
certifying to: (i) the number or identity of Trustees or Shareholders, (ii) the
due authorization of the execution of any instrument or writing, (iii) the form
of any vote passed at a meeting of Trustees or Shareholders, (iv) the fact that
the number of Trustees or Shareholders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration, (v) the form
of any By-Laws adopted by or the identity of any officers elected by the
Trustees, or (vi) the existence of any fact or facts which in any manner relates
to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees and their successors.
SECTION 11.5. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any such provision is in conflict
with the 1940 Act, the regulated investment company provisions of the Internal
Revenue Code of 1986, as amended, or with other
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applicable laws and regulations, the conflicting provision shall be deemed never
to have constituted a part of this Declaration; provided however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
SECTION 11.6. PRINCIPAL OFFICE. The principal office of the Trust is
500 Chesterfield Ctr., Suite 250, Chesterfield, MO 63017.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 3rd day of May, 1996.
/s/ Jeffrey J. Unterreiner
------------------------------------
as Trustee and not individually
/s/ Raymond E. Doerr
------------------------------------
as Trustee and not individually
/s/ Henry J. Bingham
------------------------------------
as Trustee and not individually
/s/ Patrick L. Durbin
------------------------------------
as Trustee and not individually
/s/ C. Martin Unterreiner
------------------------------------
as Trustee and not individually
/s/ Katherine R. Kearins
------------------------------------
as Trustee and not individually
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/s/ Patricia A. Houtz
------------------------------------
as Trustee and not individually
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STATE OF MISSOURI
COUNTY OF ST. LOUIS
May 3, 1996
Then personally appeared the above-named Jeffrey J. Unterreiner,
Raymond E. Doerr, Henry J. Bingham, Patrick L. Durbin, C. Martin Unterreiner,
Katherine R. Kearins, and Patricia A. Houtz, who severally acknowledged the
foregoing instrument to be their free act and deed.
Before me,
/s/ Diane L. Davis
---------------------------
Notary Public
My commission expires:
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Appendix I
THE ACTIVE ASSET ALLOCATION FUNDS
Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.10 per share)
Pursuant to Section 6.9 of the Declaration of Trust, dated as of May 3,
1996 (the "Declaration of Trust"), of The Flex-funds (the "Trust"), the Trustees
of the Trust hereby establish and designate five series of Shares (as defined in
the Declaration of Trust) (the "Fund") to have the following special and
relative rights:
1. The Fund shall be designated as follows:
The Active Asset Allocation Funds
OPTI-flex(R) Dynamic Fund
2. The Fund shall be authorized to hold case, invest in securities,
instruments and other properties and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933 to the extent pertaining to the offering of
Shares of such Fund. Each Share of the Fund shall be redeemable, shall be
entitled to one vote (or fraction thereof in respect of a fractional share) on
matters on which Shares of the Fund shall be entitled to vote, shall represent a
PRO RATA beneficial interest in the assets allocated or belonging to the Fund,
and shall be entitled to receive its PRO RATA share of the net assets of the
Fund upon liquidation of the Fund, all as provided in Section 6.9 of the
Declaration of Trust. The proceeds of sales of Shares of the Fund, together with
any income and gain thereon, less any diminution or expenses thereof, shall
irrevocably belong to the Fund, unless otherwise required by law.
3. Shareholders of the Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to the Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated among the
Fund as set forth in Section 6.9 of the Declaration of Trust.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor Trustees) shall have
the right at any time and from time to time to reallocate assets and expenses,
to change the designation of the Fund now or hereafter created, or otherwise to
change the special and relative rights of the Fund.
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Exhibit 2
---------
BY-LAWS
OF
ACTIVE ASSET ALLOCATION FUNDS
ARTICLE I
DEFINITIONS
The terms "COMMISSION", "DECLARATION", "DISTRIBUTOR", "INVESTMENT
ADVISER", "MAJORITY SHAREHOLDER VOTE", "1940 ACT", "SHAREHOLDER", "SHARES",
"TRANSFER AGENT", "TRUST", TRUST PROPERTY" and "TRUSTEES" have the respective
meanings given them in the Declaration of Trust of the Active Asset Allocation
Funds dated as of May 3, 1996.
ARTICLE II
OFFICES
SECTION 1. PRINCIPAL OFFICE. Until changed by the Trustees, the
principal office of the Trust shall be 500 Chesterfield Center, Suite 250,
Chesterfield, MO 63017.
SECTION 2. OTHER OFFICES. The Trust may have offices in such other
places without as well as within the State of Missouri or the Commonwealth of
Massachusetts as the Trustees may from time to time determine.
ARTICLE III
SHAREHOLDERS
SECTION 1. MEETINGS. A meeting of Shareholders may be called at any
time by a majority of the Trustees and shall be called by any Trustee upon
written request, which shall specify the purpose or purposes for which such
meeting is to be called, of Shareholders holding in the aggregate not less than
10% of the outstanding Shares entitled to vote on the matters specified in such
written request. Any such meeting shall be held within or without the
Commonwealth of Massachusetts on such day and at such time as the Trustees shall
designate. The holders of a majority of outstanding Shares entitled to vote
present in person or by proxy shall constitute a quorum at any meeting of the
Shareholders. In the absence of a quorum, a majority of outstanding Shares
entitled to vote present in person or by proxy may adjourn the meeting from time
to time until a quorum shall be present.
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Whenever a matter is required to be voted by Shareholders of the Trust
in the aggregate under Section 6.8 and Section 6.9 and Section 6.9(g) of the
Declaration, the Trust may either hold a meeting of Shareholders of all series,
as defined in Section 6.9 of the Declaration, to vote on such matter, or hold
separate meetings of shareholders of each of the individual series to vote on
such matter, PROVIDED THAT (i) such separate meetings shall be held within one
year of each other, (ii) a quorum consisting of the holders of the majority of
outstanding Shares of the individual series entitled to vote present in person
or by proxy shall be present at each such separate meeting and (iii) a quorum
consisting of the holders of a majority of all Shares of the Trust entitled to
vote present in person or by proxy shall be present in the aggregate at such
separate meetings, and the votes of Shareholders at all such separate meetings
shall be aggregated in order to determine if sufficient votes have been cast for
such matter to be voted.
SECTION 2. NOTICE OF MEETINGS Notice of all meetings of Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder entitled to vote at such meeting at his
address as recorded on the register of the Trust, mailed at least 10 days and
not more than 60 days before the meeting. Only the business stated in the notice
of the meeting shall be considered at such meeting. Any adjourned meeting may be
held as adjourned without further notice. No notice need be given to any
Shareholder who shall have failed to inform the Trust of his current address or
if a written waiver of notice, executed before or after the meeting by the
Shareholder or his attorney thereunto authorized, is filed with the records of
the meeting.
Where separate meetings are held for Shareholders of each of the
individual series to vote on a matter required to be voted on by Shareholders of
the Trust in the aggregate, as provided in Article III, Section 1 above, notice
of each such separate meeting shall be provided in the manner described above in
this Section 2.
SECTION 3. RECORD DATE. For the purpose of determining the Shareholders
who are entitled to notice of and to vote at any meeting, or to participate in
any distribution, or for the purpose of any other action, the Trustees may from
time to time close the transfer books for such period, not exceeding 30 days, as
the Trustees may determine; or without closing the transfer books the Trustees
may fix a date not more than 60 days prior to the date of any meeting of
Shareholders or distribution or other action as a record date for the
determination of the persons to be treated as Shareholders of record for such
purpose.
Where separate meetings are held for Shareholders of each of the
individual series to vote on a matter required to be voted on by Shareholders of
the Trust in the aggregate, as provided in Article III, Section 1 above, the
record date of each such separate meeting shall be determined in the manner
described above in this Section 3.
SECTION 4. PROXIES. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which
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such vote shall be taken. Pursuant to a vote of a majority of the Trustees,
proxies may be solicited in the name of the Trust or one or more Trustees or
officers of the Trust. Only Shareholders of record shall be entitled to vote.
Each full Share shall be entitled to one vote and fractional Shares shall be
entitled to a vote of such fraction. When any Share is held jointly by several
persons, any one of them may vote at any meeting in person or by proxy in
respect of such Share, but if more than one of them shall be present at such
meeting in person or by proxy, and such joint owners or their proxies so present
disagree as to any vote to be cast, such vote shall not be received in respect
of such Share. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise,
and the burden of proving invalidity shall rest on the challenger. If the holder
of any such Share is a minor or a person of unsound mind, and subject to
guardianship or to the legal control of any other person as regards the charge
or management of such Share, such Share may be voted by such guardian or such
other person appointed or having such control, and such vote may be given in
person or by proxy.
SECTION 5. INSPECTION OF RECORDS. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
shareholders of a Massachusetts business corporation.
SECTION 6. ACTION WITHOUT MEETING. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-Laws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
SECTION 1. MEETINGS OF THE TRUSTEES. The Trustees may in their
discretion provide for regular or stated meetings of the Trustees. Notice of
regular or stated meetings need not be given. Meetings of the Trustees other
than regular or stated meetings shall be held whenever called by the Chairman or
by any Trustee. Notice of~the time and place of each meeting other than regular
or stated meetings shall be given by the Secretary or an Assistant Secretary or
by the officer or Trustee calling the meeting and shall be mailed to each
Trustee at least two days before the meeting, or shall be telegraphed, cabled,
or wirelessed to each Trustee at his business address, or personally delivered
to him at least one day before the meeting. Notice of a meeting need not be
given to any Trustee if a written waiver of notice, executed by him before or
after the meeting, is filed with the records of the meeting, or to any Trustee
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him. A notice or waiver of notice need not specify the
purpose of any meeting. The Trustees may meet by means of a telephone conference
circuit or similar communications equipment by means of which all
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<PAGE> 4
persons participating in the meeting can hear each other, which telephone
conference meeting shall be deemed to have been held at a place designated by
the Trustees at the meeting. Participation in a telephone conference meeting
shall constitute presence in person at such meeting. Any action required or
permitted to be taken at any meeting of the Trustees may be taken by the
Trustees without a meeting if all the Trustees consent to the action in writing
and the written consents are filed with the records of the Trustees' meetings.
Such consents shall be treated as a vote for all purposes.
SECTION 2. QUORUM AND MANNER OF ACTING. A majority of the Trustees
present in person at any regular or special meeting of the Trustees shall
constitute a quorum for the transaction of business at such meeting and (except
as otherwise required by law, the Declaration or these By-Laws) the act of a
majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time until
a quorum shall be present. Notice of an adjourned meeting need not be given.
ARTICLE V
COMMITTEES AND ADVISORY BOARD
SECTION 1. EXECUTIVE AND OTHER COMMITTEES. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three Trustees to hold office at the
pleasure of the Trustees. While the Trustees are not in session, the Executive
Committee shall have the power to conduct the current and ordinary business of
the Trust, including the purchase and sale of securities and the designation of
securities to be delivered upon redemption of Shares of the Trust, and such
other powers of the Trustees as the Trustees may, from time to time, delegate to
the Executive Committee except those powers which by law, the Declaration or
these By-Laws the Trustees are prohibited from so delegating. The Trustees may
also elect from their own number other Committees from time to time, the number
composing such Committees, the powers conferred upon the same (subject to the
same limitations as with respect to the Executive Committee) and the term of
membership on such Committees to be determined by the Trustees. The Trustees may
designate a chairman of any such Committee. In the absence of such designation a
Committee may elect its own chairman.
SECTION 2. MEETING QUORUM AND MANNER OF ACTING. The Trustees may (i)
provide for stated meetings of any Committee, (ii) specify the manner of calling
and notice required for special meetings of any Committee, (iii) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, (iv) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting, and (v) authorize the members of a Committee to meet by means
of a telephone conference circuit.
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Each Committee shall keep regular minutes of its meetings and records
of decisions taken without a meeting and cause them to be recorded in a book
designated for that purpose and kept in the office of the Trust.
SECTION 3. ADVISORY BOARD. The Trustees may appoint an Advisory Board
to consist in the first instance of not less than three members. Members of such
Advisory Board shall not be Trustees or officers and need not be Shareholders. A
member of such Advisory Board shall hold office for such period as the Trustees
may by vote provide and may resign therefrom by a written instrument signed by
him which shall take effect upon its delivery to the Trustees. The Advisory
Board shall have no legal powers and shall not perform the functions of Trustees
in any manner, such Advisory Board being intended merely to act in an advisory
capacity. Such Advisory Board shall meet at such times and upon such notice as
the Trustees may by vote provide.
SECTION 4. CHAIRMAN. The Trustees may, by a majority vote of all the
Trustees, elect from their own number a Chairman, to hold office until his
successor shall have been duly elected and qualified. The Chairman shall not
hold any other office. The Chairman may be, but need not be, a Shareholder. The
Chairman shall preside at all meetings of the Trustees and shall have such other
duties as from time to time may be assigned to him by the Trustees.
ARTICLE VI
OFFICERS
SECTION 1. GENERAL PROVISIONS. The officers of the Trust shall be a
President, a Treasurer and a Secretary, each of whom shall be elected by the
Trustees. The Trustees may elect or appoint such other officers or agents as the
business of the Trust may require, including one or more Vice Presidents, one or
more Assistant Treasurers, and one or more Assistant Secretaries. The Trustees
may delegate to any officer or committee the power to appoint any subordinate
officers or agents.
SECTION 2. TERM OF OFFICE AND OUALIFLCATIONS. Except as otherwise
provided by law, the Declaration or these By-Laws, the President, the Treasurer
and the Secretary shall hold office until his respective successor shall have
been duly elected and qualified, and all other officers shall hold office at the
pleasure of the Trustees. The Secretary and Treasurer may be the same person. A
Vice President and the Treasurer or a Vice President and the Secretary may be
the same-person, but the offices of Vice President, Secretary and Treasurer
shall not be held by the same person. The President shall not hold any other
office. Except as above provided, any two offices may be held by the same
person. Any officer may be, but does not need be, a Trustee or Shareholder.
SECTION 3. REMOVAL. The Trustees, at any regular or special meeting of
the Trustees, may remove any officer with or without cause by a vote of a
majority of the
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Trustees. Any officer or agent appointed by any officer or committee may be
removed with or without cause by such appointing officer or committee.
SECTION 4. POWERS AND DUTIES OF THE PRESIDENT. The President, unless a
Chairman is so elected by the Trustees, shall be the principal executive officer
of the Trust. Subject to the control of the Trustees and any committee of the
Trustees, the President shall at all times exercise a general supervision and
direction over the affairs of the Trust. The President shall have the power to
employ attorneys and counsel for the Trust and to employ such subordinate
officers, agents, clerks and employees as he may find necessary to transact the
business of the Trust. The President shall also have the power to grant, issue,
execute or sign such powers of attorney, proxies or other documents as may be
deemed advisable or necessary in the furtherance of the interests of the Trust.
The President shall have such other powers and duties as, from time to time, may
be conferred upon or assigned to him by the Trustees.
SECTION 5. POWERS AND DUTIES OF VICE PRESIDENTS. In the absence or
disability of the President, the Vice President or, if there are more than one
Vice President, any Vice President designated by the Trustees shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Trustees or the President.
SECTION 6. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall be
the principal financial and accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his hands to such custodian
as the Trustees may employ pursuant to Article X hereof. The Treasurer shall
render a statement of condition of the finances of the Trust to the Trustees as
often as they shall require the same and shall in general perform all the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the Trustees. The Treasurer shall give a bond for the
faithful discharge of his duties, if required to do so by the Trustees, in such
sum and with such surety or sureties as the Trustees shall require.
SECTION 7. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall keep
the minutes of all meetings of the Shareholders in proper books provided for
that purpose; shall keep the minutes of all meetings of the Trustees; shall have
custody of the seal of the Trust; and shall have charge of the Share transfer
books, lists and records unless the same are in the charge of the Transfer
Agent. The Secretary shall attend to the giving and serving of all notices by
the Trust in accordance with the provisions of these By-Laws and as required by
law; and subject to these By-Laws, shall in general perform all the duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the Trustees.
SECTION 8. POWERS AND DUTIES OF ASSISTANT TREASURERS. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer
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shall perform such other duties as from time to time may be assigned to him by
the Trustees. Each Assistant Treasurer shall give a bond for the faithful
discharge of his duties, if required to do so by the Trustees, in such sum and
with such surety or sureties as the Trustees shall require.
SECTION 9. POWERS AND DUTIES OF ASSISTANT SECRETARIES. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all of the duties, and may exercise any of the powers, of
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be assigned to him by the Trustees.
SECTION 10. COMPENSATION OF OFFICERS AND TRUSTEES AND MEMBERS OF THE
ADVISORY BOARD. Subject to any applicable law or provision of the Declaration,
the compensation of the officers and Trustees and members of the Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers, by
any committee of officers upon whom such power may be conferred by the Trustees.
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he is also a Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall be that period beginning on the
first day of January and ending on the last day of December; provided, however,
that the Trustees may from time to time change the fiscal year.
ARTICLE VIII
SEAL
The Trustees shall adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice is required to be given by law, the Declaration or
these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. A notice shall be deemed to have been telegraphed,
cabled or wirelessed for the purposes of
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these By-Laws when it has been delivered to a representative of any telegraph,
cable or wireless company with instruction that it be telegraphed, cabled or
wirelessed. Any notice shall be deemed to be given at the time when the same
shall be mailed, telegraphed, cabled or wirelessed.
ARTICLE X
CUSTODIAN
SECTION 1. APPOINTMENT AND DUTIES. The Trustees shall at all times
employ a bank or trust company having a capital, surplus and undivided profits
of at least $5,000,000 as custodian with authority as its agent, but subject to
such restrictions, limitations and other requirements, if any, as may be
contained in the Declaration, these By-Laws and the 1940 Act:
(i) to hold the securities owned by the Trust and deliver the same
upon written order;
(ii) to receive and receipt for any monies due to the Trust and
deposit the same in its own banking department or elsewhere as
the Trustees may direct;
(iii) to disburse such funds upon orders or vouchers;
(iv) if authorized by the Trustees, to keep the books and accounts of
the Trust and furnish clerical and accounting services; and
(v) if authorized by the Trustees, to compute the net income of the
Trust and the net asset value of Shares; all upon such basis of
compensation as may be agreed upon between the Trustees and the
custodian.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees. Subject to the
approval of the Trustees, the custodian may enter into arrangements with
securities depositories. All such custodial, sub-custodial and depository
arrangements shall be subject to, and comply with, the provisions of the 1940
Act and the rules and regulations promulgated thereunder.
SECTION 2. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or with such other person
as may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer Adeposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that
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all such deposits shall be subject to withdrawal only upon the order of the
Trust or its custodian.
SECTION 3. ACCEPTANCE OF RECEIPTS IN LIEU OF CERTIFICATES. Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees may
direct the custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
SECTION 4. PROVISIONS OF CUSTODIAN CONTRACT. The following provisions
shall apply to the employment of a custodian pursuant to this Article X and to
any contract entered into with the custodian so employed:
(a) The Trustees shall cause to be delivered to the custodian all securities
owned by the Trust or to which it may become entitled, and shall order the
same to be delivered by the custodian only upon completion of a sale,
exchange, transfer, pledge, or other disposition thereof, and upon receipt
by the custodian of the consideration therefor or a certificate of deposit
or a receipt of an issuer or of its Transfer Agent, all as the Trustees may
generally or from time to time require or approve, or to a successor
custodian; and the Trustees shall cause all funds owned by the Trust or to
which it may become entitled to be paid to the custodian, and shall order
the same disbursed only for investment against delivery of the securities
acquired, or in payment of expenses, including management compensation, and
liabilities of the Trust, including distributions to Shareholders, or to a
successor custodian; provided, however, that nothing herein shall prevent
delivery of securities for examination to the broker purchasing the same in
accord with the "street delivery" custom whereby such securities are
delivered to such broker in exchange for a delivery receipt exchanged on
the same day for an uncertified check of such broker to be presented on the
same day for certification.
(b) In case of the resignation, removal or inability to serve of any such
custodian, the Trust shall promptly appoint another bank or trust company
meeting the requirements of this Article X as successor custodian. The
agreement with the custodian shall provide that the retiring custodian
shall, upon receipt of notice of such appointment, deliver all Trust
Property in its possession to and only to such successor, and that pending
appointment of a successor custodian, or a vote of the Shareholders to
function without a custodian, the custodian shall not deliver any Trust
Property to the Trust, but may deliver all or any part of the Trust
Property to a bank or trust company of its own selection, having an
aggregate capital, surplus and undivided profits (as shown in its last
published report) of at least $5,000,000; provided that arrangements are
made for the Trust Property to be held under terms similar to those on
which they were held by the retiring custodian.
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ARTICLE XI
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or
new By-Laws may be adopted (a) by the Shareholders by a Majority Shareholder
Vote, or (b) by the Trustees, provided, however, that no By-Law may be amended,
adopted or repealed by the Trustees if such amendment, adoption or repeal
requires, pursuant to law, the Declaration or these By-Laws, a vote of the
Shareholders.
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Exhibit 5
---------
INVESTMENT ADVISORY AGREEMENT
Between
ACTIVE ASSET ALLOCATION FUNDS'
OPTI-flex(R) DYNAMIC FUND
and
PROACTIVE MONEY MANAGEMENT, INC.
This Agreement is made the third day of May, 1996, by and between
ACTIVE ASSET ALLOCATION FUNDS, a business trust organized and existing under the
laws of the State of Massachusetts, operating as an open-end investment company
(the "Trust") consisting of one series designated as OPTI-flex(R) DYNAMIC FUND
(the "Fund"), and PROACTIVE MONEY MANAGEMENT, INC., a corporation organized and
existing under the laws of the State of Missouri (the "Adviser").
W I T N E S S E T H :
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended; and
WHEREAS, the Adviser is engaged principally in the business of
rendering investment supervisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Trust desires to retain the Adviser to render investment
and supervisory services to the Fund in the manner and on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, the parties hereto agree as follows:
I
INVESTMENT RESPONSIBILITY
-------------------------
(1) In providing the services and assuming the obligations set forth
herein, the Adviser may, at its expense, employ one or more subadvisers.
References herein to the Adviser shall include any subadviser employed by the
Adviser. Any agreement between the Adviser and a subadviser shall be subject to
the renewal, termination and amendment provisions of section V hereof.
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The Trust hereby retains the Adviser to supervise and assist in the
management of the assets for the Fund and to furnish the Fund with a continuous
program for the investment of the Fund's assets, including:
a. Recommendations as to specific securities to be purchased
for or eliminated from the Fund, and
b. Recommendations as to the portion of the Fund's assets that
should be held uninvested.
(2) Notwithstanding the generality of the foregoing, the Adviser may
itself, and at its own expense, contract for such supplementary advisory and
research services as it deems necessary or desirable to fulfill its obligations
under paragraph (1) above, provided that any such contract shall have been
approved by the Fund and the holders of interests therein ("Holders") to the
extent, and in the manner, required by the Investment Company Act of 1940, as
amended.
(3) The Adviser shall furnish to the Trust the services of one or more
persons who shall be authorized by the Trust to place orders for the purchase
and sale of securities for the account of the Fund. Acting through a person so
authorized by the Trust, the Adviser shall place such orders for the Fund.
(4) Notwithstanding the generality of paragraph (3) above, and subject
to the provisions of paragraphs (5) and (6) below, the Adviser shall endeavor to
secure for the Fund the best possible price and execution of every purchase and
sale for the account of the Fund. In seeking such best price and execution the
Adviser shall use its own judgment as to the implementation of its own
investment recommendations, including the Adviser's judgment as to the time when
an order should be placed, the number of securities to be bought or sold in any
one trade that is a part of any particular recommendation, and the market in
which an order should be placed.
(5) The Adviser shall use its own judgment in determining the
broker-dealers who shall be employed to execute orders for the purchase or sale
of securities for the Fund, in order to:
a. Secure best price and execution on purchases and sales for
the Fund; and
b. Secure supplemental research and statistical data for use
in making its recommendations to the Fund.
(6) The Adviser shall use its discretion as to when, and in which
market, the Fund's transactions shall be executed, in order to secure for the
Fund the benefits of best price and execution, and supplemental research and
statistical data. The use of such discretion shall be subject to review by the
Trustees of the Fund at any time and from time
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to time. The Fund, acting by its Trustees, may withdraw said discretion at any
time, and may direct the execution of Fund transactions for the Fund in any
lawful manner different from that provided for herein. Until a decision is made
to withdraw or limit the discretion herein granted, the Adviser shall not be
liable for any loss suffered by the Fund through the exercise by the Adviser of
that discretion unless the Adviser shall be guilty of gross negligence or
willful misconduct.
II
ADMINISTRATIVE RESPONSIBILITY
-----------------------------
During the continuance of this Agreement, Adviser shall provide the
Fund with a continuous program of general administration including:
a. Office space, equipment, supplies and utility services as
shall be required to conduct Fund business;
b. The provision and supervision of all persons performing the
executive, administrative, and clerical functions necessary for the conduct of
the Fund's business except as set forth in g., below;
c. The supervision of accounting, and of records and
record-keeping for the Fund;
d. The preparation and distribution of mandatory reports to
Holders and regulatory bodies;
e. The supervision of the daily net asset value of the Fund;
f. The preparation and distribution on behalf of the Fund of
notices of Holder and Trustee meetings, agendas, proxies, and proxy statements;
and
g. Other facilities, services, and activities necessary for
the conduct of the Fund's business, except for services by the Fund's Custodian,
Registrar, Transfer Agent, Accounting Services Agent, Dividend Disbursing Agent,
Auditors, and Legal Counsel.
III
ALLOCATION OF EXPENSES
----------------------
The Adviser shall pay the Fund's pro rata share of the cost and
expenses of the following services, facilities and activities: necessary office
space, equipment, supplies, utility services and all other ordinary office
expenses; the salaries and other compensation of the Trust's trustees, officers
and employees who are affiliated persons of the Adviser;
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<PAGE> 4
and fees for supplementary advisory and research services performed for the
Adviser. The Fund shall pay all other expenses incurred in the organization and
operation of the Fund and the continuous offering of interests in the Fund,
including, but not limited to, the following:
a. The Fund's pro rata share of the fees and expenses of
counsel in connection with the organization of the Fund.
b. The regular fees or special charges of any Custodian,
Transfer Agent, Registrar, Accounting Services Agent or Dividend Disbursing
Agent allocable to the Fund.
c. The Fund's pro rata share of the compensation or fees of
the Fund's auditors and legal counsel, and compensation and costs relating to
legal or administrative proceedings or to litigation.
d. Income, franchise, stock transfer and other taxes
attributable to the Fund.
e. Initial or renewal fees payable to governmental agencies in
connection with the filing of reports, notices, registration statements, and
other material required to be filed in connection with the Fund's business.
f. The Fund's pro rata share of any insurance or bond
premiums.
g. The Fund's pro rata share of association dues or
assessments.
h. Brokerage fees or commissions on all Fund transactions.
i. The Fund's pro rata share of interest on borrowed funds or
otherwise.
j. Any extraordinary expenses attributable directly to the
Fund.
IV
COMPENSATION
------------
The Fund shall pay the Adviser a fee, based on the value of the net
assets of the Fund determined in accordance with the Trust's Declaration of
Trust, and computed as follows:
(a) The annual advisory fee (the "Fee") shall be equal to the
sum of (i) .75% of the Fund's first $500,000,000 in average daily net assets,
and (ii) .65% of the Fund's average daily net assets in excess of $500,000,000.
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<PAGE> 5
(b) The amounts due the Adviser in payment of the Fee set
forth above. The Fee will be accrued daily and shall be paid to the Adviser in
pro rata monthly installments due and payable on the first business day of each
calendar month.
V
DURATION AND TERMINATION
------------------------
(1) The term of this Agreement shall begin on the date first written
above and, unless sooner terminated as hereinafter provided, this Agreement
shall remain in effect for a period of two years. Thereafter this Agreement
shall continue in effect from year to year, subject to the termination
provisions and all other terms and conditions hereof; if: (a) such continuation
shall be specifically approved at least annually by vote of the holders of a
majority of the outstanding voting securities of the Fund or by the vote, cast
in person at a meeting called for the purpose of voting on such approval, of a
majority of the Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party; and (b) the Adviser shall not have
notified the Fund, in writing, at least 60 days prior to the expiration of any
term, that it does not desire such continuation. The Adviser shall furnish to
the Trust, 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.
(2) This Agreement may not be amended, transferred, sold or in any
manner hypothecated or pledged, without the affirmative vote of a majority of
the outstanding voting securities of the Fund, and this Agreement shall
automatically and immediately terminate in the event of its assignment.
(3) This Agreement may be terminated by either party hereto, without
the payment of any penalty, upon 60 days' notice in writing to the other party,
provided, that in the case of termination by the Fund such action shall have
been authorized by resolution of the Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Fund.
VI
MISCELLANEOUS
-------------
(1) The Adviser shall not deal with the Fund as broker or dealer but
the Adviser may enter orders for the purchase or sale of the Fund's securities
through a company or companies that are under common control with the Adviser,
provided such company acts as broker and charges a commission that does not
exceed the usual and customary broker's commission if the sale is effected on a
securities exchange, or, 1 per centum of the purchase or sale price of such
securities if the sale is otherwise effected. In
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<PAGE> 6
connection with the purchase or sale of portfolio securities for the account of
the Fund, neither the Adviser nor any officer or director of the Adviser shall
act as a principal.
(2) Except as expressly prohibited in this Agreement, nothing herein
shall in any way limit or restrict the Adviser, or any officers, shareholders or
employees of Adviser, from buying selling or trading in any security for its or
their own account. Neither the Adviser nor any Officer or Director thereof shall
take a short position in any interests of the Fund or otherwise purchase such
interests for any purpose other than that of investment. However, the Adviser
may act as underwriter or distributor provided it does so pursuant to a written
contract approved in the manner specified in the Investment Company Act of 1940,
as amended.
(3) The Adviser may act as investment adviser to, and provide
management services for, other investment companies, and may engage in
businesses that are unrelated to investment companies, without limitation,
provided the performance of such services and the transaction of such businesses
does not impair the Adviser's performance of this Agreement.
(4) The Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates (including, but not limited to, loss
sustained by reason of the adoption or implementation of any investment policy
or the purchase, sale or retention of any security), except for loss resulting
from willful misfeasance, bad faith or gross negligence of the Adviser in the
performance of its duties or from reckless disregard by the Adviser of its
obligations and duties under this Agreement.
(5) Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act of 1940, as amended, shall be resolved by
reference to such term or provision of the Act and to interpretations thereof,
if any, by the United States courts or, in the absence of any controlling
decision of any such court, by rules, regulations or orders of the Securities
and Exchange Commission validly issued pursuant to said Act. Specifically, the
terms "vote by a majority of the outstanding voting securities", "annually",
"interested person", "assignment", and "affiliated person", as used herein,
shall have the meanings assigned to them by the Investment Company Act of 1940,
as amended. In addition, where the effect of a requirement of the Investment
Company Act of 1940, as amended, reflected in any provision of this contract is
relaxed by a rule, regulation or order of the Securities and Exchange
Commission, whether of special or of general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or order.
(6) The Trust will provide the Adviser with all information concerning
the investment policies and restrictions of the Fund as the Adviser may from
time to time request or which the Trust deems necessary. In the event of any
change in the investment policies or restrictions of the Fund, the Trust will
promptly provide Adviser with all
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<PAGE> 7
information concerning such change including, but not limited to, copies of all
documents filed by the Fund with the Securities and Exchange Commission.
(7) The Trustees, officers, employees and agents of the Trust shall not
be personally bound by or liable hereunder, nor shall resort be had to their
private property for the satisfaction of any obligation or claim hereunder.
(8) Except to the extent the provisions of this Agreement are governed
by federal law, they shall be governed by the law of Missouri, without reference
to its choice of law rules.
(9) This Agreement represents the entire agreement between the parties
hereto.
(10) This Agreement may be executed in two or more counterparts, each
of which shall be considered an original.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
ACTIVE ASSET ALLOCATION FUNDS
Attest: By: /S/ JEFFREY J. UNTERREINER
------------------ -----------------------------
Secretary Jeffrey J. Unterreiner, Chairman
PROACTIVE MONEY MANAGEMENT, INC.
Attest: By: /S/ C. MARTIN UNTERREINER
------------------ -----------------------------
Secretary C. Martin Unterreiner, Chairman
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<PAGE> 1
Exhibit 6
---------
UNDERWRITING AGREEMENT
----------------------
This Agreement made as of this 3rd day of May, 1996, by and between the
Active Asset Allocation Funds, a Massachusetts business trust (the "Trust"), and
PROACTIVE Financial Services, a Missouri corporation ("Underwriter").
WHEREAS, the Trust is authorized to issue shares in separate series
representing interests in separate portfolios of securities and other assets;
and
WHEREAS, the initial series of shares represents interests in the
OPTI-flex(R) Dynamic Fund (the "Fund"); and
WHEREAS, the Fund is an investment company registered under the
Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, Underwriter is a broker-dealer registered with the Securities
and Exchange Commission (the "Commission") and a member of the National
Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, the Trust and Underwriter are desirous of entering into an
agreement providing for the distribution by Underwriter of shares of the Fund
(the "Shares");
NOW, THEREFORE, in consideration of the promises and agreements of the
parties contained herein, the parties agree as follows:
1. APPOINTMENT. The Fund hereby appoints Underwriter as its exclusive
agent for the distribution of the Shares, and Underwriter hereby
accepts such appointment under the terms of this Agreement.
Notwithstanding any other provision hereof, the Fund may terminate,
suspend or withdraw the offering of its Shares whenever, in its sole
discretion, it deems such action to be desirable.
2. SALE AND REPURCHASE OF SHARES.
(a) Underwriter will have the right, as agent for the Fund, to
enter into dealer agreements with responsible investment dealers, and
to sell Shares to such investment dealers against orders therefor at
the public offering price (as defined in paragraph 2(e) hereof) less a
discount determined by Underwriter, which discount shall not exceed
the amount of the sales charge stated in the Fund's then current
Prospectus (as defined in paragraph 5(a) hereof) and statement of
additional information. At the request of the Fund (which request
shall not be more frequent than quarterly), Underwriter shall furnish
a list of broker-dealers with whom Underwriter has entered into a
dealer agreement. The Fund shall have the right to delete from such
list any broker-dealer from whom the Fund chooses not to accept sales
orders. Upon receipt of an order to purchase Shares from a dealer with
whom Underwriter has a dealer agreement, Underwriter will promptly
cause such order to be filled by the Fund. Underwriter shall have no
obligation to accept monies or Shares, or establish customer accounts.
All sales of Shares shall be conducted strictly through other
registered broker/dealers with Underwriter acting in the role of
wholesaler. The right granted to the Underwriter to sell Shares to
such investment dealers against orders therefor shall not apply to
Shares issued in the event that an investment company (whether a
regulated or private investment company or a personal holding company)
is merged with and into or consolidated with the Fund or in the event
that the Fund acquires by purchase or otherwise, all or substantially
all of the assets or the outstanding shares of any such company. Such
right shall also not apply to Shares issued by the Fund as a dividend
or stock split.
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<PAGE> 2
(b) Underwriter will also have the right, as agent for the Fund,
to sell Shares to the public against orders therefor at the public
offering price (as defined in paragraph 2(e) hereof).
(c) Underwriter will also have the right, as agent for the Fund,
to sell Shares at their net asset value to such persons as may be
approved by the Board of Trustees of the Trust and provided in the
Prospectus, all such sales to comply with the provisions of the Act,
the rules and regulations of the Commission promulgated thereunder and
all other federal and state securities laws, rules and regulations.
(d) Underwriter will also have the right to take, as agent for
the Fund, all actions which, in accordance with this Agreement, are
necessary to carry into effect the distribution of the Shares in
accordance with this Agreement.
(e) The public offering price shall be the net asset value of
Shares then in effect, plus any applicable sales charge determined in
the manner set forth in the Prospectus or as permitted by the Act and
the rules and regulations of the Commission promulgated thereunder. In
no event shall any applicable sales charge exceed the maximum sales
charge permitted by the rules and regulations of the NASD.
(f) The net asset value of the Shares shall be determined in the
manner provided in the Prospectus, and when determined shall be
applicable to transactions as provided for in the Prospectus. The net
asset value of the Shares shall be calculated by the Fund or by
another entity on behalf of the Fund. Underwriter shall have no duty
to inquire into or liability for the accuracy of the net asset value
per Share as calculated pursuant to paragraph (e) above.
(g) On every sale, the Fund shall receive the applicable net
asset value of its Shares promptly, but in no event later than the
third (3rd) business day following the date on which Underwriter shall
have received an order for the purchase of Shares. Underwriter shall
have the right to retain the sales charge less any applicable dealer
discount.
(h) Upon receipt of purchase instructions, Underwriter will
transmit such instructions to the Fund or its transfer agent for
registration of the Shares purchased. Sales of the Shares of the Funds
shall be deemed to be made when and where accepted by the Fund's
transfer agent.
(i) If Underwriter is not registered as a broker-dealer in any
state or an exemption for sales of Shares by Underwriter in such state
is not otherwise available, the Fund shall not be permitted to sell
Shares in the state until Underwriter is so registered or such
exemption is available.
(j) Nothing in this Agreement shall prevent Underwriter or any
affiliated person (as defined in the Act) of Underwriter from acting
as underwriter or distributor for any other person, firm or
corporation (including other investment companies) or in any way limit
or restrict Underwriter or such affiliated person from buying, selling
or trading any securities for its or their own account or for the
accounts of others for whom it or they may be acting; provided,
however, that Underwriter expressly agrees that it will undertake no
activities which, in its judgment, will adversely affect the
performance of its obligations to the Fund under this Agreement.
(k) Underwriter may repurchase Shares at such prices and upon
such terms and conditions as shall be specified in the Prospectus.
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<PAGE> 3
3. SALES OF SHARES. Underwriter does not agree to sell any specific
number of Shares. Underwriter, as agent for the Fund, undertakes to
sell Shares on a best efforts basis only against orders therefor.
4. RULES OF NASD, ETC.
(a) Underwriter will conform to the Rules of Fair Practice of the
NASD and the securities laws of any jurisdiction in which it sells any
Shares.
(b) Underwriter will require each dealer with whom Underwriter
has a dealer agreement to conform to the applicable provisions of the
Prospectus, with respect to the public offering price of the Shares,
and Underwriter shall not withhold the placing of purchase orders so
as to make a profit thereby.
(c) Underwriter agrees to obtain the prior written approval of
the Fund (which approval shall not be unreasonably withheld or
delayed) with regard to, and file and clear with the proper
authorities copies of, any agreements, plans or other materials it
intends to use in connection with any sales of Shares. Copies of such
materials and evidence of filing with the proper authorities shall be
furnished to the Fund. To the extent the Fund has created any such
sales materials, the Fund shall not use such materials until
Underwriter has approved of such materials and filed them with the
proper authorities.
(d) Underwriter shall not make, or authorize any registered
representative, broker or dealer to make, in connection with any sales
or solicitation of a sale of the Shares, any representations
concerning the Shares except those contained in the Prospectus
covering the Shares and in sales materials approved by the Underwriter
and the Fund as information supplemental to such Prospectus. Copies of
the Prospectus will be supplied by the Fund to Underwriter in
reasonable quantities upon request.
5. REPRESENTATIONS AND WARRANTIES OF THE FUND. The Fund represents and
warrants to, and agrees with Underwriter that:
(a) A registration statement on Form N-1A with respect to its
Shares has been prepared and filed by the Fund with the Commission
under and in conformity with the requirements of the Securities Act of
1933, as amended (the "33 Act"), the Act and the Rules and Regulations
(as defined herein below); such registration statement is currently
effective and the Fund shall take whatever action necessary to
maintain an effective registration statement at all times during the
term of this Agreement. As used in this Agreement, the term
"Registration Statement" means such registration statement, including
all exhibits thereto, as amended at the time; and the term
"Prospectus" means the prospectus constituting a part of the
Registration Statement, in the form filed with the Commission.
(b) The Commission or any state has not issued any order
preventing or suspending the use of any Prospectus, and each
Prospectus, at the time of filing thereof, complied in all material
respects with the requirements of the 33 Act and Act (together the
"Acts") and the rules and regulations (the "Rules and Regulations")
promulgated by the Commission under the Acts and the Securities
Exchange Act of 1934 as amended (the "34 Act"), and did not include
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. The Registration Statement and the
Prospectus and any amendments or supplement thereto will contain all
statements which are required to be stated therein in accordance with
the Acts and the Rules and Regulations and will comply in all material
respects with the requirements of the Acts and the Rules and
Regulations; and neither
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<PAGE> 4
the Registration Statement nor the Prospectus nor any amendment or
supplement thereto will include any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(c) The Fund is a series fund of a business trust which is
validly existing and in good standing under the laws of the
Commonwealth of Massachusetts with full power and authority to own its
properties and conduct its business as now conducted; and its Shares
have been duly authorized and when issued will be validly issued,
fully paid and nonassessable.
(d) The Shares conform in all material respects to the
description thereof contained in the Prospectus.
(e) The Fund has full legal right, power and authority to enter
into this Agreement and to issue, sell and deliver the Shares to be
sold by it to Underwriter as provided herein, and this Agreement has
been duly authorized, executed and delivered by the Fund as required
by the Act.
(f) The Fund is not in violation of its Declaration of Trust or
By-laws or in default under any agreement, indenture or instrument,
the effect of which violation or default would be material to the
Fund. No consent, approval, authorization or order of any court or
governmental agency or body or securities exchange is required for the
consummation of the transactions contemplated by this Agreement except
such as have been obtained and such as may be required under the Acts
and the Rules and Regulations and such as may be required under state
securities laws of Blue Sky Laws in connection with the purchase and
distribution of the Shares by Underwriter. The consummation by the
Fund of the transactions contemplated by this Agreement will not
conflict with, result in the creation or imposition of any lien,
charge or encumbrance upon the assets of the Fund pursuant to the
terms of, result in a breach or violation by the Fund of any of the
terms or provisions of, or constitute a default by the Fund under, any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Fund is a party or to which it or
its property is subject, the Declaration of Trust or By-laws of the
Fund, any statute, or any judgment, decree, order, rule or regulation
of any court or governmental agency or body having jurisdiction over
the Fund or any of its property.
(g) The financial statements and the related notes included in
the Registration Statement and Prospectus presently fairly the
financial position, results of operations and changes in financial
position of the Fund at the dates and for the periods to which they
relate and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, except as
otherwise stated therein.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, the Fund has not
incurred any material liabilities or obligations, direct or
contingent, or entered into any material transaction, whether or not
in the ordinary course of business, and there has not been any
material change in the capital stock, or any material adverse change,
in the business, condition (financial or other), key personnel,
properties, results of operations or assets of the Fund except in each
case as disclosed in or contemplated by the Prospectus.
(i) There is not pending, or to the knowledge of the Fund,
contemplated or threatened, any action, suit, proceeding, inquiry or
investigation, to which the Fund is a party, or to which the property
of the Fund is subject, before or brought by any court or governmental
agency or body, or any arbitrator, which, if determined adversely to
the Fund might result in any material adverse change in the business,
condition (financial or other), net asset value or results of
operations, or materially adversely affect the properties or assets of
the Fund.
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<PAGE> 5
(j) The Fund is not in violation of any law, ordinance,
governmental rule or regulation or court decree to which it may be
subject or has not failed to obtain any license, permit, franchise or
other governmental authorization necessary to the ownership of its
property or to the conduct of its business, which violation or failure
to obtain is likely to have any material adverse effect on the
condition (financial or other), properties, prospective results of
operations or net asset value of the Fund.
(k) There are no contracts or other documents required to be
described in the Registration Statement or Prospectus or to be filed
as exhibits to the Registration Statement by the Acts or by the Rules
and Regulations which have not been described or filed as required.
(l) The Fund has timely filed all necessary federal income tax
returns and all necessary state and foreign income, excise, state and
franchise tax returns, has paid all taxes shown as due thereon and has
made adequate reserves for future tax liabilities, and, except as
described in the Prospectus, there is no tax deficiency that has been
asserted against the Fund that would materially and adversely affect
the business of the Fund.
(m) The Fund maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are
executed in accordance with management's general or specific
authorizations, (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability of
assets, (C) access to assets is permitted only in accordance with
management's general or specific authorization, and (D) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
6. COVENANTS OF THE FUND. The Fund covenants and agrees with
Underwriter that:
i (a) The Fund will cause the Registration Statement and any
subsequent amendments thereto to become effective as promptly as
practicable and will not file any amendment to the Registration
Statement or any supplement to the Prospectus of which Underwriter
shall not previously have been furnished with a copy a reasonable time
prior to the proposed filing. Except as otherwise provided in Section 1
hereof, the Fund will maintain an effective Registration Statement as
required by the Acts at all times during the term of this Agreement.
Except as otherwise provided in Section 1 hereof, the Fund will comply
so far as it is able with all requirements imposed upon it by the Acts
and the Rules and Regulations to the extent necessary to permit the
continuance of sales of the Shares in accordance with the provisions
hereof and of the Prospectus and the Fund will prepare and file with
the Commission any amendments to the Registration Statement or
supplements to the Prospectus which it deems necessary or advisable in
connection with the distribution of the Shares by Underwriter, and will
use its best efforts to cause the same to become effective as promptly
as practicable.
(b) The Fund will advise Underwriter promptly after it receives
notice or obtains knowledge thereof, of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the
Prospectus, or of the suspension of the qualification of the Shares
for offering or sale in any jurisdiction, or of the institution or
threatening of any proceeding for any such purpose, or of any request
made by the Commission for amending the Registration Statement, for
supplementing the Prospectus or for additional information, and the
Fund will use its best efforts to prevent the issuance of any such
order and, if any such order is issued to obtain the lifting thereof
as promptly as practicable.
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<PAGE> 6
(c) The Fund will arrange for the qualification of the Shares for
offering and sale under the securities or Blue Sky laws of such
jurisdictions in which the Shares will be sold.
(d) The Fund will furnish to Underwriter copies of the
Registration Statement, the Prospectus, and all amendments and
supplements thereto, in each case as soon as available, and in such
quantities as Underwriter may reasonably request.
(e) The Fund will furnish to its shareholders semi-annual and
annual reports including such information and within the time
requirements prescribed by the Act.
(f) If sales of the Fund's Shares are facilitated through the use
of a clearing agency (e.g., National Securities Clearing Corporation),
the Fund shall direct its transfer agent to settle all clearing agency
transactions promptly according to the rules and regulations of such
clearing agency.
7. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITER.
The Underwriter represents and warrants to, and agrees with the Funds,
that:
(a) Underwriter has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of ______, with all requisite corporate power and authority to conduct
its business and to perform its obligations contemplated herein.
(b) This Agreement has been duly and validly authorized, executed
and delivered by Underwriter and constitutes Underwriter's valid,
binding and enforceable agreement.
(c) Underwriter's execution and delivery of this Agreement, and
the performance of Underwriter's obligations hereunder, will not
result in a violation of, be in conflict with or constitute a default
under any agreement or instrument to which Underwriter is a party or
by which Underwriter or Underwriter's properties are bound, or any
judgment, decree, order, statute, rule or regulation applicable to
Underwriter.
(d) The information supplied by Underwriter for inclusion in the
Prospectus and Registration Statement relating to Underwriter is
complete and correct and does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein not misleading.
(e) Underwriter is (i) a broker-dealer duly registered pursuant
to the provisions of the 34 Act, (ii) a member in good standing of the
NASD, and (iii) duly registered as a broker-dealer under the
applicable laws and regulations of each state in which Underwriter
will offer and sell the Shares, except such states in which
Underwriter is exempt from registration or such registration is not
otherwise required. Underwriter will maintain its registration in good
standing, or its exemption from such registration, throughout the term
of this Agreement and Underwriter will comply with all statutes and
other requirements applicable to Underwriter with respect to
Underwriter's brokerage activities within those jurisdictions.
Underwriter, its affiliates, officers and directors have not taken or
failed to take any act, and are not subject to any order or
proceeding, that would prevent the registration of the Shares with any
state securities commission, or which will result in the issuance of
any stop order on the sale of the Shares.
(f) Underwriter is a member of National Securities Clearing
Corporation and FundsServ.
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<PAGE> 7
8. COVENANTS OF THE UNDERWRITER.
The Underwriter covenants and agrees with the Fund that:
(a) In offering and selling the Shares, Underwriter will comply
with all applicable requirements of the Acts, the 34 Act and the Rules
and Regulations.
(b) Subject to valid exemption(s) from the requirement to
register as a broker-dealer under any of the Blue Sky Laws,
Underwriter will comply with all applicable requirements of the Blue
Sky Laws applicable to Underwriter as a broker-dealer. Underwriter
will not offer or sell any of the Shares in any jurisdiction prior to
receiving instructions (oral or written) from the Fund that offers may
be made in such jurisdiction.
(c) Underwriter will abide by, and take reasonable precautions to
insure compliance with, all provisions contained in the Prospectus and
this Agreement regulating the terms and manner of conducting the
offering of the Shares. Underwriter will not use any offering or
selling material other than materials furnished or approved in writing
by the Fund. Neither Underwriter nor any of its agents will give any
information or make any representation with respect to the Fund other
than the information or representations contained in the Prospectus or
any sales literature authorized by the Fund for use in connection with
the offering of the Shares, or such other information as is
specifically authorized by the Fund.
(d) In offering and selling the Shares, Underwriter will comply
with all applicable rules of the NASD, including Sections 8, 24, and
36 of Article III of the Rules of Fair Practice.
(e) Neither Underwriter nor any of its directors or officers (nor
any other person serving in a similar capacity):
(i) Has been convicted within ten years of date hereof of
any crime or offense involving the purchase or sale of any
security, involving the making of a false statement with the
Commission, or arising out of such person's conduct as an
underwriter, broker, dealer, municipal securities dealer or
investment advisor.
(ii) Is subject to any order, judgment or decree of any
court of competent jurisdiction temporarily or preliminarily
enjoining or retraining, or is subject to any order, judgment or
decree of any court of competent jurisdiction, entered into
within five years prior to the date hereof, permanently enjoining
or restraining such person from engaging in or continuing any
conduct or practice in connection with the purchase or sale of
any security, involving the making of a false filing with the
Commission, or arising out of the conduct of the business of an
underwriter, broker, dealer, municipal securities dealer or
investment advisor;
(iii) Is subject to an order of the Commission entered
pursuant to section 15(b), 15B(a), or 15B(c) of the 34 Act; or is
subject to an order of the Commission entered pursuant to section
203(e) or (f) of the Investment Advisers Act of 1940;
(iv) Is suspended or expelled from membership in, or
suspended or barred from association with a member of, an
exchange registered as a national securities exchange pursuant to
section 6 of the 34 Act, an association registered as a national
securities association under section 15A of the 34 Act, or a
Canadian securities exchange or association for any act or
omission constituting conduct inconsistent with just and
equitable principles of trade;
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<PAGE> 8
(v) Is subject to a United States Postal Service false
representation order entered within five years of the date
hereof; or is subject to a restraining order or preliminary
injunction entered under section 3007 of title 39, United States
Code, with respect to any conduct alleged to constitute postal
fraud;
(vi) Has been or has been named as an underwriter of any
securities covered by any registration statement which is the
subject of any pending proceeding or examination under section 8
of the 33 Act, or is the subject of any refusal order or stop
order entered thereunder within five years prior to the date
hereof;
(vii) Has been or has been named as an underwriter of any
securities covered by any filing which is subject to any pending
proceeding under Rule 261 or any similar Rule adopted under
section 3(b) of the 33 Act, or to an order entered thereunder
within five years to the date hereof; and
(viii) Taken or failed to take any other act, or are subject
to any other order or proceeding, that would make unavailable any
registration or qualification requirements of the Acts, the 34
Act, the Rules and Regulations or the Blue Sky Laws.
(f) Underwriter shall maintain its memberships with National
Securities Clearing Corporation and FundsServ in good standing
throughout the term of this Agreement and Underwriter shall comply
with all articles, bylaws, rules and other requirements applicable to
Underwriter's activities with National Securities Clearing Corporation
and FundsServ.
(g) Neither Underwriter nor any of its directors, officers,
employees, or members of an advisory board is (i) ineligible, by
reason of subsection (a) of Section 9 of the Act to serve or act in
such capacities or (ii) subject to an order of the Commission entered
pursuant to subsections (b) or (f) of Section 9 of the Act.
9. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligations of
Underwriter hereunder shall be subject, in its discretion, to the
accuracy of the representations and warranties of the Fund herein and
to the performance by the Fund of its covenants and agreements
hereunder.
10. CONDITIONS OF THE FUND'S OBLIGATIONS. The obligations of the Fund
hereunder shall be subject, in its discretion, to the accuracy of the
representations and warranties of Underwriter herein and to the
performance by Underwriter of its covenants and agreements hereunder.
11. INDEMNIFICATION.
(a) The Fund agrees to indemnify and hold harmless the
Underwriter, and each person, if any, who controls Underwriter within
the meaning of the Acts or Section 20 of the 34 Act, from and against
any losses, claims, damages, fines and liabilities, joint or several,
to which Underwriter or such controlling person may become subject
under the Acts or otherwise insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any
material fact contained (A) in the Registration Statement, the
Prospectus, or any amendment or supplement thereto, or (B) in any Blue
Sky Application or other document executed by the Fund specifically
for that purpose or based upon written information furnished by the
Fund filed in any state or other jurisdiction in order to qualify any
or all of the Shares under the securities laws thereof (any such
application, document or information being hereinafter called a "Blue
Sky Application"), (ii) the omission or alleged omission to state in
the Registration Statement, the Prospectus, any amendment or
supplement thereof, any Blue Sky Application, or any sales material, a
material
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<PAGE> 9
fact required to be stated therein or necessary to make the statements
therein not misleading; and will reimburse Underwriter and each such
controlling person for any legal or other expenses reasonably incurred
by Underwriter or such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action, or (iii) the failure of the Fund's transfer agent to remit
appropriate amounts to or properly settle with any clearing agency
(e.g., National Securities Clearing Corporation) in accordance with
such agency's rules and regulations; provided, however, that the Funds
will not be liable in any such case to the extent, but only to the
extent, that any such loss, claim, damage, liability or action arises
out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration
Statement, or any sales material, the Prospectus or any amendment or
supplement thereto, or any Blue Sky Application, in reliance upon and
in conformity with written information furnished to the Fund by
Underwriter expressly for use therein. This indemnity shall not apply
to any loss, claim, liability or action resulting from willful
misfeasance, bad faith or gross negligence on the part of Underwriter.
This indemnity agreement will be in addition to any liability which
the Fund may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the
Fund, the trustees and officers of the Fund and Trust, and any person
who controls the Funds or Trust within the meaning of the 33 Act from
and against any losses, claims, damages or liabilities to which the
Funds or any such trustee, officer or controlling person may become
subject, under the Acts or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue statement
made by the Underwriter (A) in the Registration Statement, the
Prospectus, or any amendment or supplement thereto, or (B) in any Blue
Sky Application, or (ii) the omission or the alleged omission to state
therein made by Underwriter of a material fact required to be stated
therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information
furnished to the Fund by the Underwriter expressly for use therein;
Underwriter will reimburse any legal or other expenses reasonably
incurred by the Fund or any such trustee, officer or controlling
person in connection with investigating or defending any such loss,
claim, damage, liability or action. This indemnity agreement will be
in addition to any liability which the Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to paragraphs (a) or (b) of
this Section 11, such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing (but the omission so to notify the
indemnifying party will not relieve it from any other liability which
it may have to any indemnified party), and the indemnifying party,
upon request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate (including
the indemnifying party) in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention
of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the
same counsel would be inappropriate due to actual or potential
conflicts of interest between them, in which case the fees and
disbursements of such counsel related to such proceeding shall be paid
by the indemnifying party. It is understood that the indemnifying
party shall not, in connection with any proceeding or related
proceeding in the same jurisdiction, be liable for (a) the reasonable
fees and expenses of more than one separate firm (in addition to any
local counsel) for Underwriter and all persons, if any, who control
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<PAGE> 10
Underwriter within the meaning of either the Acts or Section 20 of the
34 Act, and (b) the reasonable fees and expenses of more than one
separate firm (in addition to any local counsel) for the Funds, the
Trust or their trustees or officers. It is further understood that all
such fees and expenses shall be reimbursed as they are incurred. In
the case of any such separate firm for Underwriter and such control
persons of Underwriter, such firm shall be designated in writing by
Underwriter. In the case of any such separate firm for the Funds and
Trust, and such trustees or officers of the Trust or Funds, such firm
shall be designated in writing by the Trust or Funds. The indemnifying
party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent
or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any
loss or liability by reason of such settlement or judgment.
(d) Each Fund and the Underwriter each agree to notify the
other promptly of the commencement of any litigation or proceeding
against it in connection with the issuance and sale of any of the
Shares.
12. RECORDS TO BE SUPPLIED BY THE FUND. A Fund shall furnish to
Underwriter copies of all information, financial statements and other
papers which Underwriter may reasonably request for use in connection
with the distribution of its Shares, and this shall include, but shall
not be limited to, one certified copy, upon request by Underwriter, of
all financial statements prepared for the Fund by independent public
accountants.
13. EXPENSES.
(a) Except as otherwise provided herein, the Fund will bear
all costs and expenses incurred under this Agreement including but not
limited to:
(i) Preparation, setting in type, and printing of
sufficient copies of prospectuses and statements of
additional information for distribution to shareholders.
(ii) Preparation, printing and distribution of reports
and other communications to shareholders.
(iii) Registration of its Shares under the Acts.
(iv) Qualification of its Shares for sale in the
various States.
(v) Qualification of the Fund as a dealer or broker
under the laws of jurisdiction as well as qualification of
the Fund to do business in any jurisdiction, if such
qualification is necessary for the purpose of selling the
Shares.
(vi) Maintaining facilities for the issue and transfer
of the Shares.
(vii) Supplying information, prices and other data to
be furnished by the Fund under this Agreement.
(viii) Any original issue taxes or transfer taxes
applicable to the sale of delivery of the Shares or
certificates therefor.
(b) Except as otherwise agreed to by the parties or as
otherwise provided herein, Underwriter will pay all other
expenses (other than expenses which one or more dealers may bear
pursuant to any agreement with Underwriter) incident to the sale
and distribution of the Shares sold hereunder.
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<PAGE> 11
14. DISTRIBUTION PLANS. The Fund has adopted a distribution plan with
respect to Class A Shares and Class C Shares pursuant to Rule 12b-1
under the Act (the "Plan") which provides that the Fund may incur
expenses to finance any activity which is primarily intended to result
in the sale of Shares. Such activities may include, but are not
limited to, advertising, salaries and other expenses of Underwriter
relating to selling efforts, seminars, printing of prospectuses,
statements of additional information and reports for other than
existing shareholders, preparation and distribution of advertising
material and sales literature, and supplemental payments to dealers.
Underwriter shall be paid by the Fund pursuant to the Plan with
respect to the Shares and a fee not to exceed .75% and per annum
respectively of the average daily net assets as may be determined by
the Trust's Board of Trustees from time to time for expenses incurred
by Underwriter in connection with this Agreement. Such reimbursement
shall be made upon submission to the Fund of the expenses to be
reimbursed and shall be reduced by the aggregate sums paid by the Fund
to persons other than broker-dealers.
15. LIABILITY OF UNDERWRITER.
(a) Underwriter, its directors, officers, employees, shareholders
and agents shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the
performance of this Agreement, except a loss resulting from a breach
of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or
negligence on the part of Underwriter in the performance of its
obligations and duties under this Agreement.
(b) Any person, even though also a director, officer, employee,
shareholder or agent of Underwriter, who may be or become an officer,
trustee, employee or agent of the Trust, shall be deemed, when
rendering services to the Funds or acting on any business of the Fund
(other than services or business in connection with Underwriter's
duties hereunder), to be rendering such services to or acting solely
for the Fund and not as a director, officer, employee, shareholder or
agent, or one under the control or direction of Underwriter even
though paid by it.
16. TERMINATION OF THIS AGREEMENT.
(a) This Agreement may be terminated, with respect to the Fund at
any time, without payment of any penalty, by vote of a majority of the
members of the Board of Trustees of the Trust who are not interested
persons of the Fund and who have no direct or indirect financial
interest in the preparation of the Plan or in any agreement relating
to the Plan or by vote of a majority of the outstanding voting
securities of the Fund on not more than ninety (90) days' written
notice to the other party. This Agreement shall automatically
terminate in the event of its assignment.
(b) The Underwriter may terminate this Agreement (i) on written
notice to a Fund at any time in case the effectiveness of the
Registration Statement shall be suspended, or (ii) by giving the Fund
written notice of its intention to terminate this Agreement at the
expiration of ninety (90) days from the date of delivery of such
written notice of intention to the Fund.
17. EFFECTIVE PERIOD OF THIS AGREEMENT.
The provisions of paragraph 11 hereof shall survive the
termination of this Agreement. The remaining provisions of this
Agreement shall be effective on the date first above written and shall
remain in full force and effect for a period of one (1) year
thereafter (unless terminated as set forth in Paragraph 16), and from
year to year thereafter, but only so long as such continuance is
specifically approved at least annually by (i) the Board of Trustees
of the Fund or by a vote of
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<PAGE> 12
the majority of the outstanding voting securities of the Fund and (ii)
by a majority of the Trustees of the Fund who are not parties to this
Agreement or interested persons of any such party by vote cast in
person at a meeting called for the purpose of voting on such approval.
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<PAGE> 13
18. REPORTS.
Underwriter shall prepare reports for the Board of Trustees of
the Trust on a quarterly basis showing such information as from time
to time shall be reasonably requested by such Board and necessary for
an informed determination as to whether this Agreement shall continue.
The Underwriter shall provide a written report, on a quarterly basis,
of the amounts expended, the purposes for which such expenditures were
made and any other information reasonably requested by the Board of
Trustees of the Trust to enable it to fulfill its responsibilities
under paragraph (d) of Rule 12b-1 under the Act and to make findings
required by paragraph (e) of Rule 12b-1.
19. SEVERABILITY.
In the event any provision of this Agreement is determined to be
void or unenforceable, such determination shall not affect the
remainder of this Agreement, which shall continue to be in force.
20. QUESTIONS OF INTERPRETATION.
This Agreement shall be governed by the laws of the State of
Ohio, without reference to its choice of law rules.
21. NOTICES.
Any notices required or permitted to be given hereunder shall be
sufficient if in writing, and if delivered by hand, or sent by
certified mail, return receipt requested, to the following addresses:
If to the Trust or the Fund:
Active Asset Allocation Funds
500 Chesterfield Center, Suite 250
Chesterfield, MO 63017
Attention: C. Martin Unterreiner
If to the Underwriter:
PROACTIVE Financial Services, Inc.
500 Chesterfield Center, Suite 250
Chesterfield, MO 63017
Attention: Jefrey J. Unterreiner
or such other address as either party may from time to time designate
in writing to the other, and shall be deemed given as of the date of
the delivery or mailing.
22. ARBITRATION.
Any dispute, controversy or claim arising out of or in connection
with this Agreement will be settled by binding arbitration in
accordance with the applicable rules for expedited review of (and by
an independent arbitrator selected by) the American Arbitration
Association, and the decision of such arbitrator, including any award
of attorneys' fees and costs, may be entered into any court with
jurisdiction.
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<PAGE> 14
23. ATTORNEYS' FEES.
If any legal action or any arbitration or other proceeding is
brought to enforce the provisions of this Agreement, or because of an
alleged dispute, breach, default or misrepresentation in connection
with any of the provisions of this Agreement, the successful or
prevailing party or parties, whether such party or parties have
instituted the action, shall be entitled to recover reasonable
attorneys' fees and other costs incurred in such action or proceeding,
in addition to any other relief to which the Fund or Underwriter may
be entitled.
24. ENTIRE AGREEMENT AND BINDING EFFECT.
This Agreement contains the entire agreement between the parties
hereto with respect to the subject matter hereof and shall be binding
upon and inure to the benefit of the parties hereto and their
respective legal representatives, heirs, distributes, successors and
permitted assigns.
25. ASSIGNMENT.
This Agreement may not be transferred or assigned by either
party.
26. AMENDMENTS.
This Agreement may not be amended except by a writing signed by
all of the parties hereto.
IN WITNESS WHEREOF, the Trust and Underwriter have each caused this
Agreement to be signed in duplicate, as of the day and year first above written.
ATTEST: TRUST:
THE ACTIVE ASSET ALLOCATION FUNDS
BY: /s/ C. Martin Unterreiner
- ---------------------------- -------------------------------
ITS: Vice President
- ---------------------------- -------------------------------
ATTEST: UNDERWRITER:
PROACTIVE FINANCIAL SERVICES, INC.
BY: /s/ Jeffrey J. Unterreiner
- ---------------------------- -------------------------------
ITS: President
- ---------------------------- -------------------------------
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<PAGE> 1
Exhibit 8
---------
CUSTODY AGREEMENT
This agreement (the "Agreement") is entered into as of the 5th day of
June, 1996, by and between OPTI-flex DYNAMIC FUND, (the "Fund"), a business
trust organized under the laws of Massachusetts and having its office at 500
Chesterfield Center, Suite 250, Chesterfield, MO. 63017 and Star Bank, National
Association, (the "Custodian"), a national banking association having its
principal office at 425 Walnut Street, Cincinnati, Ohio, 45202.
WHEREAS, the Fund and the Custodian desire to enter into this Agreement
to provide for the custody and safekeeping of the assets of the Fund as required
by the Investment Company Act of 1940, as amended (the "Act").
WHEREAS, the Fund hereby appoints the Custodian as custodian of all the
Fund's Securities and moneys at any time owned by the Fund during the term of
this Agreement (the "Fund Assets").
WHEREAS, the Custodian hereby accepts such appointment as Custodian and
agrees to perform the duties thereof as hereinafter set forth.
THEREFORE, in consideration of the mutual promises hereinafter set
forth, the Fund 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:
AUTHORIZED PERSON - the Chairman, President, Secretary, Treasurer,
Controller, or Senior Vice President of the Fund, or any other person, whether
or not any such person is an officer or employee of the Fund, duly authorized by
the Board of Trustees of the Fund to give Oral Instructions and Written
Instructions on behalf of the Fund, and listed in the Certificate annexed hereto
as Appendix A, or such other Certificate as may be received by the Custodian
from time to time.
BOOK-ENTRY SYSTEM - the Federal Reserve Bank book-entry system for
United States Treasury securities and federal agency securities.
DEPOSITORY - The Depository Trust Company ("DTC"), a limited purpose
trust company its successor(s) and its nominee(s) or any other person or
clearing agent.
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<PAGE> 2
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 Fund.
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.
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.
OFFICERS - the Chairman, President, Secretary, Treasurer, Controller,
and Senior Vice President of the Fund listed in the Certificate annexed hereto
as Appendix A, or such other Certificate as may be received by the Custodian
from time to time.
ORAL INSTRUCTIONS - verbal instructions 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.
PROSPECTUS - the Fund'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, mutual fund securites, mortgages, and any certificates,
receipts, warrants, or other instruments representing rights to receive,
purchase, or subscribe for the same or evidencing or representing any other
rights or interest therein, or any property or assets.
WRITTEN INSTRUCTIONS - communication received in writing by the
Custodian from an Authorized Person.
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<PAGE> 3
ARTICLE II
DOCUMENTS AND NOTICES TO BE FURNISHED BY THE FUND
-------------------------------------------------
A The following documents, including any amendments thereto, will be
provided contemporaneously with the execution of the Agreement, to the
Custodian by the Fund:
1. A copy of the Articles of Incorporation of the Fund certified by
the Secretary.
2. A copy of the By-Laws of the Fund certified by the Secretary.
3. A copy of the resolution of the Board of Trustees of the Fund
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 Fund setting
forth the names and signatures of the Officers of the Fund.
B. The Fund agrees to notify the Custodian in writing of the
appointment of any Dividend and Transfer Agent.
ARTICLE III
RECEIPT OF FUND ASSETS
----------------------
A. During the term of this Agreement, the Fund will deliver or cause
to be delivered to the Custodian all moneys constituting Fund Assets. The
Custodian shall be entitled to reverse any deposits made on the 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. During the term of this Agreement, the Fund will deliver or cause
to be delivered to the Custodian all Securities constituting Fund Assets.
The Custodian will not have any duties or responsibilities with respect to
such Securities until actually received by the Custodian.
C. As and when received, the Custodian shall deposit to the account(s)
of the Fund any and all payments for shares of the Fund issued or sold from
time to time as they are received from the Fund's distributor or Dividend
and Transfer Agent or from the Fund itself.
ARTICLE IV
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<PAGE> 4
DISBURSEMENT OF FUND ASSETS
---------------------------
A. The Fund shall furnish to the Custodian a copy of the resolution of
the Board of Trustees of the Fund, certified by the Fund's Secretary,
either (i) setting forth the date of the declaration of any dividend or
distribution in respect of shares of the Fund, the date of payment thereof,
the record date as of which 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 the Fund on a daily basis and
authorizing the Custodian to rely on a Certificate setting forth the date
of the declaration of any such dividend or distribution, the date of
payment thereof, the record date as of which 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 such resolution or Certificate
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. Upon receipt of Written 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. 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, and the purpose for which payment is to be made,
the Custodian shall disburse amounts as and when directed from the Fund
Assets. The Custodian is authorized to rely on such directions and shall be
under no obligation to inquire as to the propriety of such directions.
D. Upon receipt of a Certificate directing payment, the Custodian
shall disburse moneys from the Fund Assets in payment of the Custodian's
fees and expenses as provided in Article VIII hereof.
ARTICLE V
CUSTODY OF FUND ASSETS
----------------------
A. The Custodian shall open and maintain a separate bank account or
accounts in the United States in the name of the 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
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<PAGE> 5
the Act. Moneys held by the Custodian on behalf of the 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. The Custodian shall hold all Securities delivered to it in
safekeeping in a separate account or accounts maintained at Star Bank, N.A.
for the benefit of the Fund.
C. 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 shall be registered in the name of the Custodian or its
nominee. The Fund 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 the Fund and
which may, from time to time, be registered in the name of the Fund.
D. With respect to all Securities held for the Fund , 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 C):
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 Securities in temporary form for definitive
Securities; and
4.) Execute, as agent, 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. Upon receipt of a Certificate AND NOT OTHERWISE, the Custodian
shall:
1.) Execute and deliver to such persons as may be designated in
such Certificate proxies, consents, authorizations, and any
other instruments whereby the authority of the Fund 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 trust, or the exercise of any
conversion privilege;
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<PAGE> 6
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 trust, 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 the Fund
and take such other steps as shall be stated in said
Certificate to be for the purpose of effectuating any duly
authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund; and
5.) Deliver any Securities held for the Fund to the depository
agent for tender or other similar offers.
F. The Custodian shall promptly deliver to the Fund all notices, proxy
material and executed but unvoted proxies pertaining to shareholder
meetings of Securities held by the 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 a Certificate or
Written Instruction.
G. The Custodian shall promptly deliver to the Fund all information
received by the Custodian and pertaining to Securities held by the Fund
with respect to tender or exchange offers, calls for redemption or
purchase, or expiration of rights.
ARTICLE VI
PURCHASE AND SALE OF SECURITIES
-------------------------------
A. Promptly after each purchase of Securities by the Fund, the Fund
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, Written
Instructions or Oral Instructions, specifying with respect to each such
purchase the;
1.) name of the issuer and the title of the Securities,
2.) principal amount purchased and accrued interest, if any,
3.) date of purchase and settlement,
4.) purchase price per unit,
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<PAGE> 7
5.) total amount payable, and
6.) name of the person from whom, or the broker through which,
the purchase was made.
The Custodian shall, against receipt of Securities purchased by or for the
Fund, pay out of the Fund Assets, the total amount payable to the person
from whom or the broker through which the purchase was made, provided that
the same conforms to the total amount payable as set forth in such Written
Instructions or Oral Instructions, as the case may be.
B. Promptly after each sale of Securities by the Fund, the Fund 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, Written Instructions or
Oral Instructions, specifying with respect to each such sale the;
1.) name of the issuer and the title of the Securities,
2.) principal amount sold and accrued interest, if any,
3.) date of sale and settlement,
4.) sale price per unit,
5.) total amount receivable, and
6.) name of the person to whom, or the broker through
which, the sale was made.
The Custodian shall deliver the Securities against receipt of the total
amount receivable, provided that the same conforms to the total amount
receivable as set forth in such Written Instructions or Oral Instructions,
as the case may be.
C. 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.
D. Purchases and sales of Securities effected by the Custodian will be
made on a delivery versus payment basis. The Custodian may, in its sole
discretion, upon receipt of a Certificate, elect to settle a purchase or
sale transaction in some other manner, but only upon receipt of acceptable
indemnification from the Fund.
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<PAGE> 8
E. The Custodian shall, upon receipt of a Written Instructions so
directing it, establish and maintain a segregated account or accounts for
and on behalf of the 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 Fund,
the Custodian, and a broker-dealer registered under the
Securities and Exchange Act of 1934, as amended, and also a
member of the National Association of Securities Dealers (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 government 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 Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment
companies; and
4.) for other corporate purposes, only in the case of this clause 4
upon receipt of a copy of a resolution of the Board of Trustees
of the Fund, certified by the Secretary of the Fund, setting
forth the purposes of such segregated account.
F. 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 the Fund unless there is
sufficient cash in the account(s) at the time or to settle the sale of any
Securities from 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
Fund payable on demand and bearing interest accruing
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<PAGE> 9
from the date such loan is made up to but not including the date such loan
is repaid at a rate per annum customarily charged by the Custodian on
similar loans.
ARTICLE VII
FUND INDEBTEDNESS
-----------------
In connection with any borrowings by the Fund, the Fund 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 Fund
shall promptly deliver to the Custodian a Certificate 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 Fund, 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 Fund 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 the principal amount. The
Custodian shall deliver on the borrowing date specified in the Certificate
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 Certificate. The Custodian shall deliver, in the manner
directed by the Fund, such Securities as additional collateral, as may be
specified in a Certificate, to secure further any transaction described in
this Article VII. The Fund 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. 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. The Fund 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 Fund's duties hereunder or any other action or inaction of the Fund or
its Trustees, officers, employees or agents, except such as may arise from
the negligent action, omission, willful misconduct
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<PAGE> 10
or breach of this Agreement by the Custodian. The Custodian may, with
respect to questions of law, apply for and obtain the advice and opinion of
counsel, at the expense of the Fund, and shall be fully protected with
respect to anything done or omitted by it in good faith in conformity with
the advice or opinion of counsel. The provisions under this paragraph shall
survive the termination of this Agreement.
B. 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 the 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 the 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 the Fund,
or the sufficiency of the amount to be received therefor;
4.) The legality of the redemption of any shares of the Fund, or
the propriety of the amount to be paid therefor;
5.) The legality of the declaration or payment of any dividend
by the Fund in respect of shares of the Fund;
6.) The legality of any borrowing by the Fund on behalf of the
Fund, using Securities as collateral;
C. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to the Fund from any Dividend
and Transfer Agent of the Fund nor to take any action to effect payment or
distribution by any Dividend and Transfer Agent of the Fund of any amount
paid by the Custodian to any Dividend and Transfer Agent of the Fund in
accordance with this Agreement.
D. Notwithstanding Section D of Article V, the Custodian shall not be
under any duty or obligation to take action 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 a Certificate 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. The Fund acknowledges and hereby authorizes the Custodian to hold
Securities through its various agents described in Appendix B annexed
hereto. The Fund hereby represents that such authorization has been duly
approved by the Board of
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<PAGE> 11
Trustees of the Fund as required by the Act. The Custodian acknowledges
that although certain Fund Assets are held by its agents, the Custodian
remains primarily liable for the safekeeping of the Fund Assets.
In addition, the Fund 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. Upon request, the Custodian
shall promptly forward to the Fund any documents it receives from any agent
or sub-custodian appointed hereunder which may assist trustees of
registered investment companies fulfill their responsibilities under Rule
17f-5 of the Act.
F. 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 Fund are such as properly may be held by the Fund under
the provisions of the Articles of Incorporation and the Fund's By-Laws.
G. The Custodian shall treat all records and other information
relating to the Fund and the Fund Assets as confidential and shall not
disclose any such records or information to any other person unless (i) the
Fund shall have consented thereto in writing or (ii) such disclosure is
required by law.
H. The Custodian shall be entitled to receive and the Fund agrees to
pay to the Custodian such compensation as shall be determined pursuant to
Appendix D attached hereto, or as shall be determined pursuant to
amendments to such Appendix D. The Custodian shall be entitled to charge
against any money held by it for the account of the 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
the 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. The Custodian shall be entitled to rely upon any Oral Instructions
and any Written Instructions. The Fund 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, facsimile or otherwise, on the same business day on which such
Oral Instructions were given. The Fund 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 Fund. The Fund agrees that the Custodian shall
incur no liability to the Fund for acting upon Oral Instructions given to
the Custodian hereunder concerning such transactions.
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<PAGE> 12
J. 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
31a-1 and 31a-2 thereunder and those records are the property of the Fund,
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 Fund, and shall be open to inspection
and audit at reasonable times and with prior notice by Officers and
auditors employed by the Fund.
K. The Custodian shall send to the Fund any report received on the
systems of internal accounting control of the Custodian, or its agents or
sub-custodians, as the Fund may reasonably request from time to time.
L. The Custodian performs only the services of a custodian and shall
have no responsibility for the management, investment or reinvestment of
the Securities from time to time owned by the Fund. The Custodian is not a
selling agent for shares of the Fund and performance of its duties as
custodian shall not be deemed to be a recommendation to the Fund's
depositors or others of shares of the Fund as an investment.
M. The Custodian shall take all reasonable action, that the Fund may
from time to time request, to assist the Fund in obtaining favorable
opinions from the Fund's independent accountants, with respect to the
Custodian's activities hereunder, in connection with the preparation of the
Fund's Form N-1A, Form N-SAR, or other annual reports to the Securities and
Exchange Commission.
N. The Fund hereby pledges to and grants the Custodian a security
interest in any Fund Assets to secure the payment of any liabilities of the
Fund 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 Fund to the
Custodian.
ARTICLE X
TERMINATION
-----------
A. Either of the parties hereto may terminate this Agreement 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 Fund, it
shall be accompanied by a copy of a resolution of the Board of Trustees of
the Fund, certified by the Secretary of the Fund, electing to terminate
this Agreement and designating a successor custodian or custodians. In the
event such notice is given by the Custodian, the Fund shall, on or before
the termination date, deliver to the Custodian a copy of a resolution of
the Board of Trustees of the Fund, certified by the Secretary, designating
a successor custodian or custodians to act on behalf of the Fund. In
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<PAGE> 13
the absence of such designation by the Fund, the Custodian may designate a
successor custodian which shall be a bank or trust 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 Fund shall pay to the
Custodian on behalf of the Fund such compensation as may be due as of the
date of such termination. The Fund agrees on behalf of the Fund that the
Custodian shall be reimbursed for its reasonable costs in connection with
the termination of this Agreement.
B. If a successor custodian is not designated by the Fund, or by the
Custodian in accordance with the preceding paragraph, or the designated
successor cannot or will not serve, the Fund shall, upon the delivery by
the Custodian to the Fund of all Securities (other than Securities held in
the Book-Entry System which cannot be delivered to the Fund) and moneys
then owned by the Fund, be deemed to be the custodian for the Fund, 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 Fund, which
shall be held by the Custodian in accordance with this Agreement.
ARTICLE XI
MISCELLANEOUS
-------------
A. Appendix A sets forth the names and the signatures of all
Authorized Persons, as certified by the Secretary of the Fund. The Fund
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. No recourse under any obligation of this Agreement or for any claim
based thereon shall be had against any organizer, shareholder, Officer,
Director, past, present or future as such, of the Fund or of any
predecessor or successor, either directly or through the Fund or any such
predecessor or successor, whether by virtue of any constitution, statute or
rule of law or equity, or be 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 Fund, and
that no such personal liability whatever shall attach to, or is or shall be
incurred by, the organizers, shareholders, Officers, Trustees of the Fund
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
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<PAGE> 14
and released by the Custodian as a condition of, and as a consideration
for, the execution of this Agreement.
C. The obligations set forth in this Agreement as having been made by
the Fund have been made by the Board of Trustees, acting as such Trustees
for and on behalf of the Fund, pursuant to the authority vested in them
under the laws of the Commonwealth of Massachusetts, the Articles of
Incorporation and the By-Laws of the Fund. This Agreement has been executed
by Officers of the Fund as officers, and not individually, and the
obligations contained herein are not binding upon any of the Trustees,
Officers, agents or holders of shares, personally, but bind only the Fund.
D. The Trustees, officers, employees and agents of the Trust, shall
not be personally bound by or liable hereunder, nor shall resort be had to
their private property for the satisfaction of any obligation or claim
hereunder.
E. Provisions of the Prospectus and any other documents (including
advertising material) specifically mentioning the Custodian (other than
merely by name and address) shall be reviewed with the Custodian by the
Fund prior to publication and/or dissemination or distribution, and shall
be subject to the consent of the Custodian.
F. 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.
G. Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Fund shall be sufficiently given when
delivered to the Fund or on the second business day following the time such
notice is deposited in the U.S. mail postage prepaid and addressed to the
Fund at its office at 500 Chesterfield Center, Suite 250, Chesterfield, MO
63017 or at such other place as the Fund may from time to time designate in
writing.
H. 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 Trustees of the Fund.
I. 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 Fund or by the
Custodian, and no attempted assignment by the Fund or the Custodian shall
be effective without the written consent of the other party hereto.
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<PAGE> 15
J. This Agreement shall be construed in accordance with the laws of
the State of Ohio.
K. 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.
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: OPTI-FLEX DYNAMIC FUND
By: /S/ JEFFREY J. UNTERREINER
- --------------------- -----------------------------
Title: CHAIRMAN AND PRESIDENT
----------------------------
ATTEST: STAR BANK, N.A.
By: LYNETTE C. GIBSON
- --------------------- -------------------------------
Title: SENIOR TRUST OFFICER
----------------------------
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<PAGE> 16
APPENDIX A
<TABLE>
<CAPTION>
AUTHORIZED PERSONS SPECIMEN SIGNATURES
------------------ -------------------
<S> <C> <C>
Chairman:
-------------- -----------------
President:
-------------- -----------------
Secretary:
-------------- -----------------
Treasurer:
-------------- -----------------
Controller:
-------------- -----------------
Adviser Employees:
-------------- -----------------
-------------- -----------------
-------------- -----------------
Transfer Agent/Fund Accountant
Employees:
-------------- -----------------
-------------- -----------------
-------------- -----------------
-------------- -----------------
</TABLE>
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<PAGE> 17
APPENDIX B
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)
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<PAGE> 18
APPENDIX C
STAR BANK, N.A.
STANDARDS OF SERVICE GUIDE
Star Bank, N.A. is committed to providing superior quality 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 compete 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 agents 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.
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<PAGE> 19
STAR BANK SECURITY SETTLEMENT STANDARDS
<TABLE>
<CAPTION>
TRANSACTION TYPE INSTRUCTIONS DEADLINES* DELIVERY INSTRUCTIONS
<S> <C> <C>
DTC 1:30 P.M. on Settlement Date DTC Participant #2219
Agent Bank ID#27895
Institutional #__________
For Account #19-6620
Federal Reserve Book Entry 12:30 P.M. on Settlement Date Federal Reserve Bank of
Cinti/Trust for Star Bank, N.A.
ABA# 042000013
For Account #19-6620
Federal Reserve Book Entry
(Repurchase Agreement
Collateral Only) 1:00 P.M. on Settlement Date Federal Reserve Bank of
Cinti/Spec for Star Bank, N.A.
ABA# 042000013
For Account #19-6620
PTC Securities
(GNMA Book Entry) 12:00 P.M. on Settlement Date PTC For Account BTRST/CUST
Sub Account: Star Bank, N.A.
#090334
Physical Securities 9:30 A.M. EST on Settlement Date Bankers Trust Company
(for Deliveries, by 4:00 P.M. on 16 Wall Street 4th Floor, Window
Settlement Date minus 1) 43 for Star Bank Account #090334
CEDEL/EURO-CLEAR 11:00 A.M. on Settlement Date Euroclear Via Cedel Bridge
minus 2 In favor of Bankers Trust Comp
Cedel 53355
For Star Bank Account
#501526354
Cash Wire Transfer 3:00 P.M. Star Bank,N.A. Cinti/Trust ABA#
042000013 Credit Account
#9901877
Further Credit to OPTI-flex
Dynamic Fund Account #19-6620
</TABLE>
* All times listed are Cincinnati time.
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<PAGE> 20
STAR BANK PAYMENT STANDARDS
<TABLE>
<CAPTION>
SECURITY TYPE INCOME PRINCIPAL
<S> <C> <C>
Equities Payable Date
Municipal Bonds* Payable Date Payable Date
Corporate Bonds* Payable Date Payable Date
Federal Reserve Bank Book Entry* Payable Date Payable Date
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 Certificates* Payable Date Payable Date
Certificates of Deposit* Payable Date Payable Date
Limited Partnerships When Received When Received
Foreign Securities When Received When Received
*Variable Rate Securities
Federal Reserve Bank Book Entry Payable Date Payable Date
DTC Payable Date + 1 Payable Date + 1
Bankers Trust Payable Date + 1 Payable Date + 1
<FN>
NOTE: If a payable date falls on a weekend or bank holiday, payment will be made on
the immediately following business day.
122
</TABLE>
<PAGE> 21
STAR BANK CORPORATE REORGANIZATION STANDARDS
<TABLE>
<CAPTION>
TYPE OF ACTION NOTIFICATION TO CLIENT DEADLINE FOR CLIENT INSTRUCTIONS TRANSACTION
TO STAR BANK POSTING
<S> <C> <C> <C>
Rights, Warrants, Later of 10 business 5 business days prior to expiration Upon receipt
and Optional Mergers prior to expiration or
receipt of notice
Mandatory Puts with Later of 10 business 5 business days prior to expiration Upon receipt
Option to Retain days prior to expiration
or receipt of notice
Class Actions 10 business days prior 5 business days prior to expiration Upon receipt
to expiration date
Voluntary Tenders, Later of 10 business 5 business days prior to expiration Upon receipt
Exchanges, days prior to expiration
and Conversions or receipt of notice
Mandatory Puts, At posting of funds or None Upon receipt
Defaults, Liquidations, securities received
Bankruptcies, Stock
Splits, Mandatory
Exchanges
Full and Partial Calls Later of 10 business None Upon receipt
days prior to expiration
or receipt of notice
<FN>
NOTE: Fractional shares/par amounts resulting from any of the above will be sold.
</TABLE>
123
<PAGE> 22
APPENDIX D
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, Federal Reserve, or Participant's Trust Co. $9.00
(c) For each mutual fund transaction $9.00
(d) For each portfolio transaction processed through
our New York custodian $25.00
(e) For each option/future contract written,
exercised or expired $25.00
(f) 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, exchange, or amortized security
paydown:
II. MARKET VALUE FEE
Based upon an annual rate of: Million
.00020 ( 2.00 Basis Points) on First $20
.00010 ( 1.00 Basis Points) on Next $50
.000050 ( .50 Basis Points) on Balance
III. MONTHLY MINIMUM FEE-PER FUND $400.00
IV. IRA CUSTODY
Per Shareholder/year $ 8.00
V. OUT-OF-POCKET EXPENSES The only out-of-pocket expenses charged to your
account will be shipping or transfer fees.
124
<PAGE> 23
STAR BANK, N.A.
CASH MANAGEMENT FEE SCHEDULE
<TABLE>
<CAPTION>
SERVICES
--------
BUSINESS CHECKING FEES UNIT COST MONTHLY COST
--------- ------------
<S> <C> <C> <C>
D.D.A. Account Maintenance $ 14.00
Deposits .399
Deposited Items .109
Checks Paid .159
Deposited Items Returned 6.00
International Returned Items 10.00
NSF Returned Check 25.00
Stop Payments 22.00
CASH MANAGEMENT FEES
Balance Reporting - P.C. Access 50.00 1st Acct
35.00 each add
ACH Transaction .095
ACH Maintenance 40.00
ACH Additions, Deletions, Changes 3.50
Lockbox Maintenance 55.00
Lockbox items Processed
(with copy of check) .32
(without copy of check) .26
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
STAR BANK, N.A.
</TABLE>
125
<PAGE> 24
CASH MANAGEMENT FEE SCHEDULE CONTINUED
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 the average yield on the 91 day U.S. Treasury Bill
for the preceding thirteen weeks less the 10% reserve.
UNCOLLECTED CHARGE
- ------------------
Star Bank assesses a penalty of prime rate plus 4% on any combined
relationship with average uncollected balances for the month.
126
<PAGE> 1
Exhibit 9
---------
ADMINISTRATION SERVICES AGREEMENT
ACTIVE ASSET ALLOCATION FUNDS
OPTI-flex(R) DYNAMIC FUND
AND
MUTUAL FUNDS SERVICE CO.
This Agreement dated as of the 5th day of June, 1996, made by and
between ACTIVE ASSET ALLOCATION FUNDS (the "Trust"), a mutual fund organized as
a business trust under the laws of the Commonwealth of Massachusetts acting for
and on behalf of OPTI-flex(R) DYNAMIC FUND (the "Fund") which is operated and
maintained by the Trust for the benefit of the holders of shares of the Fund,
and Mutual Funds Service Co., an Ohio corporation ("Administrator").
W I T N E S S E T H
WHEREAS, the Fund is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940 (collectively with
the rules and regulations promulgated thereunder, the "1940 Act"); and
WHEREAS, the Fund wishes to engage the Administrator to provide certain
administrative and management services, and the Administrator is willing to
provide such administrative and management services to the Fund, on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual agreements of the
parties hereto as herein set forth, the parties agree as follows:
1. DUTIES OF THE ADMINISTRATOR. Subject to the direction and control of
the Board of Trustees of the Fund, the Administrator shall perform such
administrative services as may from time to time be reasonably requested by the
Fund. The types of services which may be called for hereunder include without
limitation: (a) providing equipment and clerical personnel necessary for
performing the administrative and management functions herein set forth; (b)
arranging, if desired by the Fund, for Trustees, officers and employees of the
Administrator to serve as Trustees, officers or agents of the Fund if duly
elected or appointed to such positions and subject to their individual consent
and to any limitations imposed by law; (c) supervising the overall
administration of the Fund, including negotiation of contracts and fees with and
the monitoring of performance and billings of the Fund's custodian and other
independent contractors or agents; (d) assisting in preparing and, if
applicable, filing all documents required for compliance by the Fund with
applicable federal laws and regulations, including registration statements,
semi-annual and annual reports to shareholders and proxy statements; (e)
preparing supporting documents for meetings of Trustees and committees of
Trustees; and (f) maintaining current and accurate books and records of the
Fund. Notwithstanding the foregoing, the
127
<PAGE> 2
Administrator shall not be deemed to have assumed any duties with respect to,
and shall not be responsible for, the management of the Fund's assets or the
rendering of investment advice and supervision with respect thereto, nor shall
the Administrator be deemed to have assumed or have any responsibility with
respect to functions specifically assumed by any custodian of the Fund or any
person or agent responsible for state registration or renewal functions of the
Fund.
Accounts, records and other information shall belong to the Fund and be
considered confidential. Accounts, records and other information will not be
disclosed to other than federal and state regulators without permission from the
Fund.
2. ALLOCATION OF CHARGES AND EXPENSES. The Administrator shall pay the
entire salaries and wages of its officers and employees who devote part or all
of their time to the affairs of the Administrator, and the wages and salaries of
such persons shall not be deemed to be expenses incurred by the Fund for
purposes of this Section 2. Except as provided in the foregoing sentence, the
Fund will pay all of its own expenses including, without limitation,
compensation of Trustees not affiliated with the Administrator; governmental
fees; interest charges; taxes; membership dues in the Investment Company
Institute allocable to the Fund; fees and expenses of the Fund's independent
auditors, legal counsel and any transfer agent or registrar of the Fund;
expenses of preparing, printing and mailing reports, notices, proxy statements
and reports to investors and governmental agencies and commissions; expenses of
preparing and mailing agendas and supporting documents for meetings of Trustees
and committees of Trustees; expenses connected with the execution, recording and
settlement of security transactions; insurance premiums; fees and expenses of
the Fund's custodian for all services to the Fund, including safekeeping of
funds and securities and maintaining required books and accounts; expenses of
calculating the net asset value of shares of the Fund; expenses of meetings of
shareholders of the Fund; and expenses relating to the issuance, registration
and qualification of shares of the Fund.
3. COMPENSATION OF THE ADMINISTRATOR. For the services to be rendered
and the facilities to be provided by the Administrator hereunder, the Fund shall
pay to the Administrator an administrative fee computed and paid in accordance
with Schedule A hereto.
4. LIMITATION OF LIABILITY OF THE ADMINISTRATOR. The Administrator and
its Trustees, officers, employees and agents shall not be liable for any error
of judgment or mistake of law or for any act or omission in the administration
of the Fund or the performance of its duties hereunder, unless caused by the
Administrator's negligence, willful misfeasance, or breach of this Agreement.
5. ACTIVITIES OF THE ADMINISTRATOR. The services of the Administrator
to the Fund are not to be deemed to be exclusive, the Administrator being free
to render administrative and/or other services to other parties.
128
<PAGE> 3
6. TERMINATION. This Agreement may be terminated by either party upon
60 days' prior written notice.
7. DELEGATION BY THE ADMINISTRATOR. The Administrator may delegate any
or all of its obligations hereunder to any one or more entities or persons;
PROVIDED, HOWEVER, that the Administrator shall not make any such delegation
unless the Trustees of the Fund shall have approved such delegation; and
PROVIDED, FURTHER, that, unless the Fund otherwise expressly agrees in writing,
the Administrator shall be as fully responsible to the Fund for the acts and
omissions of the entity or person to whom the Administrator has made such
delegation as it would be for its own acts or omissions.
8. NOTICES. 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 certified mail, postage prepaid, return receipt
requested, to the respective parties as follows:
IF TO THE FUND:
---------------
Active Asset Allocation Funds
OPTI-flex(R) Dynamic Fund
500 Chesterfield Center, Suite 250
Chesterfield, MO 63017
IF TO THE ADMINISTRATOR:
------------------------
Mutual Funds Service Co.
Attention: Donald F. Meeder, President
6000 Memorial Drive
Box 7177
Dublin, OH 43017
9. The Trustees, officers, employees and agents of the Trust shall not
be personally bound by or liable hereunder, nor shall resort be had to their
private property for the satisfaction of any obligation or claim hereunder.
10. COUNTERPARTS. 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.
11. ASSIGNMENT. This Agreement shall be binding upon the parties hereto
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable by the Fund without the written consent of the
Administrator, or by the Administrator without the written consent of the Fund,
in each case authorized or approved by a resolution of its Trustees.
129
<PAGE> 4
12. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio, without reference to its choice
of law rules.
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.
ACTIVE ASSET ALLOCATION FUNDS
OPTI-flex(R) DYNAMIC FUND
By /S/ JEFFREY J. UNTERREINER, CHAIRMAN
---------------------------------------
MUTUAL FUNDS SERVICE CO.
By /S/ DONALD F. MEEDER, PRESIDENT
---------------------------------------
130
<PAGE> 5
Schedule A
MUTUAL FUNDS SERVICE CO.
FEE SCHEDULE FOR ADMINISTRATION SERVICES
----------------------------------------
THE GREATER OF
MINIMUM ANNUAL FEE - $30,000 (Payable monthly)
OR
--
Basis Point Fee - 5 Basis Points on the monthly total average net
assets of the Fund.
In addition, all out-of-pocket expenses shall be separately charged
and shall include but not be limited to: printed/copied material,
postage, overnight mail, courier service, third-party EDGAR filing
fees, transportation and lodging.
131
<PAGE> 1
Exhibit 15
----------
DISTRIBUTION AND SERVICE PLAN
-----------------------------
OF
--
THE OPTI-FLEX(R) DYNAMIC FUND
-----------------------------
DISTRIBUTION AND SERVICE PLAN, dated as of May 3, 1996, of the Active
Asset Allocation Funds, a Massachusetts business trust ("Trust").
WITNESSETH:
WHEREAS, the Trust has been organized to operate as an open-end
management investment company and is registered under the Investment Company Act
of 1940, as amended (collectively with the rules and regulations promulgated
thereunder, the "1940 Act"); and
WHEREAS, the Trust intends to distribute Shares of the OPTI-flex(R)
Dyamic Fund (the "Fund") in accordance with Rule 12b-1 under the 1940 Act ("Rule
12b-1"), and desires to adopt this Distribution and Service Plan (the "Plan") as
a plan of distribution pursuant to such Rule;
WHEREAS, the Trust desires to engage PROACTIVE Financial Services,
Inc., a Missouri corporation (along with any successor underwriter, the
"Underwriter"), to provide (or cause to be provided) certain distribution and
shareholder services for the Trust;
WHEREAS, the Trust desires to enter into a distribution agreement (in
such form as may from time to time be approved by the Board of Trustees of the
Trust in the manner specified in Rule 12b-1 (the "Distribution Agreement")) with
the Underwriter, whereby the Underwriter will provide facilities and personnel
and render services to the Trust in connection with the offering and
distribution of the Shares of the Fund; and
WHEREAS, the Board of Trustees, in considering whether the Fund should
adopt and implement this Plan, has evaluated such information as it deemed
necessary to an informed determination as to whether this Plan should be adopted
and implemented and has considered such pertinent factors as it deemed necessary
to form the basis for a decision to use assets of the Fund for such purposes,
and has determined that there is a reasonable likelihood that the adoption and
implementation of this Plan will benefit the Fund and its shareholders.
NOW, THEREFORE, the Board of Trustees hereby adopts this Plan for the
Fund as a plan of distribution in accordance with Rule 12b-1, on the following
terms and conditions:
1. As specified in the Underwriting Agreement, the Trust will reimburse
the Underwriter for costs and expenses incurred in connection with the
distribution and
132
<PAGE> 2
marketing of Shares of the Fund. Such distribution costs could include, without
limitation, advertising expenses and the expenses of printing (excluding
typesetting) and distributing prospectuses and reports used for sales purposes,
expenses of preparing and printing sales literature; expenses of sales employees
or agents of the Underwriter, including salary, commissions, travel and related
expenses, payments to broker-dealers, banks or other financial institutions
("Dealers") for services in connection with the distribution of shares,
including service fees and trail or maintenance commissions calculated with
reference to the average daily net asset value of shares held by shareholders
who have a brokerage or other service relationship with the Dealer or
institution receiving such fees; and other distribution-related expenses whether
or not specifically required to be made by the Underwriter pursuant to the
Underwriting Agreement.
2. The Trust may pay the Underwriter distribution fees from the Fund
not to exceed on an annual basis 0.75% of the average daily net assets of the
Fund for its then-current fiscal year as reimbursement for costs and expenses
incurred in connection with the distribution and sales of Shares of the Fund. To
the extent such expenses exceed the stated limit, the Underwriter will bear such
expenses.
3. The Trust may also pay the Underwriter service fees from the Fund
not to exceed on an annual basis 0.25% of the average daily net assets of the
Fund for its then-current fiscal year in connection with providing (or causing
to be provided) personal services and shareholder account maintenance services.
4. The Trust shall pay or cause to be paid all fees and expenses of any
independent auditor, legal counsel, administrator, sponsor, transfer agent,
custodian, registrar or dividend disbursing agent of the Trust; expenses of
distributing and redeeming Shares and (other than the service fees covered by
the Plan) servicing shareholder accounts; expenses of preparing, printing and
mailing prospectuses, shareholder reports, notices, proxy statements and reports
to governmental officers and commissions and to shareholders of the Trust;
insurance premiums; expenses of calculating the net asset value of Shares;
expenses of shareholder meetings; and expenses relating to the issuance,
registration and qualification of Shares.
5. Nothing herein contained shall be deemed to require the Trust to
take any action contrary to its Declaration of Trust 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 Trustees of the
responsibility for and control of the conduct of the affairs of the Trust.
6. This Plan shall become effective upon (a) approval by a vote of at
least a "majority of the outstanding voting securities" of the Fund, and (b)
approval by a vote of the Board of Trustees of the Fund and a vote of a majority
of the Trustees who are not "interested persons" of the Fund and who have no
direct or indirect financial interest in the
133
<PAGE> 3
operation of the Plan or in any agreement related to the Plan (the "Qualified
Trustees"), such votes to be cast in person at a meeting called for the purpose
of voting on this Plan.
7. This Plan shall continue in effect indefinitely; provided, however,
that such continuance is subject to annual approval by a vote of the Board of
Trustees of the Fund and a majority of the Qualified Trustees, such votes to be
cast in person at a meeting called for the purpose of voting on continuance of
this Plan. If such annual approval is not obtained, this Plan shall expire on
the date which is fifteen months after the date of the last approval.
8. This Plan may be amended at any time by the Board of Trustees,
provided, that (a) any amendment to increase materially the amount that may be
expended from the assets of the Fund for the services described herein shall be
effective only upon approval by a vote of a "majority of the outstanding voting
securities" of the Fund, and (b) any material amendment of this Plan shall be
effective only upon approval by a vote of the Board of Trustees, and a majority
of the Qualified Trustees, such votes to be cast in person at a meeting called
for the purpose of voting on such amendment. This Plan may be terminated at any
time with respect to the Fund by a vote of a majority of the Qualified Trustees
or by a vote of a "majority of the outstanding voting securities" of the Fund.
9. The Fund and the Underwriter each shall provide the Board of
Trustees, and the Board of Trustees shall review, at least quarterly, a written
report of the amounts expended under this Plan and the purposes for which such
expenditures were made.
10. While this Plan is in effect, the selection and nomination of
Trustees who are not "interested persons" of the Trust shall be committed to the
discretion of the Trustees who are not "interested persons" of the Trust.
11. For the purposes of this Plan, the terms "interested persons" and
"majority of the outstanding voting securities" are used as defined in the 1940
Act.
12. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in paragraph 9 hereof (collectively,
the "Records") for a period of six years from the end of the fiscal year in
which such Record was made, and each such Record shall be kept in an easily
accessible place for the first two years of said record-keeping.
13. This Plan shall be construed in accordance with the laws of
Massachusetts and the applicable provisions of the 1940 Act.
14. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Plan shall not
be affected thereby
134
<PAGE> 1
EXHIBIT 16
----------
OPTI-flex(R) DYNAMIC FUND
TOTAL RETURN COMPUTATION SCHEDULE
Method by which total return (ending redeemable value) is computed:
P (1 + T)n = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of one, five or 10-year periods (or
fractional portion thereof)
<TABLE>
<CAPTION>
OPTI-FLEX(R)DYNAMIC FUND 1 YEAR 5 YEARS 10 YEARS
- --------- ------------ ------ ------- --------
<S> <C> <C> <C>
Beginning Account Balances $ 1,000.00 $ 1,000.00 $ 1,000.00
Average Annual Total Return -0- -0- -0-
Ending Redeemable Value $ 0.00 $ 0.00 $ 0.00
Formula Computation:
1 year: $1,000 (1 + .0000) = $0.00
5 years: $1,000 (1 + .0000)5 = $0.00
10 years: $1,000 (1 + .0000)10 = $0.00
</TABLE>
135
<PAGE> 1
Exhibit 19
----------
ACTIVE ASSET ALLOCATION FUNDS
The undersigned hereby constitutes and appoints Jeffrey J. Unterreiner
and C. Martin Unterreiner, and each of them, with full powers of substitution as
his/her true and lawful attorneys and agents to execute in his/her name and on
his/her behalf in any and all capacities the Registration Statements on Form
N-1A, and any and all amendments thereto, filed by Active Asset Allocation Funds
(the "Trust") with the Securities and Exchange Commission under the Investment
Company Act of 1940 and the Securities Act of 1933 and any and all instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Trust to comply with such Acts, the rules, regulations and
requirements of the Securities and Exchange Commission, and the securities or
Blue Sky laws of any state or other jurisdiction and the undersigned hereby
ratifies and confirms as his or her own act and deed any and all that such
attorneys and agents, or any of them, shall do or cause to be done by virtue
hereof. Any one of such attorneys and agents have, and may exercise, all of the
powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this
16th day of May, 1996.
/s/ Jeffrey J. Unterreiner
- ---------------------------------
Jeffrey J. Unterreiner, Trustee
136
<PAGE> 2
ACTIVE ASSET ALLOCATION FUNDS
The undersigned hereby constitutes and appoints Jeffrey J. Unterreiner
and C. Martin Unterreiner, and each of them, with full powers of substitution as
his/her true and lawful attorneys and agents to execute in his/her name and on
his/her behalf in any and all capacities the Registration Statements on Form
N-1A, and any and all amendments thereto, filed by Active Asset Allocation Funds
(the "Trust") with the Securities and Exchange Commission under the Investment
Company Act of 1940 and the Securities Act of 1933 and any and all instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Trust to comply with such Acts, the rules, regulations and
requirements of the Securities and Exchange Commission, and the securities or
Blue Sky laws of any state or other jurisdiction and the undersigned hereby
ratifies and confirms as his or her own act and deed any and all that such
attorneys and agents, or any of them, shall do or cause to be done by virtue
hereof. Any one of such attorneys and agents have, and may exercise, all of the
powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this
16th day of May, 1996.
/s/ C. Martin Unterreiner
- ---------------------------------
C. Martin Unterreiner, Trustee
137
<PAGE> 3
ACTIVE ASSET ALLOCATION FUNDS
The undersigned hereby constitutes and appoints Jeffrey J. Unterreiner
and C. Martin Unterreiner, and each of them, with full powers of substitution as
his/her true and lawful attorneys and agents to execute in his/her name and on
his/her behalf in any and all capacities the Registration Statements on Form
N-1A, and any and all amendments thereto, filed by Active Asset Allocation Funds
(the "Trust") with the Securities and Exchange Commission under the Investment
Company Act of 1940 and the Securities Act of 1933 and any and all instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Trust to comply with such Acts, the rules, regulations and
requirements of the Securities and Exchange Commission, and the securities or
Blue Sky laws of any state or other jurisdiction and the undersigned hereby
ratifies and confirms as his or her own act and deed any and all that such
attorneys and agents, or any of them, shall do or cause to be done by virtue
hereof. Any one of such attorneys and agents have, and may exercise, all of the
powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this
16th day of May, 1996.
/s/ Katherine R. Kearins
- ---------------------------------
Katherine R. Kearins, Trustee
138
<PAGE> 4
ACTIVE ASSET ALLOCATION FUNDS
The undersigned hereby constitutes and appoints Jeffrey J. Unterreiner
and C. Martin Unterreiner, and each of them, with full powers of substitution as
his/her true and lawful attorneys and agents to execute in his/her name and on
his/her behalf in any and all capacities the Registration Statements on Form
N-1A, and any and all amendments thereto, filed by Active Asset Allocation Funds
(the "Trust") with the Securities and Exchange Commission under the Investment
Company Act of 1940 and the Securities Act of 1933 and any and all instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Trust to comply with such Acts, the rules, regulations and
requirements of the Securities and Exchange Commission, and the securities or
Blue Sky laws of any state or other jurisdiction and the undersigned hereby
ratifies and confirms as his or her own act and deed any and all that such
attorneys and agents, or any of them, shall do or cause to be done by virtue
hereof. Any one of such attorneys and agents have, and may exercise, all of the
powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this
17th day of May, 1996.
/s/ Raymond E. Doerr
- ---------------------------------
Raymond E. Doerr, Trustee
139
<PAGE> 5
ACTIVE ASSET ALLOCATION FUNDS
The undersigned hereby constitutes and appoints Jeffrey J. Unterreiner
and C. Martin Unterreiner, and each of them, with full powers of substitution as
his/her true and lawful attorneys and agents to execute in his/her name and on
his/her behalf in any and all capacities the Registration Statements on Form
N-1A, and any and all amendments thereto, filed by Active Asset Allocation Funds
(the "Trust") with the Securities and Exchange Commission under the Investment
Company Act of 1940 and the Securities Act of 1933 and any and all instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Trust to comply with such Acts, the rules, regulations and
requirements of the Securities and Exchange Commission, and the securities or
Blue Sky laws of any state or other jurisdiction and the undersigned hereby
ratifies and confirms as his or her own act and deed any and all that such
attorneys and agents, or any of them, shall do or cause to be done by virtue
hereof. Any one of such attorneys and agents have, and may exercise, all of the
powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this
17th day of May, 1996.
/s/ Patrick L. Durbin
- ---------------------------------
Patrick L. Durbin, Trustee
140
<PAGE> 6
ACTIVE ASSET ALLOCATION FUNDS
The undersigned hereby constitutes and appoints Jeffrey J. Unterreiner
and C. Martin Unterreiner, and each of them, with full powers of substitution as
his/her true and lawful attorneys and agents to execute in his/her name and on
his/her behalf in any and all capacities the Registration Statements on Form
N-1A, and any and all amendments thereto, filed by Active Asset Allocation Funds
(the "Trust") with the Securities and Exchange Commission under the Investment
Company Act of 1940 and the Securities Act of 1933 and any and all instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Trust to comply with such Acts, the rules, regulations and
requirements of the Securities and Exchange Commission, and the securities or
Blue Sky laws of any state or other jurisdiction and the undersigned hereby
ratifies and confirms as his or her own act and deed any and all that such
attorneys and agents, or any of them, shall do or cause to be done by virtue
hereof. Any one of such attorneys and agents have, and may exercise, all of the
powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this
17th day of May, 1996.
/s/ Patricia A. Houtz
- ---------------------------------
Patricia A. Houtz, Trustee
141
<PAGE> 7
ACTIVE ASSET ALLOCATION FUNDS
The undersigned hereby constitutes and appoints Jeffrey J. Unterreiner
and C. Martin Unterreiner, and each of them, with full powers of substitution as
his/her true and lawful attorneys and agents to execute in his/her name and on
his/her behalf in any and all capacities the Registration Statements on Form
N-1A, and any and all amendments thereto, filed by Active Asset Allocation Funds
(the "Trust") with the Securities and Exchange Commission under the Investment
Company Act of 1940 and the Securities Act of 1933 and any and all instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Trust to comply with such Acts, the rules, regulations and
requirements of the Securities and Exchange Commission, and the securities or
Blue Sky laws of any state or other jurisdiction and the undersigned hereby
ratifies and confirms as his or her own act and deed any and all that such
attorneys and agents, or any of them, shall do or cause to be done by virtue
hereof. Any one of such attorneys and agents have, and may exercise, all of the
powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this
17th day of May, 1996.
/s/ Henry J. Bingham
- ---------------------------------
Henry J. Bingham, Trustee
142
<PAGE> 8
ACTIVE ASSET ALLOCATION FUNDS
The undersigned hereby constitutes and appoints Jeffrey J. Unterreiner
and C. Martin Unterreiner, and each of them, with full powers of substitution as
his/her true and lawful attorneys and agents to execute in his/her name and on
his/her behalf in any and all capacities the Registration Statements on Form
N-1A, and any and all amendments thereto, filed by Active Asset Allocation Funds
(the "Trust") with the Securities and Exchange Commission under the Investment
Company Act of 1940 and the Securities Act of 1933 and any and all instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Trust to comply with such Acts, the rules, regulations and
requirements of the Securities and Exchange Commission, and the securities or
Blue Sky laws of any state or other jurisdiction and the undersigned hereby
ratifies and confirms as his or her own act and deed any and all that such
attorneys and agents, or any of them, shall do or cause to be done by virtue
hereof. Any one of such attorneys and agents have, and may exercise, all of the
powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand this
17th day of May, 1996.
/s/ Peter B. Mauthe
- ---------------------------------
Peter B. Mauthe, Trustee
143
