As filed with the Securities and Exchange Commission on February 3, 1997
Securities Act Registration No. 333-11023
Investment Company Act Registration No. 811-7791
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 2 [X]
Post-Effective Amendment No. ____ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [X]
Amendment No. 2 [X]
AMquest MATRIX FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
4901 NW 17th Way
Suite 407 33309
Fort Lauderdale, Florida (Zip Code)
(Address of Principal Executive
Offices)
Registrant's Telephone Number, including Area Code:
(954) 772-4050
Richard D. Brace
4901 NW 17th Way, Suite 407
Fort Lauderdale, Florida 33309
(Name and Address of Agent for Service)
Copies to:
Scott A. Moehrke
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
Approximate date of proposed public offering: As soon
as practicable after the Registration Statement becomes
effective.
In accordance with Rule 24f-2 under the Investment
Company Act of 1940, Registrant declares that an
indefinite number of shares of its common stock, $.01
par value, is being registered by this Registration
Statement.
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.
<PAGE>
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in
the Prospectus and the Statement of Additional
Information of the responses to the Items of Parts A
and B of Form N-1A).
Caption or Subheading in
Prospectus or Statement
Item No. on Form N-1A of Additional Information
PART A - INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Expenses; Highlights
3. Condensed Financial *
Information
4. General Description of Fund Organization and
Registrant Management; Investment
Objectives and Policies;
Implementation of Policies and
Risks; Fundamental
Investment Restrictions
5. Management of the Fund Fund Organization and
Management
5A. Management's Discussion
of Fund Performance *
6. Capital Stock and Other Highlights; Fund
Securities Organization and
Management; Dividends, Capital
Gains Distributions and
Tax Treatment
7. Purchase of Securities Fund Organization and
Being Offered Management; Determination
of Net Asset Value;
How to Purchase Shares;
Exchange Privilege;
Distribution Plan
8. Redemption or Repurchase Determination of Net
Asset Value; How to Redeem Shares;
Exchange Privilege
9. Pending Legal Proceedings *
PART B - INFORMATION REQUIRED IN STATEMENT OF
ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information *
and History
<PAGE>
13. Investment Investment Restrictions;
Objectives and Policies Investment Policies and
Techniques; Fund Transactions
and Brokerage
14. Management of the Directors and Officers
Fund
15. Control Persons and Principal Shareholders;
Principal Holders of Directors and Officers
Securities
16. Investment Advisory Investment Adviser and
and Other Services Subadviser; Fund
Organization and Management
(in Prospectus); Distributor
and Plan of Distribution;
Custodian; Independent
Accountants
17. Brokerage Allocation Fund Transactions and
and Other Practices Brokerage
18. Capital Stock and Included in Prospectus
Other Securities under the heading Fund
Organization and Management
19. Purchase, Redemption and Included in Prospectus
Pricing of Securities Being under the headings
Offered Determination of Net Asset
Value; How to Purchase
Shares; How to Redeem Shares;
Exchange Privilege; and in the
Statement of Additional Information
under the heading Distributor and
Plan of Distribution
20. Tax Status Included in Prospectus
under the heading Dividends, Capital
Gains Distributions and Tax
Treatment; and in the Statement of
Additional Information under the
heading Taxes
21. Underwriters Distributor and Plan
of Distribution
22. Calculations of Performance Performance Data
Information
23. Financial Financial Statements
Statements
________________________
* Answer Negative or inapplicable.
<PAGE>
Dated February __, 1997
AMquest MATRIX FUNDS, INC.
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
1-800-908-9979
AMquest MATRIX FUNDS, INC. (the "Corporation") is
an open-end, diversified, management investment
company, commonly referred to as a mutual fund. The
Corporation is currently comprised of three diversified
series or portfolios, including the AMquest Matrix
Income Fund (the "Income Fund"), the AMquest Matrix
Total Return Fund (the "Total Return Fund"), and the
AMquest Matrix Growth Fund (the "Growth Fund")
(hereinafter collectively referred to as the "Funds").
The Income Fund's investment objective is to seek
current income. The Income Fund seeks to achieve its
investment objective by investing primarily in a
diversified portfolio of investment grade fixed income
securities. The Total Return Fund's investment
objective is to seek long-term capital growth and
income. The Total Return Fund seeks to achieve its
investment objective primarily through investments in
equity securities and through investments in investment
grade fixed income securities. The Growth Fund's
investment objective is to seek long-term capital
growth. The Growth Fund seeks to achieve its
investment objective by investing in a diversified
portfolio of equity securities consisting primarily of
common stocks.
This Prospectus contains information you should
consider before you invest in one or more of the Funds.
Please read it carefully and keep it for future
reference. A Statement of Additional Information (the
"SAI") for the Funds, dated February __, 1997, contains
further information, is incorporated by reference into
this Prospectus, and has been filed with the Securities
and Exchange Commission (the "SEC"). The SAI, which
may be revised from time to time, is available without
charge upon request to the above-noted address or
telephone number.
____________________
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.
<PAGE>
TABLE OF CONTENTS
Page No.
EXPENSES 1
HIGHLIGHTS 2
INVESTMENT OBJECTIVES AND POLICIES 3
IMPLEMENTATION OF POLICIES AND RISKS 4
FUNDAMENTAL INVESTMENT RESTRICTIONS 10
FUND ORGANIZATION AND MANAGEMENT 11
DETERMINATION OF NET ASSET VALUE 14
HOW TO PURCHASE SHARES 14
HOW TO REDEEM SHARES 18
EXCHANGE PRIVILEGE 19
DISTRIBUTION PLAN 20
INDIVIDUAL RETIREMENT ACCOUNTS 21
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX
TREATMENT 21
FUND PERFORMANCE 22
APPENDIX - RATINGS A-1
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the SAI, and
if given or made, such information or representations may not be relied upon as
having been authorized by the Funds. This Prospectus does not constitute an
offer to sell securities in any state or jurisdiction in which such offering may
not lawfully be made.
<PAGE>
EXPENSES
The following information is provided in order to
help you understand the various costs and expenses that
you, as an investor in one or more of the Funds, will
bear directly or indirectly.
Shareholder Transaction Expenses(1)
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4.50%(2)
Maximum Sales Load Imposed on Reinvested Dividends NONE
Deferred Sales Load Imposed on Redemptions NONE
Redemption Fees NONE
Exchange Fees NONE(1)
Annual Fund Operating Expenses
(after waivers or reimbursements)
(as a percentage of average net assets)
Fund
Income Total Return Growth
Management Fees 0.75% 1.00% 1.00%
Rule 12b-1 Fees(3),(4) 0.25 0.25 0.25
Other Expenses(5) 1.75 1.50 1.50
Total Operating Expenses(5) 2.75 2.75 2.75
____________
(1)In addition to the shareholder transaction expenses
listed below, shareholders who choose to purchase
and/or redeem shares by wire may be charged a $10
service fee. See "How to Purchase Shares - Initial
Investment - Minimum $1,000," and "How to Redeem
Shares - Written Redemption." With respect to
exchange requests received via telephone, a $5
service fee per request will be charged.
(2)The sales load illustrated is the maximum rate
applicable to purchases of Fund shares. Certain
investors are exempt from having to pay this sales
load, and reduced sales loads are available under
certain plans, as described more fully under "How
to Purchase Shares - Purchases at Net Asset Value"
and "- Reduced Sales Charge Plans."
(3)See "Distribution Plan" for detailed information
relating to the Rule 12b-1 distribution plan (the
"Plan").
(4)Consistent with the National Association of
Securities Dealers, Inc.'s (the "NASD") rules, it
is possible that the Rule 12b-1 fees could cause
long-term investors of a Fund to pay more than the
economic equivalent of the maximum front-end sales
charges permitted under those same rules.
(5)Until the earlier of the end of the first 12 months
of operations or the date upon which the Funds'
aggregate average net assets exceed $30 million,
the Funds' investment adviser, AMquest Advisers,
Inc. (the "Adviser"), has agreed to waive its
management fee and/or reimburse each Fund's
respective operating expenses to the extent
necessary to ensure that no Fund's Total Operating
Expenses exceed 2.75% of its average daily net
assets. "Other Expenses" have been estimated for
the current fiscal year since the Funds did not
begin operations until February __, 1997, and are
presented net of reimbursements. Absent these
reimbursements, Other Expenses and Total Operating
Expenses for the Income, Total Return, and Growth
Funds are estimated to be 1.76% and 2.76%; 1.68%
and 2.93%; and 1.68% and 2.93%, respectively. For
additional information concerning fees and
expenses, see "Fund Organization and Management -
Management."
<PAGE>
Example
You would pay the following expenses on a $1,000
investment, assuming (i) a 5% annual return and (ii)
redemption at the end of each time period.
Fund 1 Year 3 Years
Income $72 $126
Total Return $72 $126
Growth $72 $126
The Example is based on each Fund's "Total
Operating Expenses" described in the table above. In
addition, the 4.50% maximum sales load imposed on
purchases is reflected in the Example. The amounts in
the Example may increase absent the waivers or
reimbursements. PLEASE REMEMBER THAT THE EXAMPLE
SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF PAST OR
FUTURE EXPENSES AND THAT ACTUAL EXPENSES MAY BE HIGHER
OR LOWER THAN THOSE SHOWN. The assumption in the
Example of a 5% annual return is required by
regulations of the SEC applicable to all mutual funds.
The assumed 5% annual return is not a prediction of,
and does not represent, the projected or actual
performance of a Fund's shares.
HIGHLIGHTS
What are the investment objectives and policies of each
of the Funds?
Each Fund has different investment objectives and
policies. The Income Fund seeks to provide current
income consistent with its quality and other standards.
The Total Return Fund seeks to provide long-term
capital growth and income (i.e., total return). The
Growth Fund seeks to provide long-term capital growth.
The investment policies of each Fund are described
under "Investment Objectives and Policies."
What types of securities and investment techniques may
be used by the Funds?
Each Fund invests in equity and fixed income
securities and, subject to certain limitations, may
invest in foreign securities and engage in derivative
transactions, including options, futures and options on
futures transactions. Each Fund may invest in reverse
repurchase agreements, when-issued securities and
illiquid securities. In addition, each Fund may invest
in small to medium-sized companies, some of which may
be unseasoned. These investment practices and
techniques involve risks that are different in some
respects from those associated with similar funds that
do not use them. See "Implementation of Policies and
Risks."
What are the potential risks of investing in the Funds?
The Funds are suitable for long-term investors
only and are not designed as a short-term investment.
The share price of each Fund is expected to fluctuate
and may, at redemption, be worth more or less than the
initial purchase price. Investors in any one of the
Funds may be exposed, to a greater or lesser extent
depending on the Fund and the allocation of Fund assets
among investments, to market risks associated with
investments in equity and fixed income securities.
Market risks associated with equity investments include
the possibility that stock prices in general will
decline over short or even extended periods. This risk
is in addition to the risks inherent in individual
stock selections. Market risks associated with fixed
income investments include the possibility that bond
prices in general will decline when interest rates
increase. While fixed income securities normally
fluctuate less in price than stocks, there have been
extended periods of increases in interest rates that
have caused significant declines in fixed income
securities prices. In addition to market risks
associated with fixed income investments, individual
issues of
<PAGE>
fixed income securities may be subject to
credit risk of the issuer. See "Implementation of
Policies and Risks," for more information.
Who will be managing my investment?
The Funds are managed by AMquest Advisers, Inc.
(the "Adviser"), which supervises the management of
each Fund's portfolio by the subadviser, Tocqueville
Asset Management L.P. (the "Subadviser"), and
administers the Corporation's business affairs. See
"Fund Organization and Management - Management."
What are the procedures for purchasing and redeeming
shares?
Shares of each Fund are offered at net asset value
per share plus a maximum initial sales charge of 4.50%
of the offering price. Certain exceptions apply to the
payment of the initial sales load and reduced sales
charge plans are available. See "How to Purchase
Shares" for more details. In addition, the Funds have
adopted a distribution plan under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940
Act"), which authorizes each Fund to pay a distribution
fee of up to 0.25% per annum of its average daily net
assets. The actual dollar amount of distribution fees
paid in current and future years will depend on the
amount of a Fund's assets that become subject to such
fees. See "Distribution Plan."
The minimum initial investment required by each
Fund is $1,000. The minimum subsequent investment is
$500. The minimum initial investment for investors
using the Automatic Investment Plan is $50. These
minimums may be changed or waived at any time by the
Funds. See "How to Purchase Shares."
Shares may be redeemed using either written or
telephone redemption procedures at net asset value per
share without the payment of any redemption charges.
See "How to Redeem Shares."
What is the policy regarding dividends and other
distributions?
The policy of each Fund is to distribute
substantially all net realized capital gains annually.
Also, it is the policy of the Income Fund to pay
monthly dividends, the Total Return Fund to pay
quarterly dividends and the Growth Fund to pay annual
dividends from net investment income. See "Dividends,
Capital Gains Distributions and Tax Treatment."
Who should I contact if I have questions?
Questions regarding the Funds may be directed to
the address and telephone number on the front page of
this Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The descriptions that follow are designed to help
you choose the Fund that best fits your investment
objective. You may want to pursue more than one
objective by investing in more than one of the Funds.
The investment objective of each Fund is discussed
below in connection with the Fund's investment
policies. Because of the risks inherent in investments
in equity and fixed income securities, there can be no
assurance that a Fund will meet its investment
objective or that shares in a Fund will be worth more
than the original purchase price. The investment
objectives presented below may not be changed without
shareholder approval. Other investment restrictions
which may not be changed without shareholder approval
are discussed below under "Fundamental Investment
Restrictions" and in the SAI.
<PAGE>
Income Fund
The Income Fund's investment objective is to seek
current income. The Income Fund seeks to achieve its
investment objective by investing primarily in a
diversified portfolio of investment grade fixed income
securities.
The Income Fund is designed for investors who want
to pursue higher income than short-term securities
generally provide and who are willing to accept the
fluctuation in principal associated with intermediate
to longer-term fixed income securities. While the
Income Fund has no specific limitations on the maturity
of its fixed income securities investments, it will
generally focus on intermediate to longer-term
investments. Under normal market conditions, the
Income Fund will invest at least 65% of its total
assets in investment grade fixed income securities. The
balance of the Fund, up to 35% of its total assets, may
be invested in a diversified portfolio of common stock
and other equity securities.
Total Return Fund
The Total Return Fund's investment objective is to
seek long-term capital growth and income. The Total
Return Fund seeks to achieve its investment objective
primarily through investments in equity securities and
through investments in investment grade fixed income
securities.
The Total Return Fund is designed for investors
seeking long-term capital appreciation with a moderate
level of current income, who can tolerate the
fluctuations in portfolio value and other risks that
accompany equity investments. The level of current
income generated by the Total Return Fund is expected
to vary from time to time based on the composition of
the Fund's assets. Under normal market conditions, the
Total Return Fund will invest at least 55% of its total
assets in common stocks and other equity securities.
While the Total Return Fund will focus on dividend
paying common stocks and other equity securities, the
Fund may invest in non-dividend paying stocks that
offer the potential for capital growth. In addition to
equity securities, the Total Return Fund may invest in
investment grade fixed income securities.
Growth Fund
The Growth Fund's investment objective is to seek
long-term capital growth. The Growth Fund seeks to
achieve its investment objective by investing in a
diversified portfolio of equity securities consisting
primarily of common stocks.
The Growth Fund is designed for investors seeking
long-term capital appreciation, who can tolerate the
fluctuations in portfolio value and other risks that
accompany investments in common stocks and other equity-
type securities. The Growth Fund will invest at least
70% of its total assets, and under normal market
conditions expects to be fully invested, in equity
securities consisting primarily of common stocks. The
Growth Fund will seek to invest in equity securities
that demonstrate or are expected to demonstrate
accelerating earnings momentum. Such securities
provide the best opportunity to achieve the Fund's
objective of long-term capital growth. In addition,
the Growth Fund may invest up to 30% of its total
assets in investment grade fixed income securities.
IMPLEMENTATION OF POLICIES AND RISKS
In addition to the general investment policies
described above concerning each Fund, the securities
and investment techniques which may be used by the
Funds are described below. Some of these securities
and investment techniques involve special risks, which
are described below and in the Funds' SAI.
<PAGE>
Common Stocks and Other Equity Securities
Each Fund may invest a portion of its assets in
common stocks and other equity securities, including
securities convertible or exchangeable into common
stock and warrants. Common stocks and other equity
securities generally increase or decrease in value
based on the earnings of a company and on general
industry and market conditions. A Fund that invests a
significant amount of its assets in common stocks and
other equity securities is likely to have more
fluctuations in share price than a Fund that invests a
significant portion of its assets in fixed income
securities.
Fixed Income Securities
Fixed Income Securities in General. Each Fund may
invest a portion of its assets in a wide variety of
fixed income securities, including debt securities and
non-convertible preferred stocks. Debt securities are
obligations of the issuer to pay interest and repay
principal. Preferred stocks have rights senior to a
company's common stock, but junior to a company's
creditors and, if held by a Fund as a fixed income
security, will generally pay a dividend.
The value of fixed income securities is affected
by changes in market interest rates. If interest rates
increase, the value of fixed income securities
generally decrease. Similarly, if interest rates
decrease, the value of fixed income securities
generally increase. Shares in a Fund with significant
investments in fixed income securities are likely to
fluctuate in a similar manner. In general, the longer
the remaining maturity of a fixed income security, the
greater its fluctuations in value based on interest
rate changes. Longer-term fixed income securities
generally pay a higher interest rate. The Funds invest
in fixed income securities of varying maturities.
The value of fixed income securities may also be
affected by changes in the credit quality of the
issuer. Lower-rated fixed income securities generally
pay a higher interest rate. Although the Funds only
invest in investment grade debt securities, the value
of these securities may decrease due to changes in
ratings over time. However, the Subadviser will
monitor each Fund's investments in debt securities to
ensure that no Fund will at any time have 5% or more of
its net assets invested in non-investment grade debt
securities (also referred to as "junk bonds").
Types of Fixed Income Securities. The fixed
income securities in which the Funds may invest
include:
Corporate debt securities, including
bonds, debentures and notes;
U.S. government securities;
Mortgage and asset-backed securities;
Foreign debt obligations (either
directly or through depository receipts);
Preferred stocks;
Convertible securities;
Commercial paper (including variable
amount master demand notes);
Bank obligations, such as certificates
of deposit, banker's acceptances and time
deposits of domestic and foreign banks,
domestic savings association and their
subsidiaries and branches (in amounts in
excess of the current $100,000 per account
insurance coverage provided by the Federal
Deposit Insurance Corporation); and
Repurchase agreements.
<PAGE>
Ratings. The Funds will limit investments in
fixed income securities to those that are rated at the
time of purchase as investment grade by a national
rating organization, such as S&P or Moody's, or, if
unrated, are determined to be of equivalent quality by
the Subadviser. Investment grade fixed income
securities include:
U.S. government securities;
Bonds or bank obligations rated in one
of the four highest categories (BBB or higher
by S&P);
Short-term notes rated in one of the two
highest categories (SP-2 or higher by S&P);
Commercial paper or short-term bank
obligations rated in one of the three highest
categories (A-3 or higher by S&P); and
Repurchase agreements involving
investment grade fixed income securities.
Investment grade fixed income securities are generally
believed to have a lower degree of credit risk.
However, certain investment grade securities with lower
ratings are considered medium quality and may be
subject to greater credit risk than the highest rated
securities. If a security's rating falls below
investment grade, the Subadviser will determine what
action, if any, should be taken to ensure compliance
with a Fund's investment objective and to ensure that
no Fund will at any time have 5% or more of its net
assets invested in non-investment grade debt
securities. Additional information concerning
securities ratings is contained in the Appendix to the
Prospectus and in the SAI.
Government Securities. U.S. government securities
are issued or guaranteed by the U.S. government or its
agencies or instrumentalities. These securities may
have different levels of government backing. U.S.
Treasury obligations, such as Treasury bills, notes,
and bonds are backed by the full faith and credit of
the U.S. Treasury. Some U.S. government agency
securities are also backed by the full faith and credit
of the U.S. Treasury, such as securities issued by the
Government National Mortgage Association (GNMA). Other
U.S. government securities may be backed by the right
of the agency to borrow from the U.S. Treasury, such as
securities issued by the Federal Home Loan Bank, or may
be backed only by the credit of the agency. The U.S.
government and its agencies and instrumentalities only
guarantee the payment of principal and interest and not
the market value of the securities. The market value
of U.S. government securities will fluctuate based on
interest rate changes and other market factors.
Mortgage- and Asset-Backed Securities. Mortgage-
backed securities represent mortgage loans or interests
in such loans secured by real property, and include
single- and multi-class pass-through securities and
collateralized mortgage obligations. Mortgage-backed
securities are characterized by monthly payments to the
holder of the security, reflecting the monthly payments
made by the borrowers who received the underlying
mortgage loans. The payments to the holders of these
securities (such as a Fund), like the payments on the
underlying loans, represent both principal and
interest. Although the underlying mortgage loans are
for specified periods of time, such as 15 or 30 years,
the borrowers can and may pay them off sooner. Thus,
the holders of these securities frequently receive
prepayments of principal, in addition to the principal
which is part of the regular monthly payment. A
borrower is more likely to prepay a mortgage which
bears a relatively high interest rate. This means that
in times of declining interest rates, some of a Fund's
higher yielding securities might be converted to cash,
and the Fund will be forced to accept lower interest
rates when that cash is used to purchase additional
securities. The increased likelihood of prepayment
when interest rates decline also limits market price
appreciation of mortgage-backed securities. If a Fund
buys mortgage-related securities at a premium, mortgage
foreclosures or mortgage prepayments may result in a
loss to the Fund of up to the amount of the premium
paid since only timely payment of principal and
interest is guaranteed.
Asset-backed securities have characteristics
similar to mortgage-backed securities. However, the
underlying assets are not first-lien mortgage loans or
interests in these loans, but are assets such as motor
vehicle installment
<PAGE>
sales contracts, other installment
loan contracts, home equity loans, leases of various
types of property and receivables from credit card or
other revolving credit arrangements. Similar to
mortgage-backed securities, asset-backed securities are
subject to prepayment, which may reduce the overall
return to holders (such as a Fund) of the security.
Asset-backed securities may also be subject to the
risks relating to the underlying assets, which may be
subject to the risk of non-payment, depreciation or
damage to the underlying collateral (such as
automobiles) or certain other factors. Asset-backed
securities may be supported by non-governmental credit
enhancements.
The Funds may invest in stripped mortgage- or
asset-backed securities, which receive differing
proportions of the interest and principal payments from
the underlying assets. The market value of such
securities generally is more sensitive to changes in
prepayment and interest rates than is the case with
traditional mortgage- and asset-backed securities, and
in some cases the market value may be extremely
volatile. With respect to certain stripped securities,
such as interest only ("IO") and principal only ("PO")
classes, a rate of prepayment that is faster or slower
than anticipated may result in a Fund failing to
recover all or a portion of its investment, even though
the securities are investment grade.
Variable and Floating Rate Securities. Each Fund
may invest in variable, floating and inverse floating
rate debt obligations. Variable and floating rate
securities provide for a periodic adjustment of the
interest rate paid on the obligations. These
obligations must provide that interest rates are
adjusted periodically based on a specified interest
rate adjustment index. The adjustment intervals may be
regular (ranging from daily to annually) or may be
based on certain events (such as a change in the prime
rate). The interest rate on a floating rate security is
a variable rate which is tied to another interest rate,
such as a money-market index or U.S. Treasury bill rate
and resets periodically, typically every six months.
While floating rate securities provide a Fund with a
certain degree of protection against rises in interest
rates because of the interest rate reset feature, the
Fund will be subject to any decline in interest rates
as well. The interest rate on an inverse floater
resets in the opposite direction from the market rate
of interest to which the inverse floater is indexed.
An inverse floating rate security may exhibit greater
price volatility than a fixed rate obligation of
similar credit quality. See "Implementation of
Policies and Risks - Mortgage- and Asset-Backed
Securities" for a discussion of interest only and
principal only securities.
Repurchase Agreements. Each Fund may enter into
repurchase agreements with certain banks and non-bank
dealers. In a repurchase agreement, a Fund buys a
security at one price and at the time of sale, the
seller agrees to repurchase the obligation at a
mutually agreed upon time and price (usually within
seven days). The repurchase agreement determines the
yield during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the
value of the underlying security. A Fund may enter
into repurchase agreements with respect to any security
in which it may invest. Repurchase agreements could
involve certain risks in the event of a default or
insolvency of the other party to the agreement,
including possible delays or restrictions upon a Fund's
ability to dispose of the underlying securities.
Temporary Defensive Positions. When the
Subadviser (or Adviser) determines that market
conditions warrant a temporary defensive position, each
Fund may invest without limitation in cash and money
market instruments.
Foreign Securities and Currencies
Each Fund may invest up to 10% of its total
assets, directly or indirectly, in foreign securities.
Foreign investments involve special risks, including:
Expropriation, confiscatory taxation,
and withholding taxes on dividends or
interest;
Less extensive regulation of foreign
brokers, securities markets, and issuers;
Less publicly available information and
different accounting standards;
<PAGE>
Costs incurred in conversions between
currencies, possible delays in settlement in
foreign securities markets, limitations on
the use or transfer of assets (including
suspension of the ability to transfer
currency from a given country), and
difficulty of enforcing obligations in other
countries; and
Diplomatic developments and political or
social instability.
Foreign economies may differ favorably or
unfavorably from the U.S. economy in various respects,
including growth of gross domestic product, inflation
rate, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payments
positions. Many foreign securities may be less liquid
and their prices more volatile than comparable U.S.
securities. Although the Funds generally invest only
in securities that are regularly traded on recognized
exchanges or in over-the-counter markets, from time to
time foreign securities may be difficult to liquidate
rapidly without adverse price effects. Certain costs
attributable to foreign investing, such as custody
charges and brokerage costs, may be higher than those
attributable to domestic investment. The value of a
Fund's assets denominated in foreign currencies will
increase or decrease in response to fluctuations in the
value of those foreign currencies relative to the U.S.
dollar. Currency exchange rates can be volatile at
times in response to supply and demand in the currency
exchange markets, international balances of payments,
governmental intervention, speculation, and other
political and economic conditions.
Each Fund may purchase and sell foreign currency
on a spot basis and may engage in forward currency
contracts, currency options, and futures transactions.
See "Implementation of Policies and Risks - Derivative
Instruments."
Small and Medium Capitalization Companies
The Funds may invest in common stocks and other
equity securities, including equity securities of small
and medium capitalization companies. While small and
medium capitalization companies have potential for
significant capital appreciation, the equity securities
of these companies also involves greater risks than
larger, more established companies. Small and medium
capitalization companies may lack the management
experience, financial resources, product
diversification and competitive strength of larger
companies and the market for their securities may be
smaller and subject to greater price volatility. To
the extent a Fund has significant investments in the
equity securities of these companies, a Fund's share
price may be subject to greater fluctuations than a
Fund that invests in larger, more established
companies.
Derivative Instruments
Derivative instruments may be used in connection
with the management of the Funds' investments.
Derivative instruments are securities or agreements
whose value is derived from the value of some
underlying asset, for example, securities, currencies,
reference indexes, or commodities. Options, futures,
and options on futures transactions are considered
derivative transactions.
Derivatives generally have investment
characteristics that are based upon either forward
contracts (under which one party is obligated to buy
and the other party is obligated to sell an underlying
asset at a specific price on a specified date) or
option contracts (under which the holder of the option
has the right but not the obligation to buy or sell an
underlying asset at a specified price on or before a
specified date). Consequently, the change in value of
a forward-based derivative generally is roughly
proportional to the change in value of the underlying
asset. In contrast, the buyer of an option-based
derivative generally will benefit from favorable
movements in the price of the underlying asset but is
not exposed to corresponding losses due to adverse
movements in the value of the underlying asset. The
seller of an option-based derivative generally will
receive fees or premiums but generally is exposed to
losses due to changes in the value of the underlying
asset. Derivative transactions may include elements of
leverage and, accordingly, the fluctuation of the value
of the derivative transaction in relation to the
underlying asset may be
<PAGE>
magnified. In addition to
options, futures, and options on futures transactions,
derivative transactions may include swaps, in which the
two parties agree to exchange a series of cash flows in
the future, such as interest-rate payments; interest-
rate caps, under which, in return for a premium, one
party agrees to make payments to the other to the
extent that interest rates exceed a specified rate, or
"cap"; and interest-rate floors, under which, in return
for a premium, one party agrees to make payments to the
other to the extent that interest rates fall below a
specified level, or "floor." Derivative transactions
may also include forward currency contracts and foreign
currency exchange-related securities.
Derivative instruments may be exchange-traded or
traded in over-the-counter transactions between private
parties. Over-the-counter transactions are subject to
the credit risk of the counterparty to the instrument
and are less liquid than exchange-traded derivatives
since they often can only be closed out with the other
party to the transaction. When required by SEC
guidelines, a Fund will set aside permissible liquid
assets or securities positions that substantially
correlate to the market movements of the derivative
transactions in a segregated account to secure its
obligations under derivative transactions. In order to
maintain its required cover for a derivative
transaction, a Fund may need to sell portfolio
securities at disadvantageous prices or times since it
may not be possible to liquidate a derivative position.
The successful use of derivative transactions by a
Fund is dependent upon the Subadviser's ability to
correctly anticipate trends in the underlying asset.
To the extent that a Fund is engaging in derivative
transactions other than for traditional hedging
purposes, the Fund's successful use of such
transactions is more dependent upon the Subadviser's
ability to correctly anticipate such trends, since
losses in these transactions may not be offset by gains
in the Fund's portfolio or in lower purchase prices for
assets it intends to acquire. The Subadviser's
prediction of trends in underlying assets may prove to
be inaccurate, which could result in substantial losses
to a Fund. Hedging transactions are also subject to
risks. If the Subadviser incorrectly anticipates
trends in the underlying asset, a Fund may be in a
worse position than if no hedging had occurred. In
addition, there may be imperfect correlation between a
Fund's derivative transactions and the instruments
being hedged.
Illiquid Securities
Each Fund may invest up to 10% of its net assets
in illiquid securities. Illiquid securities may
include restricted securities (securities the
disposition of which is restricted under the federal
securities laws), securities which may only be resold
pursuant to Rule 144A under the Securities Act of 1933,
as amended (the "Securities Act"), repurchase
agreements with maturities in excess of seven days, and
other securities that are not readily marketable.
Risks associated with restricted securities include the
potential obligation to pay all or part of the
registration expenses in order to sell restricted
securities. A considerable period of time may elapse
between the time of the decision to sell a restricted
security and the time a Fund may be permitted to sell
under an effective registration statement or otherwise.
If, during such a period, adverse conditions were to
develop, a Fund might obtain a less favorable price
than that which prevailed when it decided to sell. The
Board of Directors, or its delegate, has the ultimate
authority to determine, to the extent permissible under
the federal securities laws, which securities are
liquid or illiquid. The Subadviser currently makes
liquidity determinations.
When-Issued Securities
Each Fund may invest without limitation in
securities purchased on a when-issued or delayed
delivery basis ("When-Issued Securities"). Although
the payment and terms of these securities are
established at the time the purchaser enters into the
commitment, these securities may be delivered and paid
for at a future date, generally within 45 days.
Purchasing When-Issued Securities allows a Fund to lock
in a fixed price on a security it intends to purchase.
A Fund will segregate and maintain cash, cash
equivalents, U.S. government securities, or other high
quality, liquid debt securities in an amount at least
equal to the amount of outstanding commitments for When-
Issued Securities at all times. Such securities
involve a risk of loss if the value of the security to
be purchased declines prior to the settlement date.
<PAGE>
Reverse Repurchase Agreements
Each Fund may engage in reverse repurchase
agreements to facilitate portfolio liquidity (a
practice common in the mutual fund industry) or for
arbitrage transactions. In a reverse repurchase
agreement, a Fund would sell a security and enter into
an agreement to repurchase the security at a specified
future date and price. A Fund generally retains the
right to interest and principal payments on the
security. Since a Fund receives cash upon entering
into a reverse repurchase agreement, it may be
considered a borrowing. When required by SEC
guidelines, a Fund will set aside permissible liquid
assets in a segregated account to secure its obligation
to repurchase the security.
The reverse repurchase agreements entered into by
a Fund may be used as arbitrage transactions in which
the Fund will maintain an offsetting position in
investment grade debt obligations or repurchase
agreements that mature on or before the settlement date
of the related reverse repurchase agreement. Since the
Fund will receive interest on the securities or
repurchase agreements in which it invests the
transaction proceeds, the transactions may involve
leverage. However, since such securities or repurchase
agreements will be high quality and will mature on or
before the settlement date of the reverse repurchase
agreement, the Subadviser believes that such arbitrage
transactions do not present the risks to the Funds that
are associated with other types of leverage.
The risks associated with entering into reverse
repurchase agreements include the risk that the buyer
of the securities sold by a Fund might be unable to
deliver them when the Fund seeks to repurchase. In the
event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes
insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to
enforce a Fund's obligation to repurchase the
securities and the Fund's use of the proceeds of the
reverse repurchase agreement may effectively be
restricted pending such decision. Such transactions
also involve the risk that the market value of the
securities a Fund is obligated to repurchase under the
reverse repurchase agreement may decline below the
repurchase price. Finally, such transactions involve
the risk that changes in the value of a Fund's
portfolio securities may amplify changes in the Fund's
net asset value per share and may also cause the Fund
to liquidate portfolio positions when it would not be
advantageous to do so.
Portfolio Turnover
Under normal market conditions, the anticipated
portfolio turnover rate for each Fund is expected to be
approximately 50% to 75%. A portfolio turnover rate of
100% would occur, for example, if all of the securities
held by a Fund were replaced within one year. In the
event a Fund has a portfolio turnover rate of 100% or
more in any year, it would result in the payment by the
Fund of increased brokerage costs and could result in
the payment by shareholders of increased taxes on
realized investment gains.
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Fund has adopted a number of fundamental
investment restrictions, which may not be changed
without approval by the Fund's shareholders. The
Funds' other investment policies may be changed by the
Board of Directors without shareholder approval. The
following is a summary of some of the Funds'
fundamental investment restrictions:
Diversification: Each Fund may not,
with respect to 75% of its total assets,
purchase the securities of any issuer (except
U.S. government securities) if more than 5%
of the Fund's total assets would be invested
in the securities of that issuer or the Fund
would own more than 10% of the outstanding
voting securities of that issuer.
<PAGE>
Limitation on Borrowing: Each Fund may
not borrow money except from banks or through
permissible investment techniques or
transactions in an amount not to exceed 33
1/3% of the Fund's total assets. (The Funds
currently limit borrowings, through a non-
fundamental investment policy, to reverse
repurchase agreements.)
Limitation on Senior Securities: Each
Fund will not issue senior securities, except
as permitted under the 1940 Act.
Limitation on Industry Concentration:
Each Fund will not invest more than 25% of
its total assets in companies in the same
industry.
These fundamental investment restrictions,
together with all of the Funds' fundamental investment
restrictions and non-fundamental investment policies,
are described in greater detail in the Funds' SAI.
FUND ORGANIZATION AND MANAGEMENT
Management
Under the laws of the State of Maryland, the Board
of Directors of the Corporation is responsible for
managing its business and affairs. The Board of
Directors also oversees duties required by applicable
state and federal law. The Corporation, on behalf of
the Funds, has entered into an investment advisory
agreement with AMquest Advisers, Inc. (the "Adviser")
pursuant to which the Adviser supervises the management
of each of the Fund's investments and business affairs,
subject to the supervision of the Corporation's Board
of Directors (the "Investment Advisory Agreement").
The Adviser is a start-up entity with no previous
experience providing investment advisory services to a
mutual fund. The Adviser, however, has entered into a
subadvisory agreement (the "Subadvisory Agreement")
with Tocqueville Asset Management L.P. (the
"Subadviser") pursuant to which the Subadviser manages
each of the Fund's investments, subject to the
Adviser's supervision. The Subadviser has previously
acted as an investment adviser to mutual funds. The
Adviser provides office space for the Corporation and
pays the salaries, fees and expenses of all the
Corporation's officers and directors who are interested
persons of the Adviser.
Adviser. The Adviser, a Delaware corporation, was
founded in 1996 and is located at 4901 NW 17th Way,
Suite 407, Fort Lauderdale, Florida 33309. The Adviser
is a wholly-owned subsidiary of AMquest International
Ltd., a Nevada corporation, which is indirectly
controlled by David Morgenstern. Under the Investment
Advisory Agreement, the Corporation, on behalf of the
Funds, compensates the Adviser for its management
services at the annual rate of 0.75% of the Income
Fund's average daily net assets, and 1.00% of each of
the Total Return and Growth Fund's average daily net
assets. The advisory fee is accrued daily and paid
monthly. Until the earlier of the end of the first 12
months of operation or the date upon which the Funds'
aggregate average net assets exceed $30 million, the
Adviser has agreed to waive its management fee and/or
reimburse Fund operating expenses to the extent
necessary to ensure that no Fund's total operating
expenses exceed 2.75% of its average daily net assets.
After such time, the Adviser has agreed to waive its
management fee and/or reimburse Fund operating expenses
to the extent required by law and, if no such waiver
and/or reimbursement is required by law, the Adviser
may from time to time voluntarily (but is not required
or obligated to) waive all or a portion of its fee
and/or reimburse all or a portion of Fund operating
expenses. Any waivers or reimbursements will have the
effect of lowering the overall expense ratio for a Fund
and increasing its overall return to investors at the
time any such amounts were waived and/or reimbursed.
Subadviser and Portfolio Managers. The
Subadviser, a Delaware limited partnership, was founded
in 1990 and is located at 1675 Broadway, New York, New
York 10019. Francois D. Sicart controls the
Subadviser. Under the Subadvisory Agreement, the
Adviser compensates the Subadviser for its investment
advisory services at the annual rate of 0.40% of the
Income Fund's average daily net assets, and 0.50% of
each of the Total Return and
<PAGE>
Growth Fund's average
daily net assets. The subadvisory fee is accrued daily
and paid monthly. The Subadviser provides continuous
advice and recommendations concerning each Fund's
investments and is responsible for selecting broker-
dealers to execute the portfolio transactions. In
executing such transactions, the Subadviser seeks to
obtain the best net results for the Funds. The
Subadviser provides investment advice to other mutual
funds, as well as private accounts.
The following individuals serve as portfolio
managers for the Funds:
INCOME FUND
Christopher P. Culp. Mr. Culp has served as the
portfolio manager of the Income Fund since its
inception in 1997. In addition, Mr. Culp co-manages
the Tocqueville Government Fund, which is a mutual fund
advised by the Subadviser. Prior to joining the
Subadviser in 1995, Mr. Culp served as a Vice President
of Belle Haven Investments L.P., a registered broker-
dealer, from 1994 to 1995; an independent financial
consultant from 1993 to 1994; a bond trader with Swiss
Bank Corp. from 1991 to 1994; and a bond trader with
Carroll McIntee, which is a subsidiary of HSBC Corp.,
from 1990 to 1991. Mr. Culp earned his MBA in Finance
from Tulane University in 1974 and his BA in Philosophy
from the University of North Carolina-Chapel Hill in
1971.
TOTAL RETURN FUND
GROWTH FUND
Robert W. Kleinschmidt. Mr. Kleinschmidt has
served as the portfolio manager of the Total Return
Fund and the Growth Fund since inception of the Funds
in 1997. In addition, Mr. Kleinschmidt co-manages the
Tocqueville Fund and the Tocqueville Government Fund,
both of which are mutual funds advised by the
Subadviser. Since 1991, Mr. Kleinschmidt has served as
the President of Tocqueville Management Corporation,
the general partner of the Subadviser. From 1978 until
1991, Mr. Kleinschmidt held various executive positions
with David J. Greene & Co., an investment management
firm. Mr. Kleinschmidt earned his MA in Economics from
the University of Massachusetts-Amherst in 1973 and his
BBA in Accounting from the University of Wisconsin in
1971.
Custodian and Transfer Agent
Firstar Trust Company ("Firstar"), Mutual Fund
Services, Third Floor, 615 East Michigan Street,
Milwaukee, Wisconsin 53202 acts as custodian of each
Fund's assets (the "Custodian") and as dividend-
disbursing and transfer agent for the Funds (the
"Transfer Agent").
Administrator
Pursuant to an Administration Agreement and an
Accounting Servicing Agreement, Firstar also performs
accounting and certain compliance and tax reporting
functions for the Corporation. For these services,
Firstar receives from the Corporation out-of-pocket
expenses plus the following aggregate annual fees,
computed daily and payable monthly, based on the Funds'
aggregate average net assets:
Administrative Services Fees
First $200 million of average net assets 0.06%*
Next $300 million of average net assets 0.05%
Average net assets in excess of $500 million 0.03%
_____________________________
* Subject to a minimum fee of $30,000 per Fund.
<PAGE>
Accounting Services Fees
Total Return
Income Fund &
Growth Funds
First $40 million of average net assets $25,000 $22,000 (per Fund)
Next $200 million of average net assets 0.02% 0.01%
Average net assets in excess of $240
million 0.01% 0.0005%
Distributor
Sun Consolidated Securities, Inc., 4901 NW 17th
Way, Suite 405, Fort Lauderdale, Florida 33309, acts as
distributor of Fund shares (the "Distributor").
Portfolio Transactions
The Distributor and/or Tocqueville Securities
L.P., an affiliated broker-dealer of the Subadviser
("Tocqueville Securities"), may serve as brokers for
transactions executed on behalf of the Funds; however,
in order for the Distributor or Tocqueville Securities
to effect any portfolio transactions for the Funds on
an exchange, the commissions, fees or other
remuneration received by the Distributor or Tocqueville
Securities must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other
brokers in connection with comparable transactions
involving similar securities being purchased or sold on
any exchange during a comparable period of time. This
standard allows the Distributor and Tocqueville
Securities to receive no more than the remuneration
that would be expected to be received by an
unaffiliated broker in a commensurate arm's-length
transaction.
Organization
Each Fund is a series of common stock of the
Corporation, a Maryland corporation incorporated on
July 19, 1996 that is authorized to issue shares of
common stock, and series and classes thereof. Each
share of common stock of each Fund is entitled to one
vote. In addition, each share of common stock of each
Fund is entitled to participate equally in dividends
and capital gains distributions by the respective Fund
and in the residual assets of the respective Fund in
the event of liquidation. Certificates will be issued
for shares held in your account only upon your written
request. You will, however, have full shareholder
rights whether or not you request certificates.
Generally, the Funds will not hold annual shareholders'
meetings unless required by the 1940 Act. As of
February __, 1997, AMquest International Ltd., of which
the Adviser is a wholly-owned subsidiary, owned a
controlling interest in each of the Funds.
Fund Expenses
Each Fund is responsible for its own expenses,
including: interest charges; taxes; brokerage
commissions; organizational expenses; expenses of
registering or qualifying shares for sale with the
states and the SEC; expenses of issue, sale, repurchase
or redemption of shares; expenses of printing and
distributing prospectuses to existing shareholders;
charges of custodians; expenses for accounting,
administrative, audit, and legal services; fees for
directors who are not interested persons of the
Adviser; expenses of fidelity bond coverage and other
insurance; expenses of indemnification; extraordinary
expenses; and costs of shareholder and director
meetings.
<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined as of
the close of trading (currently 4:00 p.m. Eastern
Standard Time) on each day the New York Stock Exchange
("NYSE") is open for business. Purchase orders
received or shares tendered for redemption on a day the
NYSE is open for trading, prior to the close of trading
on that day, will be valued as of the close of trading
on that day. Applications for purchase of shares and
requests for redemption of shares received after the
close of trading on the NYSE will be valued as of the
close of trading on the next day the NYSE is open. A
Fund's net asset value may not be calculated on days
during which the Fund receives no orders to purchase
shares and no shares are tendered for redemption. Net
asset value is calculated by taking the fair value of a
Fund's total assets, including interest or dividends
accrued, but not yet collected, less all liabilities,
and dividing by the total number of shares outstanding.
The result, rounded to the nearest cent, is the net
asset value per share.
In determining net asset value, expenses are
accrued and applied daily and securities and other
assets for which market quotations are available are
valued at market value. Common stocks and other equity-
type securities are valued at the last sales price on
the national securities exchange or NASDAQ on which
such securities are primarily traded; however,
securities traded on a national securities exchange or
NASDAQ for which there were no transactions on a given
day, and securities not listed on a national securities
exchange or NASDAQ, are valued at the average of the
most recent bid and asked prices. Other exchange
traded securities (generally foreign securities) will
be valued based on market quotations. Securities
quoted in foreign currency will be valued in U.S.
dollars at the foreign currency exchange rates that are
prevailing at the time the daily net asset value per
share is determined. Fixed income securities are
valued by a pricing service that utilizes electronic
data processing techniques to determine values for
normal institutional-sized trading units of fixed
income securities without regard to sale or bid prices
when such values are believed to more accurately
reflect the fair market value of such securities;
otherwise, actual sale or bid prices are used. Any
securities or other assets for which market quotations
are not readily available are valued at fair value as
determined in good faith by the Board of Directors of
the Corporation. Fixed income securities having
remaining maturities of 60 days or less when purchased
are generally valued by the amortized cost method.
Under this method of valuation, a security is initially
valued at its acquisition cost and, thereafter,
amortization of any discount or premium is assumed each
day, regardless of the impact of fluctuating interest
rates on the market value of the security.
HOW TO PURCHASE SHARES
Shares of the Funds may be purchased at the
Offering Price (as defined below) through any dealer
which has entered into a sales agreement with the
Distributor, in its capacity as principal underwriter
of shares of the Funds, or through the Distributor
directly. Firstar, the Funds' Transfer Agent, may also
accept purchase applications.
Payment for Fund shares should be made by check or
money order in U.S. dollars drawn on a U.S. bank,
savings and loan, or credit union. The minimum initial
investment in a Fund is $1,000. Subsequent investments
of at least $500 may be made by mail or by wire. For
investors using the Automatic Investment Plan, as
described below, the minimum investment is $50. These
minimums can be changed by the Corporation at any time.
Shareholders will be given at least 30 days' notice of
any increase in the minimum dollar amount of subsequent
investments.
If you purchase shares of a Fund by check or the
Automatic Investment Plan and request the redemption of
such shares within fifteen days of the initial
purchase, the redemption will not be effective, and the
redemption proceeds will not be forwarded to you, until
the Corporation is reasonably satisfied that your check
or purchase order has cleared. This is a security
precaution only and does not affect your investment.
<PAGE>
Offering Price
Shares of the Funds are sold on a continual basis
at the next offering price (the "Offering Price"),
which is the sum of the net asset value per share (next
computed following receipt of an order in proper form
by a dealer, the Distributor or the Transfer Agent, as
the case may be) and the sales charge as set forth
below. Net asset value per share is calculated once
daily as of the close of trading (currently 4:00 p.m.,
Eastern Standard Time) on each day the NYSE is open.
See "Determination of Net Asset Value." The sales
charge imposed on purchases of Fund shares is as
follows:
<TABLE>
<CAPTION>
Amount of Sale As a Percentage of As a Percentage of Portion of Total
at Offering Offering Price of Net Asset Value of Offering Price
Price the Shares Purchased the Shares Purchased Retained by Dealers
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
$50,000 but less than $100,000 4.00% 4.17% 3.50%
$100,000 but less than $250,000 3.25% 3.36% 3.00%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1,000,000 2.00% 2.04% 1.75%
$1,000,000 or more 0.00% 0.00% N/A
</TABLE>
____________
*At the discretion of the Distributor, all sales
charges may at times be paid to the securities dealer,
if any, involved in the trade. A securities dealer
which is paid all or substantially all of the sales
charges may be deemed an "underwriter" under the
Securities Act.
Investors described under "Purchases at Net Asset
Value," below, may purchase shares of the Funds without
the imposition of a sales charge. In addition, no
sales charge is imposed on the reinvestment of
dividends or capital gains, or on exchanges between
Funds. See also "Reduced Sales Charge Plans," below,
for information on how to reduce the sales charge
payable upon the purchase of Fund shares. A
confirmation indicating the details of each purchase
transaction will be sent to you promptly following such
transaction. If a purchase order is placed through a
dealer, the dealer must promptly forward the order and
payment to the Transfer Agent.
Purchases at Net Asset Value
Fund shares may be purchased at net asset value
without the imposition of a sales charge by any of the
following:
certain retirement plans, including
profit-sharing, pension, 401(k) and
simplified employee pension plans, subject to
minimum requirements with respect to the
number of employees or amount of purchase,
which may be established by the Distributor
(currently, those criteria require that the
employer establishing the plan have 25 or
more eligible employees or that the amount
invested total at least $1 million);
directors, officers, and full-time
employees of the Corporation, the Adviser,
the Subadviser, the Distributor, and
affiliates of such companies, and by spouses
and minor children of such persons;
registered securities brokers and
dealers which have entered into sales
agreements with the Distributor, for their
investment accounts only, and registered
personnel and employees of such
<PAGE>
securities
brokers and dealers, and their spouses and
minor children, in accordance with the
internal policies and procedures of the
employing securities dealer;
members of a "qualified investment
program" (a qualified investment program is
one which (i) has been in existence for more
than 6 months, (ii) has a purpose other than
acquiring shares of a Fund at a discount,
(iii) has an agreement with the Distributor
pursuant to which investments will be
submitted in single bulk orders, (iv)
reinvests all dividends and other
distributions by the Funds in additional
shares, (v) makes its members available for
group meetings with representatives of the
Distributor, and (vi) agrees to include sales
and other material related to the Funds in
its mailings to members at reduced or no cost
to the Distributor).
Please call 1-800-908-9979 for more information on
purchases at net asset value.
Reduced Sales Charge Plans
Rights of Accumulation. Pursuant to the Right of
Accumulation offered by the Funds (the "ROA"),
investors are permitted to purchase shares of one or
more of the Funds at the sales charge applicable to the
sum of (a) the dollar amount then being purchased and
(b) the higher of (i) the current value (calculated at
the applicable Offering Price) or (ii) the actual
purchase price, of all Fund shares already held by the
investor, his or her spouse, and their minor children.
To receive the ROA, at the time of purchase, you must
give your securities dealer, the Distributor, or the
Transfer Agent, as applicable, sufficient information
to determine whether the purchase will qualify for the
reduced sales charge.
Letters of Intent. An investor may also
immediately qualify for a reduced sales charge on the
purchase of shares of one or more of the Funds by
completing the Letter of Intent section of the
shareholder application (the "LOI"). By completing the
LOI, an investor expresses an intention to invest
during the next 13-month period a specified amount
(minimum of at least $50,000) which, if made at one
time, would qualify for a reduced sales charge. The
sales charge applicable to that aggregate amount then
becomes the applicable sales charge on all purchases
made concurrently with the execution of the LOI and in
the 13 months following the execution. Sales charge
reductions based on purchases in more than one Fund
will be effective only after notification to the
Distributor or Transfer Agent that the investment
qualifies for a discount. Any redemptions made by the
investor during the 13-month period will be subtracted
from the amount of the purchases for purposes of
determining whether the terms of the LOI have been
completed. If, at the end of the 13-month period
covered by the LOI, the total amount of purchases (less
redemptions) does not equal the amount indicated, the
investor will be required to pay the difference between
the sales charge paid at the reduced rate and the sales
charge applicable to the purchases actually made.
Shares having a value equal to 5% of the amount
specified in the LOI will be held in escrow during the
13-month period and are subject to involuntary
redemption to assure any necessary payment of a higher
applicable sales charge. For more information on the
LOI, please call 1-800-908-9979.
Initial Investment - Minimum $1,000
You may purchase Fund shares by completing the
enclosed shareholder application and mailing it and a
check or money order payable to "AMquest Matrix Funds,
Inc." to your securities dealer, the Distributor or the
Transfer Agent, as the case may be. The minimum
initial investment is $1,000. If mailing to the
Distributor or Transfer Agent, please send to the
following address: Firstar Trust Company, P.O. Box
701, Milwaukee, Wisconsin 53201-0701. In addition,
overnight mail should be sent to the following address:
AMquest Matrix Funds, Inc., Firstar Trust Company,
Mutual Fund Services, Third Floor, 615 East Michigan
Street, Milwaukee, Wisconsin 53202.
If the securities dealer you have chosen to
purchase Fund shares through has not entered into a
sales agreement with the Distributor, such dealer may,
nevertheless, offer to place your order for the
purchase of Fund
<PAGE>
shares. Purchases made through such
dealers will be effected at the Offering Price. Such
dealers may also charge a transaction fee, as
determined by the dealer. That fee will be in addition
to the sales charge payable by you upon purchase, and
may be avoided if shares are purchased through a dealer
who has entered into a sales agreement with the
Distributor or through the Transfer Agent.
If your check does not clear, you will be charged
a $20 service fee. You will also be responsible for
any losses suffered by the Corporation as a result.
Neither cash nor third-party checks will be accepted.
All applications to purchase Fund shares are subject to
acceptance by the Corporation and are not binding until
so accepted. The Corporation reserves the right to
decline or accept a purchase order application in whole
or in part.
You may also purchase Fund shares by wire. The
following instructions should be followed when wiring
funds to the Transfer Agent for the purchase of Fund
shares:
Wire to: Firstar Bank
ABA Number 075000022
Credit: Firstar Trust Company
Account 112-952-137
Further Credit: AMquest Matrix Funds, Inc.
(shareholder account number)
(shareholder name/account
registration)
Please call 1-800-908-9979 prior to wiring any
funds to notify the Transfer Agent that the wire is
coming and to verify the proper wire instructions so
that the wire is properly applied when received. A $10
service fee will be charged for purchases by wire. The
Corporation is not responsible for the consequences of
delays resulting from the banking or Federal Reserve
wire system.
Automatic Investment Plan - Minimum $50
The Automatic Investment Plan ("AIP") allows you
to make regular, systematic investments in one or more
of the Funds from your bank checking or NOW account.
The minimum initial investment for investors using the
AIP is $50. To establish the AIP, complete the
appropriate section in the shareholder application
attached to this Prospectus. Under certain
circumstances (such as discontinuation of the AIP
before a Fund's minimum initial investment is reached),
the Corporation reserves the right to close the
investor's account. Prior to closing any account for
failure to reach the minimum initial investment, the
Corporation will give the investor written notice and
60 days in which to reinstate the AIP or otherwise
reach the minimum initial investment. You should
consider your financial ability to continue in the AIP
until the minimum initial investment amount is met
because the Corporation has the right to close an
investor's account for failure to reach the minimum
initial investment. Such closing may occur in periods
of declining share prices.
Under the AIP, you may choose to make investments
on certain days of each month (at least seven days
apart) from your financial institution in amounts of
$50 or more. There is no service fee for participating
in the AIP. However, a service fee of $20 will be
deducted from your Fund account for any AIP purchase
that does not clear due to insufficient funds or, if
prior to notifying the Corporation in writing or by
telephone of your intention to terminate the plan, you
close your bank account or in any manner prevent
withdrawal of funds from the designated checking or NOW
account. You can set up the AIP with any financial
institution that is a member of the Automated Clearing
House.
The AIP is a method of using dollar cost averaging
which is an investment strategy that involves investing
a fixed amount of money at a regular time interval.
However, a program of regular investment cannot ensure
a profit
<PAGE>
or protect against a loss from declining
markets. By always investing the same amount, you will
be purchasing more shares when the price is low and
fewer shares when the price is high. Since such a
program involves continuous investment regardless of
fluctuating share values, you should consider your
financial ability to continue the program through
periods of low share price levels.
Subsequent Investments - Minimum $500
Additions to your account may be made by mail or
by wire. Any subsequent investment must be for at
least $500. When making an additional purchase by
mail, enclose a check payable to "AMquest Matrix Funds,
Inc." and the Additional Investment Form provided on
the lower portion of your account statement. To make
an additional purchase by wire, please call 1-800-908-
9979 for complete wiring instructions. You may also
make additional purchases by telephone. Information
regarding this option can be obtained by calling 1-800-
908-9979.
HOW TO REDEEM SHARES
In General
Investors may request redemption of part or all of
their Fund shares at any time at the next determined
net asset value. See "Determination of Net Asset
Value." The Corporation normally will mail your
redemption proceeds the next business day and, in any
event, no later than seven business days after receipt
of a redemption request in good order. However, the
Corporation may hold payment until investments which
were made by check or telephone or pursuant to the
Automatic Investment Plan have been collected.
Redemptions may also be made through brokers or
dealers. Such redemptions will be effected at the net
asset value next determined after receipt by the
Corporation of the broker or dealer's instruction to
redeem shares. Some brokers or dealers may charge a
fee in connection with such redemptions.
Written Redemption
For most redemption requests, an investor need
only furnish a written, unconditional request to redeem
his or her shares at net asset value to the Transfer
Agent: Firstar Trust Company, P. O. Box 701,
Milwaukee, Wisconsin 53201-0701. Overnight mail should
be sent to AMquest Matrix Funds, Inc., Firstar Trust
Company, Mutual Fund Services, Third Floor, 615 East
Michigan Street, Milwaukee, Wisconsin 53202. Requests
for redemption must (i) be signed exactly as the shares
are registered, including the signature of each owner,
and (ii) specify the number of shares or dollar amount
to be redeemed. Redemption proceeds made by written
redemption request may also be wired to a commercial
bank that you have authorized on your account
application. The Transfer Agent will charge a $10.00
service fee for wire transactions.
Telephone Redemption
You may redeem shares by telephone if you have
checked the appropriate box and supplied the necessary
information on the shareholder application. Proceeds
redeemed by telephone will be mailed or wired only to
an investor's address or bank of record as shown on the
records of the Transfer Agent. To effect a telephone
redemption, you may call 1-800-908-9979. The
Corporation reserves the right to refuse any request
made by telephone and may limit the amount involved or
the number of telephone redemptions. Once you place a
telephone redemption request, it cannot be cancelled or
modified. Neither the Corporation nor its Transfer
Agent will be responsible for the authenticity of
redemption instructions received by telephone.
Accordingly, the investor bears the risk of loss.
However, the Corporation will use reasonable procedures
to ensure that instructions received by telephone are
genuine. These procedures may include recording
telephonic transactions and sending written
confirmation of such transactions to investors. If the
Corporation or its Transfer Agent fails to employ such
<PAGE>
procedures, the Corporation may be liable for any
losses due to unauthorized or fraudulent instructions.
Shareholders may experience difficulty in implementing
a telephone redemption during periods of drastic
economic or market changes. If an investor is unable
to contact the Transfer Agent by telephone, shares may
also be redeemed by delivering the redemption request
to the Transfer Agent in person or by mail. If in
person or by overnight mail, deliver such request to
AMquest Matrix Funds, Inc., Firstar Trust Company,
Mutual Fund Services, Third Floor, 615 East Michigan
Street, Milwaukee, Wisconsin 53202; if by regular mail,
such request may be sent to Firstar Trust Company, P.
O. Box 701, Milwaukee, Wisconsin 53201-0701.
Special Situations
If you are acting as an attorney-in-fact for
another person, or as a trustee or on behalf of a
corporation, additional documentation may be required
in order to effect a redemption. Questions regarding
such circumstances may be directed to the Transfer
Agent by calling 1-800-908-9979. In addition, the
Corporation requires a signature guarantee for all
authorized owners of an account: (i) when you submit a
written redemption request for more than $25,000; (ii)
when you add the telephone redemption option to your
existing account; (iii) if you transfer ownership of
your account to another individual or entity; and (iv)
if you request redemption proceeds to be sent to an
address other than the address that appears on your
account. A signature guarantee may be obtained from
any eligible guarantor institution, as defined by the
SEC. These institutions include banks, saving
associations, credit unions, brokerage firms, and
others. Please note that a notary public stamp or seal
is not acceptable.
Your account may be terminated by the Corporation
on not less than 30 days' notice if, at the time of any
redemption of shares in your account, the value of the
remaining shares in the account falls below $1,000.
Upon any such termination, a check for the proceeds of
redemption will be sent to you within seven days of the
redemption.
EXCHANGE PRIVILEGE
Fund to Fund Exchange
You may exchange your shares in a Fund for shares
in any other Fund of the Corporation at any time by
written request or by telephone exchange if you have
authorized this privilege in the shareholder
application. The value of the shares to be exchanged
and the price of the shares being purchased will be the
net asset value next determined after receipt of
instructions for exchange. No sales charge is imposed
on exchanges between Funds; however, a $5 service fee
will be charged for each telephone exchange request (no
charge is imposed with respect to written exchange
requests). Exchange requests should be directed to:
Firstar Trust Company, P.O. Box 701, Milwaukee,
Wisconsin 53201-0701. For exchange requests delivered
in person or by overnight mail, please deliver to
AMquest Matrix Funds, Inc., Firstar Trust Company,
Mutual Fund Services, Third Floor, 615 East Michigan
Street, Milwaukee, Wisconsin 53202. To effect a
telephone exchange, you may call 1-800-908-9979.
Exchange requests may be subject to limitations,
including those relating to frequency, that may be
established from time to time to ensure that such
exchanges are not disadvantageous to the Funds or their
investors. The Corporation reserves the right to
modify or terminate the exchange privilege upon 60
days' written notice to each shareholder prior to the
modification or termination taking effect. The
exchange privilege is only available in states where
the securities are registered.
Money Market Exchange
As a service to our shareholders, the Corporation
has established a program whereby our shareholders can
exchange shares of any one of the Funds for shares of
the Portico Money Market Fund (the "Portico Fund").
The Portico Fund is a no-load money market fund managed
by an affiliate of Firstar. The Portico Fund is
unrelated to the Corporation or any of the Funds.
However, the Distributor, which is an affiliate of the
Corporation, may be compensated by
<PAGE>
the Portico Fund for
servicing and related services provided in connection
with exchanges made by shareholders of the Funds. This
exchange privilege is a convenient way to buy shares in
a money market fund in order to respond to changes in
your goals or in market conditions. Before exchanging
into the Portico Fund, please read the applicable
prospectus, which may be obtained by calling 1-800-908-
9979. As noted above, there is no charge for written
exchange requests. Firstar will, however, charge a
$5.00 fee for each exchange transaction that is
executed via the telephone.
An exchange from one Fund to another, including
the Portico Fund, is treated the same as an ordinary
sale and purchase for federal income tax purposes and
you will realize a capital gain or loss. An exchange
is not a tax-free transaction.
DISTRIBUTION PLAN
The Corporation, on behalf of each of the Funds,
has adopted a plan pursuant to Rule 12b-1 under the
1940 Act (the "Plan"), which allows it to pay the
Distributor a distribution fee of up to 0.25% of each
Fund's average daily net assets computed on an annual
basis. Under the terms of the Plan, the Distributor is
authorized to, in turn, pay all or a portion of this
fee to any securities dealer, financial institution or
any other person (the "Recipient") who renders
assistance in distributing or promoting the sale of
Fund shares pursuant to a written agreement (the "Rule
12b-1 Related Agreement"). To the extent such fee is
not paid to such persons, the Distributor may use the
fee for its own distribution expenses incurred in
connection with the sale of Fund shares, although it is
the Distributor's current intention to pay out all or
most of the fee. A form of the 12b-1 Related Agreement
referred to above has been approved by a majority of
the Board of Directors of the Corporation, and of the
members of the Board who are not "interested persons"
of the Corporation as defined in the 1940 Act and who
have no direct or indirect financial interest in the
operation of the Plan or any related agreements (the
"Disinterested Directors") voting separately.
Accordingly, the Distributor may enter into 12b-1
Related Agreements with securities dealers, financial
institutions or other persons without further Board
approval.
Payment of the distribution fee is to be made
quarterly, within 30 days after the close of the
quarter for which the fee is payable, upon the
Distributor forwarding to the Board of Directors of the
Corporation a written report of all amounts expensed
pursuant to the Plan; provided, however, that the
aggregate payments by a Fund under the Plan to the
Distributor and all Recipients may not exceed 0.25% (on
an annualized basis) of the Fund's average net assets
for that quarter; and provided further that no fee may
be paid in excess of the distribution expenses as set
forth in the quarterly written report. Thus, the Plan
does not provide for the payment of distribution fees
in subsequent quarters that relate to expenses incurred
in prior quarters.
From time to time, the Distributor may engage in
activities which jointly promote the sale of shares of
one or more of the Funds, the costs of which may not be
readily identifiable as related to any one Fund.
Generally, the expenses attributable to joint
distribution activities will be allocated among each
Fund on the basis of its respective net assets,
although the Board of Directors may allocate expenses
in any other manner it deems fair and equitable.
The Plan, and any Rule 12b-1 Related Agreement
which is entered into, will continue in effect for a
period of more than one year only so long as its
continuance is specifically approved at least annually
by a vote of a majority of the Corporation's Board of
Directors, and of the Disinterested Directors, cast in
person at a meeting called for the purpose of voting on
the Plan, or the Rule 12b-1 Related Agreement, as
applicable. In addition, the Plan, and any Rule 12b-1
Related Agreement, may be terminated with respect to
any Fund at any time, without penalty, by vote of a
majority of the outstanding voting securities of such
Fund, or by vote of a majority of Disinterested
Directors (on not more than sixty (60) days' written
notice in the case of the Rule 12b-1 Related Agreement
only).
INDIVIDUAL RETIREMENT ACCOUNTS
The Funds offer through Firstar Trust Company, in
its capacity as Custodian, an Individual Retirement
Account ("IRA") for adoption by individuals.
Individuals under age 70 1/2 who receive compensation
or earned income may contribute money to an IRA. You
are allowed to contribute up to the lesser of $2,000 or
100% of your earned income each year to an IRA.
Individuals who are covered by existing retirement
plans, or have spouses covered by such plans, and whose
income exceed certain amounts, are not permitted to
deduct their IRA contributions for income tax purposes.
However, whether or not an individual's contributions
are deductible, the earnings in his or her IRA are not
taxed until the account is distributed.
A complete description of the IRA, as well as a
description of the applicable service fees, may be
obtained by calling 1-800-908-9979 or writing to the
Corporation at P.O. Box 701, Milwaukee, Wisconsin 53201-
0701. Please note that early withdrawals from a
retirement plan may result in adverse tax consequences.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX
TREATMENT
The Corporation intends to qualify for treatment
as a "Regulated Investment Company" under Subchapter M
of the Internal Revenue Code of 1986, as amended (the
"IRC"), and, if so qualified, will not be liable for
federal income taxes to the extent earnings are
distributed on a timely basis.
For federal income tax purposes, all dividends
paid by the Funds and distributions of net realized
short-term capital gains are taxable as ordinary income
whether reinvested or received in cash unless you are
exempt from taxation or entitled to a tax deferral.
Distributions paid by a Fund from net realized long-
term capital gains, whether received in cash or
reinvested in additional shares, are taxable as a
capital gain. The capital gain holding period is
determined by the length of time the Fund has held the
security and not the length of time you have held
shares in the Fund. Investors are informed annually as
to the amount and nature of all dividends and capital
gains paid during the prior year. Such capital gains
and dividends may also be subject to state or local
taxes. If you are not required to pay taxes on your
income, you are generally not required to pay federal
income taxes on the amounts distributed to you.
Dividends for the Income, Total Return and Growth
Funds are usually distributed monthly, quarterly and
annually in December, respectively, and capital gains,
if any, are usually distributed at least annually in
December. When a dividend or capital gain is
distributed, a Fund's net asset value decreases by the
amount of the payment. If you purchase shares shortly
before a distribution, you will be subject to income
taxes on the distribution, even though the value of
your investment (plus cash received, if any) remains
the same. All dividends and capital gains
distributions will automatically be reinvested in
additional Fund shares at the then prevailing net asset
value unless an investor specifically requests that
either dividends or capital gains or both be paid in
cash. The election to receive dividends or reinvest
them may be changed by writing to the Fund at P.O. Box
701, Milwaukee, Wisconsin 53201-0701. Such notice must
be received at least 10 days prior to the record date
of any dividend or capital gain distribution.
If you do not furnish the Corporation with your
correct social security number or employer
identification number, the Corporation is required by
federal law to withhold federal income tax from your
distributions and redemption proceeds at a rate of 31%.
This section is not intended to be a full
discussion of federal income tax laws and the effect of
such laws on you. There may be other federal, state,
or local tax considerations applicable to a particular
investor. You are urged to consult your own tax
advisor.
<PAGE>
FUND PERFORMANCE
The Funds may from time to time compare their
respective investment results to various passive
indices or other mutual funds and cite such comparisons
in reports to shareholders, sales literature, and
advertisements. The results may be calculated on
several bases, including yield, average annual total
return, total return, and cumulative total return.
Each of these figures, which reflect the deduction of
the 4.50% maximum initial sales charge, is based upon
historical results and does not represent the future
performance of a Fund.
Yield is an annualized figure, which means that it
is assumed that a Fund generates the same level of net
investment income over a one-year period. A Fund's
yield is a measure of the net investment incurred per
share earned by the Fund over a specific one-month
period and is shown as a percentage of the net asset
value of the Fund's shares at the end of the period.
Average annual total return and total return
figures measure both the net investment income
generated by, and the effect of any realized and
unrealized appreciation or depreciation of, the
underlying investments in a Fund over a specified
period of time, assuming the reinvestment of all
dividends and distributions. Average annual total
return figures are annualized and therefore represent
the average annual percentage change over the specified
period. Total return figures are not annualized and
represent the aggregate percentage or dollar value
change over the period. Cumulative total return simply
reflects a Fund's performance over a stated period of
time.
<PAGE>
DIRECTORS
Richard D. Brace
Donald A. Taylor, Jr.
James R. Harrison
John F. Newsholme
Robert A. DeFruscio
OFFICERS
Richard D. Brace, President
Donald A. Taylor, Jr., Treasurer and Secretary
INVESTMENT ADVISER
AMquest Advisers, Inc.
4901 NW 17th Way, Suite 407
Fort Lauderdale, Florida 33309
SUBADVISER
Tocqueville Asset Management L.P.
1675 Broadway
New York, New York 10019
CUSTODIAN, ADMINISTRATOR,
TRANSFER AGENT AND DIVIDEND-
DISBURSING AGENT
Firstar Trust Company
Mutual Fund Services
Third Floor
615 E. Michigan Street
Milwaukee, WI 53202
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
100 E. Wisconsin Avenue
Milwaukee, WI 53202
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 N. Water Street
Milwaukee, WI 53202
<PAGE>
APPENDIX - RATINGS
Ratings of Fixed Income Securities:
Moody's Standard &
Investors Poor's
Service, Inc. Corporation Definition
--------------------------------------
Long-Term Aaa AAA Highest quality
Aa AA High quality
A A Upper medium grade
Baa BBB Medium grade
Ba BB Low grade
B B Speculative
Caa, Ca, C CCC, CC, C Submarginal
D D Probably in default
Moody's S&P
Short-Term MIG1/VMIG1 Best SP-1+ Very
quality strong quality
MIG2/VMIG2 High SP-1 Strong quailty
quality
MIG3/VMIG3 Favorable SP-2 Satisfactory
quality grade
MIG4/VMIG4 Adequate
quality
SG Speculative SP-3 Speculative
grade grade
Commercial Paper P-1 Superior A-1+ Extremely
quality strong
A-1 Strong
quality
P-2 Strong quality A-2 Satisfactory
quality
P-3 Acceptable A-3 Adequate
quality quality
B Speculative
quality
Not Prime C Doubtful
quality
Additional descriptions of ratings are included in the SAI.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
AMQUEST MATRIX FUNDS, INC.
AMquest Matrix Income Fund
AMquest Matrix Total Return Fund
AMquest Matrix Growth Fund
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
1-800-908-9979
This Statement of Additional Information is not a
prospectus and should be read in conjunction with the
Prospectus of the AMQUEST MATRIX FUNDS, INC. (the
"Corporation"), including the AMquest Matrix Income
Fund (the "Income Fund"), the AMquest Matrix Total
Return Fund (the "Total Return Fund"), and the AMquest
Matrix Growth Fund (the "Growth Fund"), each a
diversified series of the Corporation (hereinafter
collectively referred to as the "Funds"), dated
February __, 1997. Requests for copies of the
Prospectus should be made by writing to the Corporation
at the address listed above, or by calling 1-800-
908-9979.
This Statement of Additional Information is dated February __, 1997.
TABLE OF CONTENTS
Page No.
INVESTMENT RESTRICTIONS 4
INVESTMENT POLICIES AND TECHNIQUES 6
Illiquid Securities 6
Convertible Securities 6
Temporary Defensive Position 7
Variable- or Floating-Rate Securities 7
Mortgage- and Asset-Backed Securities 8
Repurchase Agreements 9
Reverse Repurchase Agreements 10
When-Issued Securities 10
Derivative Instruments 10
Foreign Securities 20
Depositary Receipts 21
Foreign Investment Companies 22
Warrants 22
Short Sales Against the Box 22
Unseasoned Companies 22
DIRECTORS AND OFFICERS 23
PRINCIPAL SHAREHOLDERS 24
INVESTMENT ADVISER AND SUBADVISER 25
FUND TRANSACTIONS AND BROKERAGE 26
CUSTODIAN 27
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT 27
DISTRIBUTOR AND PLAN OF DISTRIBUTION 27
Distributor 27
Distribution Plan 28
Anticipated Benefits to the Funds 28
TAXES 29
DETERMINATION OF NET ASSET VALUE 29
SHAREHOLDER MEETINGS 29
PERFORMANCE INFORMATION 30
Total Return 30
Yield 30
Comparisons 31
<PAGE>
INDEPENDENT ACCOUNTANTS 31
FINANCIAL STATEMENTS 32
APPENDIX A - BOND RATINGS A-1
No person has been authorized to give any
information or to make any representations other than
those contained in this Statement of Additional
Information and the Prospectus dated February __, 1997,
and if given or made, such information or
representations may not be relied upon as having been
authorized by the Funds. This Statement of Additional
Information does not constitute an offer to sell
securities in any state or jurisdiction in which such
offering may not lawfully be made.
INVESTMENT RESTRICTIONS
The investment objective of the Income Fund is to
seek current income. The investment objective of the
Total Return Fund is to seek long-term capital growth
and income. The investment objective of the Growth
Fund is to seek long-term capital growth. The Funds'
investment objectives and policies are described in
detail in the Prospectus under the caption "Investment
Objectives and Policies." The following are the Funds'
fundamental investment restrictions which cannot be
changed without shareholder approval.
Each Fund:
1. May not with respect to 75% of its total assets,
purchase the securities of any issuer (except
securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities)
if, as a result, (i) more than 5% of the Fund's
total assets would be invested in the securities
of that issuer, or (ii) the Fund would hold more
than 10% of the outstanding voting securities of
that issuer.
2. May (i) borrow money from banks and (ii) make
other investments or engage in other transactions
permissible under the Investment Company Act of
1940, as amended (the "1940 Act"), which may
involve a borrowing, including borrowing through
reverse repurchase agreements, provided that the
combination of (i) and (ii) shall not exceed 33
1/3% of the value of the Fund's total assets
(including the amount borrowed), less the Fund's
liabilities (other than borrowings).
3. May not issue senior securities, except as
permitted under the 1940 Act.
4. May not act as an underwriter of another issuer's
securities, except to the extent that the Fund may
be deemed to be an underwriter within the meaning
of the Securities Act of 1933, as amended (the
"Securities Act"), in connection with the purchase
and sale of portfolio securities.
5. May not 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, futures contracts, or other derivative
instruments, or from investing in securities or
other instruments backed by physical commodities).
6. May not make loans if, as a result, more than 33
1/3% of the Fund's total assets would be lent to
other persons, except through (i) purchases of
debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.
7. May not purchase the securities of any issuer if,
as a result, more than 25% of the Fund's total
assets would be invested in the securities of
issuers, the principal business activities of
which are in the same industry.
8. May not purchase or sell real estate unless
acquired as a result of ownership of securities or
other instruments (but this shall not prohibit the
Fund from purchasing or selling securities or
other instruments backed by real estate or of
issuers engaged in real estate activities).
In addition to the non-fundamental operating
policies set forth in the Prospectus, the following are
each Fund's non-fundamental operating policies which
may be changed by the Board of Directors without
shareholder approval.
Each Fund may not:
1. Sell securities short, unless the Fund owns or has
the right to obtain securities equivalent in kind
and amount to the securities sold short, or unless
it covers such short sale as required by the
current rules and positions of the Securities and
Exchange Commission (the "SEC") or its staff, and
provided that transactions in
<PAGE>
options, futures
contracts, options on futures contracts, or other
derivative instruments are not deemed to
constitute selling securities short.
2. 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 deposits in connection with
futures contracts, options on futures contracts,
or other derivative instruments shall not
constitute purchasing securities on margin.
3. Invest in illiquid securities if, as a result of
such investment, more than 10% of its net assets
would be invested in illiquid securities.
4. Purchase securities of other investment companies
except in compliance with the 1940 Act and
applicable state law.
5. Purchase the securities of any issuer (other than
securities 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 issuers that, including predecessor or
unconditional guarantors, have a record of less
than three years of continuous operation. This
policy does not apply to securities of pooled
investment vehicles or mortgage or asset-backed
securities.
6. Invest in direct interests in oil, gas, or other
mineral exploration programs or leases; however,
the Fund may invest in the securities of issuers
that engage in these activities.
7. Engage in futures or options on futures
transactions which are impermissible pursuant to
Rule 4.5 under the Commodity Exchange Act (the
"CEA") and, in accordance with Rule 4.5, will use
futures or options on futures transactions solely
for bona fide hedging transactions (within the
meaning of the CEA), provided, however, that the
Fund may, in addition to bona fide hedging
transactions, use futures and options on futures
transactions if the aggregate initial margin and
premiums required to establish such positions,
less the amount by which any such options
positions are in the money (within the meaning of
the CEA), do not exceed 5% of the Fund's net
assets.
In addition, (i) the aggregate value of securities
underlying call options on securities written by
the Fund or obligations underlying put options on
securities written by the Fund determined as of
the date the options are written will not exceed
50% of the Fund's net assets; (ii) the aggregate
premiums paid on all options purchased by the Fund
and which are being held will not exceed 20% of
the Fund's net assets; (iii) the Fund will not
purchase put or call options, other than hedging
positions, if, as a result thereof, more than 5%
of its total assets would be so invested; and (iv)
the aggregate margin deposits required on all
futures and options on futures transactions being
held will not exceed 5% of the Fund's total
assets.
8. Pledge, mortgage or hypothecate any assets owned
by the Fund except as may be necessary in
connection with permissible borrowings or
investments and then such pledging, mortgaging, or
hypothecating may not exceed 33 1/3% of the Fund's
total assets at the time of the borrowing or
investment.
9. Purchase or retain the securities of any issuer if
any officer or director of the Fund or its
investment adviser (or subadviser) beneficially
owns more than 1/2 of 1% of the securities of such
issuer and such officers and directors together
own beneficially more than 5% of the securities of
such issuer.
10. Purchase warrants, valued at the lower of cost or
market value, 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 any stock
exchange. Warrants acquired by the Fund in units
or attached to securities are not subject to these
restrictions.
<PAGE>
11. Make any loans, except through (i) purchases of
debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.
Except for the fundamental investment limitations
listed above and each Fund's investment objective, the
other investment policies described in the Prospectus
and this Statement of Additional Information are not
fundamental and may be changed with approval of a
Fund's Board of Directors.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the
discussion of the Funds' investment objectives,
policies, and techniques that are described in the
Prospectus under the captions "Investment Objectives
and Policies" and "Implementation of Policies and
Risks."
Illiquid Securities
Each Fund may invest up to 10% of its respective
net assets in illiquid securities (i.e., securities
that are not readily marketable). For purposes of this
restriction, illiquid securities include, but are not
limited to, restricted securities (securities the
disposition of which is restricted under the federal
securities laws), securities which may only be resold
pursuant to Rule 144A under the Securities Act,
repurchase agreements with maturities in excess of
seven days, and other securities that are not readily
marketable. The Board of Directors of the Corporation,
or its delegate, has the ultimate authority to
determine, to the extent permissible under the federal
securities laws, which securities are liquid or
illiquid for purposes of this 10% limitation. Certain
securities exempt from registration or issued in
transactions exempt from registration under the
Securities Act, such as securities that may be resold
to institutional investors under Rule 144A under the
Securities Act, may be considered liquid under
guidelines adopted by the Board of Directors.
The Board of Directors has delegated to
Tocqueville Asset Management L.P. (the "Subadviser"),
the day-to-day determination of the liquidity of any
security, although it has retained oversight and
ultimate responsibility for such determinations.
Although no definitive liquidity criteria are used, the
Board of Directors has directed the Subadviser to look
to such factors as (i) the nature of the market for a
security (including the institutional private resale
market), (ii) the terms of certain securities or other
instruments allowing for the disposition to a third
party or the issuer thereof (e.g., certain repurchase
obligations and demand instruments), (iii) the
availability of market quotations (e.g., for securities
quoted in the PORTAL system), and (iv) other
permissible relevant factors.
Restricted securities may be sold only in
privately negotiated transactions or in a public
offering with respect to which a registration statement
is in effect under the Securities Act. Where
registration is required, a Fund may be obligated to
pay all or part of the registration expenses and a
considerable period may elapse between the time of the
decision to sell and the time the Fund 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 that which prevailed when it
decided to sell. Restricted securities will be priced
at fair value as determined in good faith by the Board
of Directors. If, through the appreciation of
restricted securities or the depreciation of
unrestricted securities, a Fund should be in a position
where more than 10% of the value of its net assets are
invested in illiquid securities, including restricted
securities which are not readily marketable (except for
Rule 144A securities deemed to be liquid by the
Subadviser), the affected Fund will take such steps as
is deemed advisable, if any, to protect liquidity.
Convertible Securities
Each Fund may invest in convertible securities,
which are bonds, debentures, notes, preferred stocks,
or other securities that may be converted into or
exchanged for a specified amount of common stock of the
same or a different issuer within a particular period
of time at a specified price or formula. A convertible
security entitles the holder to receive interest
normally paid or accrued on debt or the dividend paid
on preferred stock until the
<PAGE>
convertible security
matures or is redeemed, converted, or exchanged.
Convertible securities have unique investment
characteristics in that they generally (i) have higher
yields than common stocks, but lower yields than
comparable non-convertible securities, (ii) are less
subject to fluctuation in value than the underlying
stock since they have fixed income characteristics, and
(iii) provide the potential for capital appreciation if
the market price of the underlying common stock
increases. Most convertible securities currently are
issued by U.S. companies, although a substantial
Eurodollar convertible securities market has developed,
and the markets for convertible securities denominated
in local currencies are increasing.
The value of a convertible security is a function
of its "investment value" (determined by its yield in
comparison with the yields of other securities of
comparable maturity and quality that do not have a
conversion privilege) and its "conversion value" (the
security's worth, at market value, if converted into
the underlying common stock). The investment value of
a convertible security is influenced by changes in
interest rates, with investment value declining as
interest rates increase and, increasing as interest
rates decline. The credit standing of the issuer and
other factors also may have an effect on the
convertible security's investment value. The
conversion value of a convertible security is
determined by the market price of the underlying common
stock. If the conversion value is low relative to the
investment value, the price of the convertible security
is governed principally by its investment value.
Generally, the conversion value decreases as the
convertible security approaches maturity. To the
extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price
of the convertible security will be increasingly
influenced by its conversion value. A convertible
security generally will sell at a premium over its
conversion value by the extent to which investors place
value on the right to acquire the underlying common
stock while holding a fixed income security.
A convertible security may be subject to
redemption at the option of the issuer at a price
established in the convertible security's governing
instrument. If a convertible security held by a Fund
is called for redemption, the Fund will be required to
permit the issuer to redeem the security, convert it
into the underlying common stock, or sell it to a third
party.
Temporary Defensive Position
When the Subadviser (or Adviser) determines that
market conditions warrant a temporary defensive
position, a Fund may invest without limitation in cash
and short-term fixed income securities, including U.S.
government securities, commercial paper, banker's
acceptances, certificates of deposit, and time
deposits.
Variable- or Floating-Rate Securities
Each Fund may invest in securities which offer a
variable- or floating-rate of interest, including
inverse floating rate securities debt obligations.
Variable-rate securities provide for automatic
establishment of a new interest rate at fixed intervals
(e.g., daily, monthly, semi-annually, etc.). Floating-
rate securities generally provide for automatic
adjustment of the interest rate whenever some specified
interest rate index changes. The interest rate on an
inverse floater resets in the opposite direction from
the market rate of interest to which the interest rate
is indexed. The interest rate on variable- or floating-
rate securities is ordinarily determined by reference
to or is a percentage of a bank's prime rate, the 90-
day U.S. Treasury bill rate, the rate of return on
commercial paper or bank certificates of deposit, an
index of short-term interest rates, or some other
objective measure.
Variable- or floating-rate securities frequently
include a demand feature entitling the holder to sell
the securities to the issuer at par. In many cases,
the demand feature can be exercised at any time on 7
days notice, in other cases, the demand feature is
exercisable at any time on 30 days notice or on similar
notice at intervals of not more than one year. Some
securities which do not have variable or floating
interest rates may be accompanied by puts producing
similar results and price characteristics.
Variable-rate demand notes include master demand
notes which are obligations that permit a Fund to
invest fluctuating amounts, which may change daily
without penalty, pursuant to direct arrangements
between the Fund, as
<PAGE>
lender, and the borrower. The
interest rates on these notes fluctuate from time to
time. The issuer of such obligations normally has a
corresponding right, after a given period, to prepay in
its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified
number of days' notice to the holders of such
obligations. The interest rate on a floating-rate
demand obligation is based on a known lending rate,
such as a bank's prime rate, and is adjusted
automatically each time such rate is adjusted. The
interest rate on a variable-rate demand obligation is
adjusted automatically at specified intervals.
Frequently, such obligations are secured by letters of
credit or other credit support arrangements provided by
banks. Because these obligations are direct lending
arrangements between the lender and borrower, it is not
contemplated that such instruments will generally be
traded. There generally is not an established
secondary market for these obligations, although they
are redeemable at face value. Accordingly, where the
obligations are not secured by letters of credit or
other credit support arrangements, a Fund's right to
redeem is dependent on the ability of the borrower to
pay principal and interest on demand. Such obligations
frequently are not rated by credit rating agencies and,
if not so rated, the Funds may invest in them only if
the Subadviser determines that at the time of
investment other obligations are of comparable quality
to the other obligations in which the Funds may invest.
Each Fund will not invest more than 10% of its net
assets in variable- and floating-rate demand
obligations that are not readily marketable (a variable-
or floating-rate demand obligation that may be disposed
of on not more than seven days notice will be deemed
readily marketable and will not be subject to this
limitation). See "Investment Policies and Techniques -
Illiquid Securities" and "Investment Restrictions." In
addition, each variable- and floating-rate obligation
must meet the credit quality requirements applicable to
all the Fund's investments at the time of purchase.
When determining whether such an obligation meets a
Fund's credit quality requirements, the Fund may look
to the credit quality of the financial guarantor
providing a letter of credit or other credit support
arrangement.
Mortgage- and Asset-Backed Securities
Mortgage-backed securities represent direct or
indirect participations in, or are secured by and
payable from, mortgage loans secured by real property,
and include single- and multi-class pass-through
securities and collateralized mortgage obligations.
Such securities may be issued or guaranteed by U.S.
government agencies or instrumentalities, such as the
Government National Mortgage Association and the
Federal National Mortgage Association, or by private
issuers, generally originators and investors in
mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers,
and special purpose entities (collectively, "private
lenders"). Mortgage-backed securities issued by
private lenders may be supported by pools of mortgage
loans or other mortgage-backed securities that are
guaranteed, directly or indirectly, by the U.S.
government or one of its agencies or instrumentalities,
or they may be issued without any governmental
guarantee of the underlying mortgage assets but with
some form of non-governmental credit enhancement.
Asset-backed securities have structural
characteristics similar to mortgage-backed securities.
Asset-backed debt obligations represent direct or
indirect participations in, or are secured by and
payable from, assets such as motor vehicle installment
sales contracts, other installment loan contracts, home
equity loans, leases of various types of property, and
receivables from credit card or other revolving credit
arrangements. The credit quality of most asset-backed
securities depends primarily on the credit quality of
the assets underlying such securities, how well the
entity issuing the security is insulated from the
credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit
enhancement of the securities. Payments or
distributions of principal and interest on asset-backed
debt obligations may be supported by non-governmental
credit enhancements including letters of credit,
reserve funds, overcollateralization, and guarantees by
third parties. The market for privately issued asset-
backed debt obligations is smaller and less liquid than
the market for government sponsored mortgage-backed
securities.
The rate of principal payment on mortgage- and
asset-backed securities generally depends on the rate
of principal payments received on the underlying assets
which in turn may be effected by a variety of economic
and other factors. As a result, the yield on any
mortgage- and asset-backed security is difficult to
predict with precision and actual yield to maturity may
be more or less than the anticipated yield to maturity.
The yield characteristics of mortgage- and asset-backed
securities differ from those of traditional debt
securities. Among the principal differences
<PAGE>
are that
interest and principal payments are made more
frequently on mortgage- and asset-backed securities,
usually monthly, and that principal may be prepaid at
any time because the underlying mortgage loans or other
assets generally may be prepaid at any time. As a
result, if a Fund purchases these securities at a
premium, a prepayment rate that is faster than expected
will reduce yield to maturity, while a prepayment rate
that is slower than expected will have the opposite
effect of increasing the yield to maturity.
Conversely, if a Fund purchases these securities at a
discount, a prepayment rate that is faster than
expected will increase yield to maturity, while a
prepayment rate that is slower than expected will
reduce yield to maturity. Accelerated prepayments on
securities purchased by a Fund at a premium also impose
a risk of loss of principal because the premium may not
have been fully amortized at the time the principal is
prepaid in full.
While many mortgage- and asset-backed securities
are issued with only one class of security, many are
issued in more than one class, each with different
payment terms. Multiple class mortgage- and asset-
backed securities are issued for two main reasons.
First, multiple classes may be used as a method of
providing credit support. This is accomplished
typically through creation of one or more classes whose
right to payments on the security is made subordinate
to the right to such payments of the remaining class or
classes. Second, multiple classes may permit the
issuance of securities with payment terms, interest
rates, or other characteristics differing both from
those of each other and from those of the underlying
assets. Examples include so-called "strips" (mortgage-
and asset-backed securities entitling the holder to
disproportionate interests with respect to the
allocation of interest and principal of the assets
backing the security), and securities with class or
classes having characteristics which mimic the
characteristics of non-mortgage- or asset-backed
securities, such as floating interest rates (i.e.,
interest rates which adjust as a specified benchmark
changes) or scheduled amortization of principal.
The Funds may invest in stripped mortgage- or
asset-backed securities, which receive differing
proportions of the interest and principal payments from
the underlying assets. The market value of such
securities generally is more sensitive to changes in
prepayment and interest rates than is the case with
traditional mortgage- and asset-backed securities, and
in some cases such market value may be extremely
volatile. With respect to certain stripped securities,
such as interest only ("IO") and principal only ("PO")
classes, a rate of prepayment that is faster or slower
than anticipated may result in a Fund failing to
recover all or a portion of its investment, even though
the securities are rated investment grade.
Mortgage- and asset-backed securities backed by
assets, other than as described above, or in which the
payment streams on the underlying assets are allocated
in a manner different than those described above may be
issued in the future. A Fund may invest in such
securities if such investment is otherwise consistent
with its investment objectives, policies and
restrictions.
Repurchase Agreements
The Funds may enter into repurchase agreements
with certain banks or non-bank dealers. In a
repurchase agreement, a Fund buys a security at one
price, and at the time of sale, the seller agrees to
repurchase the obligation at a mutually agreed upon
time and price (usually within seven days). The
repurchase agreement, thereby, determines the yield
during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the
value of the underlying security. The Subadviser will
monitor, on an ongoing basis, the value of the
underlying securities to ensure that the value always
equals or exceeds the repurchase price plus accrued
interest. Repurchase agreements could involve certain
risks in the event of a default or insolvency of the
other party to the agreement, including possible delays
or restrictions upon a Fund's ability to dispose of the
underlying securities. Although no definitive
creditworthiness criteria are used, the Subadviser
reviews the creditworthiness of the banks and non-bank
dealers with which the Funds enter into repurchase
agreements to evaluate those risks.
Reverse Repurchase Agreements
The Funds may engage in reverse repurchase
agreements to facilitate portfolio liquidity (a
practice common in the mutual fund industry) or for
arbitrage transactions discussed below. In a reverse
repurchase agreement, a Fund
<PAGE>
would sell a security and
enter into an agreement to repurchase the security at a
specified future date and price. A Fund generally
retains the right to interest and principal payments on
the security. Since a Fund receives cash upon entering
into a reverse repurchase agreement, it may be
considered a borrowing. When required by guidelines of
the SEC, the Fund will set aside permissible liquid
assets in a segregated account to secure its
obligations to repurchase the security.
The reverse repurchase agreements entered into by
a Fund may be used as arbitrage transactions in which
the Fund will maintain an offsetting position in
investment grade debt obligations or repurchase
agreements that mature on or before the settlement date
on the related reverse repurchase agreements. Since
the Fund will receive interest on the securities or
repurchase agreements in which it invests the
transaction proceeds, such transactions may involve
leverage. However, since such securities or repurchase
agreements will be high quality and will mature on or
before the settlement date of the reverse repurchase
agreement, the Subadviser believes that such arbitrage
transactions do not present the risks to the Fund that
are associated with other types of leverage.
When-Issued Securities
Each Fund may from time to time purchase
securities on a "when-issued" basis. The price of
securities purchased on a when-issued basis is fixed at
the time the commitment to purchase is made, with
delivery and payment for the securities occurring at a
later date. Normally, the settlement date occurs
within 45 days of the purchase. During the period
between the purchase and settlement, no payment is made
by a Fund to the issuer and no interest is accrued on
debt securities or dividend income is earned on equity
securities. Forward commitments involve a risk of loss
if the value of the security to be purchased declines
prior to the settlement date, which risk is in addition
to the risk of decline in value of a Fund's other
assets. While when-issued securities may be sold prior
to the settlement date, the Funds intend to purchase
such securities with the purpose of actually acquiring
them. At the time a Fund makes the commitment to
purchase a security on a when-issued basis, it will
record the transaction and reflect the value of the
security in determining its net asset value.
The Fund will maintain liquid securities equal in
value to commitments for when-issued securities. Such
segregated securities either will mature or, if
necessary, be sold on or before the settlement date.
When the time comes to pay for when-issued securities,
the Fund will meet its obligations from then available
cash flow, sale of the securities held in the separate
account, described above, sale of other securities or,
although it would not normally expect to do so, from
the sale of the when-issued securities themselves
(which may have a market value greater or less than the
Fund's payment obligation).
Derivative Instruments
In General. Each Fund may use derivative
instruments for any lawful purpose consistent with the
Fund's investment objective such as hedging or managing
risk, but not for speculation. Derivative instruments
are commonly defined to include securities or contracts
whose value depend on (or "derive" from) the value of
one or more other assets, such as securities,
currencies, or commodities. These "other assets" are
commonly referred to as "underlying assets."
A derivative instrument generally consists of, is
based upon, or exhibits characteristics similar to
options or forward contracts. Options and forward
contracts are considered to be the basic "building
blocks" of derivatives. For example, forward-based
derivatives include forward contracts, swap contracts,
as well as exchange-traded futures. Option-based
derivatives include privately negotiated, over-the-
counter (OTC) options (including caps, floors, collars,
and options on forward and swap contracts) and exchange-
traded options on futures. Diverse types of
derivatives may be created by combining options or
forward contracts in different ways, and by applying
these structures to a wide range of underlying assets.
An option is a contract in which the "holder" (the
buyer) pays a certain amount (the "premium") to the
"writer" (the seller) to obtain the right, but not the
obligation, to buy from the writer (in a "call") or
sell to the writer
<PAGE>
(in a "put") a specific asset at an
agreed upon price at or before a certain time. The
holder pays the premium at inception and has no
further financial obligation. The holder of an option-
based derivative generally will benefit from favorable
movements in the price of the underlying asset but is
not exposed to corresponding losses due to adverse
movements in the value of the underlying asset. The
writer of an option-based derivative generally will
receive fees or premiums but generally is exposed to
losses due to changes in the value of the underlying
asset.
A forward is a sales contract between a buyer
(holding the "long" position) and a seller (holding the
"short" position) for an asset with delivery deferred
until a future date. The buyer agrees to pay a fixed
price at the agreed future date and the seller agrees
to deliver the asset. The seller hopes that the market
price on the delivery date is less than the agreed upon
price, while the buyer hopes for the contrary. The
change in value of a forward-based derivative generally
is roughly proportional to the change in value of the
underlying asset.
Hedging. A Fund may use derivative instruments to
protect against possible adverse changes in the market
value of securities held in, or are anticipated to be
held in, the Fund's portfolio. Derivatives may also be
used by a Fund to "lock-in" its realized but
unrecognized gains in the value of its portfolio
securities. Hedging strategies, if successful, can
reduce the risk of loss by wholly or partially
offsetting the negative effect of unfavorable price
movements in the investments being hedged. However,
hedging strategies can also reduce the opportunity for
gain by offsetting the positive effect of favorable
price movements in the hedged investments.
Managing Risk. A Fund may also use derivative
instruments to manage the risks of the Fund's
portfolio. Risk management strategies include, but are
not limited to, facilitating the sale of portfolio
securities, managing the effective maturity or duration
of debt obligations in a Fund's portfolio, establishing
a position in the derivatives markets as a substitute
for buying or selling certain securities, or creating
or altering exposure to certain asset classes, such as
equity, debt, and foreign securities. The use of
derivative instruments may provide a less expensive,
more expedient or more specifically focused way for a
Fund to invest than "traditional" securities (i.e.,
stocks or bonds) would.
Exchange or OTC Derivatives. Derivative
instruments may be exchange-traded or traded in OTC
transactions between private parties. Exchange-traded
derivatives are standardized options and futures
contracts traded in an auction on the floor of a
regulated exchange. Exchange contracts are generally
liquid. The exchange clearinghouse is the counterparty
of every contract. Thus, each holder of an exchange
contract bears the credit risk of the clearinghouse
(and has the benefit of its financial strength) rather
than that of a particular counterparty. Over-the-
counter transactions are subject to additional risks,
such as the credit risk of the counterparty to the
instrument, and are less liquid than exchange-traded
derivatives since they often can only be closed out
with the other party to the transaction.
Risks and Special Considerations. The use of
derivative instruments involves risks and special
considerations as described below. Risks pertaining to
particular derivative instruments are described in the
sections that follow.
(1) Market Risk. The primary risk of derivatives
is the same as the risk of the underlying assets;
namely, that the value of the underlying asset may go
up or down. Adverse movements in the value of an
underlying asset can expose a Fund to losses.
Derivative instruments may include elements of leverage
and, accordingly, the fluctuation of the value of the
derivative instrument in relation to the underlying
asset may be magnified. The successful use of
derivative instruments depends upon a variety of
factors, particularly the Subadviser's ability to
predict movements of the securities, currencies, and
commodities markets, which requires different skills
than predicting changes in the prices of individual
securities. There can be no assurance that any
particular strategy adopted will succeed. A decision
to engage in a derivative transaction will reflect the
Subadviser's judgment that the derivative transaction
will provide value to the Fund and its shareholders and
is consistent with the Fund's objectives, investment
limitations, and operating policies. In making such a
judgment, the Subadviser will analyze the benefits and
risks of the derivative transaction and weigh them in
the context of the Fund's entire portfolio and
investment objective.
<PAGE>
(2) Credit Risk. A Fund will be subject to the
risk that a loss may be sustained by the Fund as a
result of the failure of a counterparty to comply with
the terms of a derivative instrument. The counterparty
risk for exchange-traded derivative instruments is
generally less than for privately-negotiated or OTC
derivative instruments, since generally a clearing
agency, which is the issuer or counterparty to each
exchange-traded instrument, provides a guarantee of
performance. For privately-negotiated instruments,
there is no similar clearing agency guarantee. In all
transactions, a Fund will bear the risk that the
counterparty will default, and this could result in a
loss of the expected benefit of the derivative
transaction and possibly other losses to the Fund. A
Fund will enter into transactions in derivative
instruments only with counterparties that the
Subadviser reasonably believes are capable of
performing under the contract.
(3) Correlation Risk. When a derivative
transaction is used to completely hedge another
position, changes in the market value of the combined
position (the derivative instrument plus the position
being hedged) result from an imperfect correlation
between the price movements of the two instruments.
With a perfect hedge, the value of the combined
position remains unchanged for any change in the price
of the underlying asset. With an imperfect hedge, the
value of the derivative instrument and its hedge are
not perfectly correlated. Correlation risk is the risk
that there might be imperfect correlation, or even no
correlation, between price movements of an instrument
and price movements of investments being hedged. For
example, if the value of a derivative instrument used
in a short hedge (such as writing a call option, buying
a put option, or selling a futures contract) increased
by less than the decline in value of the hedged
investments, the hedge would not be perfectly
correlated. Such a lack of correlation might occur due
to factors unrelated to the value of the investments
being hedged, such as speculative or other pressures on
the markets in which these instruments are traded. The
effectiveness of hedges using instruments on indices
will depend, in part, on the degree of correlation
between price movements in the index and price
movements in the investments being hedged.
(4) Liquidity Risk. Derivatives are also subject
to liquidity risk. Liquidity risk is the risk that a
derivative instrument cannot be sold, closed out, or
replaced quickly at or very close to its fundamental
value. Generally, exchange contracts are very liquid
because the exchange clearinghouse is the counterparty
of every contract. OTC transactions are less liquid
than exchange-traded derivatives since they often can
only be closed out with the other party to the
transaction. A Fund might be required by applicable
regulatory requirement to maintain assets as "cover,"
maintain segregated accounts, and/or make margin
payments when it takes positions in derivative
instruments involving obligations to third parties
(i.e., instruments other than purchased options). If a
Fund is unable to close out its positions in such
instruments, it might be required to continue to
maintain such assets or accounts or make such payments
until the position expired, matured, or is closed out.
The requirements might impair a Fund's ability to sell
a portfolio security or make an investment at a time
when it would otherwise be favorable to do so, or
require that the Fund sell a portfolio security at a
disadvantageous time. A Fund's ability to sell or
close out a position in an instrument prior to
expiration or maturity depends on the existence of a
liquid secondary market or, in the absence of such a
market, the ability and willingness of the counterparty
to enter into a transaction closing out the position.
Therefore, there is no assurance that any derivatives
position can be sold or closed out at a time and price
that is favorable to a Fund.
(5) Legal Risk. Legal risk is the risk of loss
caused by the legal unenforceability of a party's
obligations under the derivative. While a party
seeking price certainty agrees to surrender the
potential upside in exchange for downside protection,
the party taking the risk is looking for a positive
payoff. Despite this voluntary assumption of risk, a
counterparty that has lost money in a derivative
transaction may try to avoid payment by exploiting
various legal uncertainties about certain derivative
products.
(6) Systemic or "Interconnection" Risk.
Interconnection risk is the risk that a disruption in
the financial markets will cause difficulties for all
market participants. In other words, a disruption in
one market will spill over into other markets, perhaps
creating a chain reaction. Much of the OTC derivatives
market takes place among the OTC dealers themselves,
thus creating a large interconnected web of financial
obligations. This
<PAGE>
interconnectedness raises the
possibility that a default by one large dealer could
create losses for other dealers and destabilize the
entire market for OTC derivative instruments.
General Limitations. The use of derivative
instruments is subject to applicable regulations of the
SEC, the several options and futures exchanges upon
which they may be traded, the Commodity Futures Trading
Commission ("CFTC"), and various state regulatory
authorities.
The Corporation has filed a notice of eligibility
for exclusion from the definition of the term
"commodity pool operator" with the CFTC and the
National Futures Association, which regulate trading in
the futures markets. In accordance with Rule 4.5 of
the regulations under the CEA, the notice of
eligibility for the Funds includes representations that
each Fund will use futures contracts and related
options solely for bona fide hedging purposes within
the meaning of CFTC regulations, provided that a Fund
may hold other positions in futures contracts and
related options that do not qualify as a bona fide
hedging position if the aggregate initial margin
deposits and premiums required to establish these
positions, less the amount by which any such futures
contracts and related options positions are "in the
money," do not exceed 5% of the Fund's net assets.
Adherence to these guidelines does not, however, limit
a Fund's risk to 5% of the Fund's assets.
In addition, (i) the aggregate value of securities
underlying call options on securities written by a Fund
or obligations underlying put options on securities
written by a Fund determined as of the date the options
are written will not exceed 50% of the Fund's net
assets; (ii) the aggregate premiums paid on all options
purchased by a Fund and which are being held will not
exceed 20% of the Fund's net assets; (iii) a Fund will
not purchase put or call options, other than hedging
positions, if, as a result thereof, more than 5% of its
total assets would be so invested; and (iv) the
aggregate margin deposits required on all futures and
options on futures transactions being held will not
exceed 5% of a Fund's total assets.
The SEC has identified certain trading practices
involving derivative instruments that involve the
potential for leveraging a Fund's assets in a manner
that raises issues under the 1940 Act. In order to
limit the potential for the leveraging of a Fund's
assets, as defined under the 1940 Act, the SEC has
stated that a Fund may use coverage or the segregation
of a Fund's assets. The Funds will also set aside
permissible liquid assets in a segregated custodial
account if required to do so by SEC and CFTC
regulations. Assets used as cover or held in a
segregated account cannot be sold while the derivative
position is open, unless they are replaced with similar
assets. As a result, the commitment of a large portion
of a Fund's assets to segregated accounts could impede
portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
In some cases a Fund may be required to maintain
or limit exposure to a specified percentage of its
assets to a particular asset class. In such cases,
when a Fund uses a derivative instrument to increase or
decrease exposure to an asset class and is required by
applicable SEC guidelines to set aside liquid assets in
a segregated account to secure its obligations under
the derivative instruments, the Subadviser may, where
reasonable in light of the circumstances, measure
compliance with the applicable percentage by reference
to the nature of the economic exposure created through
the use of the derivative instrument and not by
reference to the nature of the exposure arising from
the assets set aside in the segregated account (unless
another interpretation is specified by applicable
regulatory requirements).
Options. A Fund may use options for any lawful
purpose consistent with the Fund's investment objective
such as hedging or managing risk but not for
speculation. An option is a contract in which the
"holder" (the buyer) pays a certain amount (the
"premium") to the "writer" (the seller) to obtain the
right, but not the obligation, to buy from the writer
(in a "call") or sell to the writer (in a "put") a
specific asset at an agreed upon price (the "strike
price" or "exercise price") at or before a certain time
(the "expiration date"). The holder pays the premium
at inception and has no further financial obligation.
The holder of an option will benefit from favorable
movements in the price of the underlying asset but is
not exposed to corresponding losses due to adverse
movements in the value of the underlying asset. The
writer of an option will receive fees or premiums but
is exposed to losses due to changes in the value of the
underlying asset. A Fund may purchase (buy) or write
(sell) put and call options on assets, such as
securities, currencies, commodities, and indices of
debt and equity securities ("underlying assets") and
enter into
<PAGE>
closing transactions with respect to such
options to terminate an existing position. Options
used by the Funds may include European, American, and
Bermuda style options. If an option is exercisable
only at maturity, it is a "European" option; if it is
also exercisable prior to maturity, it is an "American"
option. If it is exercisable only at certain times, it
is a "Bermuda" option.
Each Fund may purchase (buy) and write (sell) put
and call options and enter into closing transactions
with respect to such options to terminate an existing
position. The purchase of call options serves as a
long hedge, and the purchase of put options serves as a
short hedge. Writing put or call options can enable a
Fund to enhance income by reason of the premiums paid
by the purchaser of such options. Writing call options
serves as a limited short hedge because declines in the
value of the hedged investment would be offset to the
extent of the premium received for writing the option.
However, if the security appreciates to a price higher
than the exercise price of the call option, it can be
expected that the option will be exercised and the Fund
will be obligated to sell the security at less than its
market value or will be obligated to purchase the
security at a price greater than that at which the
security must be sold under the option. All or a
portion of any assets used as cover for OTC options
written by a Fund would be considered illiquid to the
extent described under "Investment Policies and
Techniques - Illiquid Securities." Writing put options
serves as a limited long hedge because increases in the
value of the hedged investment would be offset to the
extent of the premium received for writing the option.
However, if the security depreciates to a price lower
than the exercise price of the put option, it can be
expected that the put option will be exercised and the
Fund will be obligated to purchase the security at more
than its market value.
The value of an option position will reflect,
among other things, the historical price volatility of
the underlying investment, the current market value of
the underlying investment, the time remaining until
expiration, the relationship of the exercise price to
the market price of the underlying investment, and
general market conditions.
A Fund may effectively terminate its right or
obligation under an option by entering into a closing
transaction. For example, a Fund may terminate its
obligation under a call or put option that it had
written by purchasing an identical call or put option;
this is known as a closing purchase transaction.
Conversely, a Fund may terminate a position in a put or
call option it had purchased by writing an identical
put or call option; this is known as a closing sale
transaction. Closing transactions permit a Fund to
realize the profit or limit the loss on an option
position prior to its exercise or expiration.
The Funds may purchase or write both exchange-
traded and OTC options. Exchange-traded options are
issued by a clearing organization affiliated with the
exchange on which the option is listed that, in effect,
guarantees completion of every exchange-traded option
transaction. In contrast, OTC options are contracts
between a Fund and the other party to the transaction
("counter party") (usually a securities dealer or a
bank) with no clearing organization guarantee. Thus,
when a Fund purchases or writes an OTC option, it
relies on the counter party to make or take delivery of
the underlying investment upon exercise of the option.
Failure by the counter party to do so would result in
the loss of any premium paid by the Fund as well as the
loss of any expected benefit of the transaction.
A Fund's ability to establish and close out
positions in exchange-listed options depends on the
existence of a liquid market. Each Fund intends to
purchase or write only those exchange-traded options
for which there appears to be a liquid secondary
market. However, there can be no assurance that such a
market will exist at any particular time. Closing
transactions can be made for OTC options only by
negotiating directly with the counter party, or by a
transaction in the secondary market if any such market
exists. Although each Fund will enter into OTC options
only with counter parties that are expected to be
capable of entering into closing transactions with the
Funds, there is no assurance that the Funds will in
fact be able to close out an OTC option at a favorable
price prior to expiration. In the event of insolvency
of the counter party, a Fund might be unable to close
out an OTC option position at any time prior to its
expiration. If a Fund were unable to effect a closing
transaction for an option it had purchased, it would
have to exercise the option to realize any profit.
<PAGE>
The Funds may engage in options transactions on
indices in much the same manner as the options on
securities discussed above, except the index options
may serve as a hedge against overall fluctuations in
the securities market in general.
The writing and purchasing of options is a highly
specialized activity that involves investment
techniques and risks different from those associated
with ordinary portfolio securities transactions.
Imperfect correlation between the options and
securities markets may detract from the effectiveness
of attempted hedging.
Spread Transactions. A Fund may use spread
transactions for any lawful purpose consistent with the
Fund's investment objective such as hedging or managing
risk, but not for speculation. A Fund may purchase
covered spread options from securities dealers. Such
covered spread options are not presently exchange-
listed or exchange-traded. The purchase of a spread
option gives a Fund the right to put, or sell, a
security that it owns at a fixed dollar spread or fixed
yield spread in relationship to another security that
the Fund does not own, but which is used as a
benchmark. The risk to a Fund in purchasing covered
spread options is the cost of the premium paid for the
spread option and any transaction costs. In addition,
there is no assurance that closing transactions will be
available. The purchase of spread options will be used
to protect a Fund against adverse changes in prevailing
credit quality spreads, i.e., the yield spread between
high quality and lower quality securities. Such
protection is only provided during the life of the
spread option.
Futures Contracts. A Fund may use futures
contracts for any lawful purpose consistent with the
Fund's investment objective such as hedging and
managing risk but not for speculation. A Fund may
enter into futures contracts, including interest rate,
index, and currency futures. Each Fund may also
purchase put and call options, and write covered put
and call options, on futures in which it is allowed to
invest. The purchase of futures or call options
thereon can serve as a long hedge, and the sale of
futures or the purchase of put options thereon can
serve as a short hedge. Writing covered call options
on futures contracts can serve as a limited short
hedge, and writing covered put options on futures
contracts can serve as a limited long hedge, using a
strategy similar to that used for writing covered
options in securities. The Funds' hedging may include
purchases of futures as an offset against the effect of
expected increases in currency exchange rates and
securities prices and sales of futures as an offset
against the effect of expected declines in currency
exchange rates and securities prices. The Funds may
also write put options on futures contracts while at
the same time purchasing call options on the same
futures contracts in order to create synthetically a
long futures contract position. Such options would
have the same strike prices and expiration dates. The
Funds will engage in this strategy only when the
Subadviser believes it is more advantageous to the
Funds than is purchasing the futures contract.
To the extent required by regulatory authorities,
the Funds may enter into futures contracts that are
traded on national futures exchanges and are
standardized as to maturity date and underlying
financial instrument. Futures exchanges and trading
are regulated under the CEA by the CFTC. Although
techniques other than sales and purchases of futures
contracts could be used to reduce a Fund's exposure to
market, currency, or interest rate fluctuations, a Fund
may be able to hedge its exposure more effectively and
perhaps at a lower cost through using futures
contracts.
An interest rate futures contract provides for the
future sale by one party and purchase by another party
of a specified amount of a specific financial
instrument (e.g., debt security) or currency for a
specified price at a designated date, time, and place.
An index futures contract is an agreement pursuant to
which the parties agree to take or make delivery of an
amount of cash equal to the difference between the
value of the index at the close of the last trading day
of the contract and the price at which the index
futures contract was originally written. Transaction
costs are incurred when a futures contract is bought or
sold and margin deposits must be maintained. A futures
contract may be satisfied by delivery or purchase, as
the case may be, of the instrument or the currency or
by payment of the change in the cash value of the
index. More commonly, futures contracts are closed out
prior to delivery by entering into an offsetting
transaction in a matching futures contract. Although
the value of an index might be a function of the value
of certain specified securities, no physical delivery
of those securities is made. If the offsetting
purchase price is less than the original sale price, a
Fund realizes a gain; if it is more, a Fund realizes a
<PAGE>
loss. Conversely, if the offsetting sale price is more
than the original purchase price, a Fund realizes a
gain; if it is less, a Fund realizes a loss. The
transaction costs must also be included in these
calculations. There can be no assurance, however, that
a Fund will be able to enter into an offsetting
transaction with respect to a particular futures
contract at a particular time. If a Fund is not able
to enter into an offsetting transaction, the Fund will
continue to be required to maintain the margin deposits
on the futures contract.
No price is paid by a Fund upon entering into a
futures contract. Instead, at the inception of a
futures contract, a Fund is required to deposit in a
segregated account with its custodian, in the name of
the futures broker through whom the transaction was
effected, "initial margin," consisting of cash, U.S.
government securities or other liquid, high-grade debt
obligations, in an amount generally equal to 10% or
less of the contract value. Margin must also be
deposited when writing a call or put option on a
futures contract, in accordance with applicable
exchange rules. Unlike margin in securities
transaction, initial margin on futures contracts does
not represent a borrowing, but rather is in the nature
of a performance bond or good-faith deposit that is
returned to a Fund at the termination of the
transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as
periods of high volatility, a Fund may be required by
an exchange to increase the level of its initial margin
payment, and initial margin requirements might be
increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to
and from the futures broker daily as the value of the
futures position varies, a process known as "marking to
market." Variation margin does not involve borrowing,
but rather represents a daily settlement of a Fund's
obligations to or from a futures broker. When a Fund
purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast,
when a Fund purchases or sells a futures contract or
writes a call or put option thereon, it is subject to
daily variation margin calls that could be substantial
in the event of adverse price movements. If a Fund has
insufficient cash to meet daily variation margin
requirements, it might need to sell securities at a
time when such sales are disadvantageous. Purchasers
and sellers of futures positions and options on futures
can enter into offsetting closing transactions by
selling or purchasing, respectively, an instrument
identical to the instrument held or written. Positions
in futures and options on futures may be closed only on
an exchange or board of trade that provides a secondary
market. The Funds intend to enter into futures
transactions only on exchanges or boards of trade where
there appears to be a liquid secondary market.
However, there can be no assurance that such a market
will exist for a particular contract at a particular
time.
Under certain circumstances, futures exchanges may
establish daily limits on the amount that the price of
a future or option on a futures contract can vary from
the previous day's settlement price; once that limit is
reached, no trades may be made that day at a price
beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily
limit for several consecutive days with little or no
trading, thereby preventing liquidation of unfavorable
positions.
If a Fund were unable to liquidate a futures or
option on a futures contract position due to the
absence of a liquid secondary market or the imposition
of price limits, it could incur substantial losses.
The Fund would continue to be subject to market risk
with respect to the position. In addition, except in
the case of purchased options, the Fund would continue
to be required to make daily variation margin payments
and might be required to maintain the position being
hedged by the future or option or to maintain certain
liquid securities in a segregated account.
Certain characteristics of the futures market
might increase the risk that movements in the prices of
futures contracts or options on futures contracts might
not correlate perfectly with movements in the prices of
the investments being hedged. For example, all
participants in the futures and options on futures
contracts markets are subject to daily variation margin
calls and might be compelled to liquidate futures or
options on futures contracts positions whose prices are
moving unfavorably to avoid being subject to further
calls. These liquidations could increase the price
volatility of the instruments and distort the normal
price relationship between the futures or options and
the investments being hedged. Also, because initial
margin deposit requirements in the futures markets are
less onerous than margin requirements in the securities
markets, there might be increased participation by
speculators in the future markets. This participation
also might cause temporary price distortions. In
addition, activities of large traders in
<PAGE>
both the
futures and securities markets involving arbitrage,
"program trading," and other investment strategies
might result in temporary price distortions.
Foreign Currencies. The Funds may purchase and
sell foreign currency on a spot basis, and may use
currency-related derivatives instruments such as
options on foreign currencies, futures on foreign
currencies, options on futures on foreign currencies
and forward currency contracts (i.e., an obligation to
purchase or sell a specific currency at a specified
future date, which may be any fixed number of days from
the contract date agreed upon by the parties, at a
price set at the time the contract is entered into).
The Funds may use these instruments for hedging or any
other lawful purpose consistent with their respective
investment objectives, including transaction hedging,
anticipatory hedging, cross hedging, proxy hedging, and
position hedging. The Funds' use of currency-related
derivative instruments will be directly related to a
Fund's current or anticipated portfolio securities, and
the Funds may engage in transactions in currency-
related derivative instruments as a means to protect
against some or all of the effects of adverse changes
in foreign currency exchange rates on their portfolio
investments. In general, if the currency in which a
portfolio investment is denominated appreciates against
the U.S. dollar, the dollar value of the security will
increase. Conversely, a decline in the exchange rate
of the currency would adversely effect the value of the
portfolio investment expressed in U.S. dollars.
For example, a Fund might use currency-related
derivative instruments to "lock in" a U.S. dollar price
for a portfolio investment, thereby enabling the Fund
to protect itself against a possible loss resulting
from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the
period between the date the security is purchased or
sold and the date on which payment is made or received.
A Fund also might use currency-related derivative
instruments when the Subadviser believes that one
currency may experience a substantial movement against
another currency, including the U.S. dollar, and it may
use currency-related derivative instruments to sell or
buy the amount of the former foreign currency,
approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign
currency. Alternatively, where appropriate, a Fund may
use currency-related derivative instruments to hedge
all or part of its foreign currency exposure through
the use of a basket of currencies or a proxy currency
where such currency or currencies act as an effective
proxy for other currencies. The use of this basket
hedging technique may be more efficient and economical
than using separate currency-related derivative
instruments for each currency exposure held by the
Fund. Furthermore, currency-related derivative
instruments may be used for short hedges - for example,
a Fund may sell a forward currency contract to lock in
the U.S. dollar equivalent of the proceeds from the
anticipated sale of a security denominated in a foreign
currency.
In addition, a Fund may use a currency-related
derivative instrument to shift exposure to foreign
currency fluctuations from one foreign country to
another foreign country where the Subadviser believes
that the foreign currency exposure purchased will
appreciate relative to the U.S. dollar and thus better
protect the Fund against the expected decline in the
foreign currency exposure sold. For example, if a Fund
owns securities denominated in a foreign currency and
the Subadviser believes that currency will decline, it
might enter into a forward contract to sell an
appropriate amount of the first foreign currency, with
payment to be made in a second foreign currency that
the Subadviser believes would better protect the Fund
against the decline in the first security than would a
U.S. dollar exposure. Hedging transactions that use
two foreign currencies are sometimes referred to as
"cross hedges." The effective use of currency-related
derivative instruments by a Fund in a cross hedge is
dependent upon a correlation between price movements of
the two currency instruments and the underlying
security involved, and the use of two currencies
magnifies the risk that movements in the price of one
instrument may not correlate or may correlate
unfavorably with the foreign currency being hedged.
Such a lack of correlation might occur due to factors
unrelated to the value of the currency instruments used
or investments being hedged, such as speculative or
other pressures on the markets in which these
instruments are traded.
A Fund also might seek to hedge against changes in
the value of a particular currency when no hedging
instruments on that currency are available or such
hedging instruments are more expensive than certain
other hedging instruments. In such cases, the Fund may
hedge against price movements in that currency by
entering into transactions using currency-related
derivative instruments on another foreign currency or a
basket of currencies, the
<PAGE>
values of which the
Subadviser believes will have a high degree of positive
correlation to the value of the currency being hedged.
The risk that movements in the price of the hedging
instrument will not correlate perfectly with movements
in the price of the currency being hedged is magnified
when this strategy is used.
The use of currency-related derivative instruments
by a Fund involves a number of risks. The value of
currency-related derivative instruments depends on the
value of the underlying currency relative to the U.S.
dollar. Because foreign currency transactions
occurring in the interbank market might involve
substantially larger amounts than those involved in the
use of such derivative instruments, a Fund could be
disadvantaged by having to deal in the odd lot market
(generally consisting of transactions of less than $1
million) for the underlying foreign currencies at
prices that are less favorable than for round lots
(generally consisting of transactions of greater than
$1 million).
There is no systematic reporting of last sale
information for currencies or any regulatory
requirement that quotations available through dealers
or other market sources be firm or revised on a timely
basis. Quotation information generally is
representative of very large transactions in the
interbank market and thus might not reflect odd-lot
transactions where rates might be less favorable. The
interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options
or futures markets are closed while the markets for the
underlying currencies remain open, significant price
and rate movements might take place in the underlying
markets that cannot be reflected in the markets for the
derivative instruments until they re-open.
Settlement of transactions in currency-related
derivative instruments might be required to take place
within the country issuing the underlying currency.
Thus, a Fund might be required to accept or make
delivery of the underlying foreign currency in
accordance with any U.S. or foreign regulations
regarding the maintenance of foreign banking
arrangements by U.S. residents and might be required to
pay any fees, taxes and charges associated with such
delivery assessed in the issuing country.
When a Fund engages in a transaction in a currency-
related derivative instrument, it relies on the
counterparty to make or take delivery of the underlying
currency at the maturity of the contract or otherwise
complete the contract. In other words, the Fund will
be subject to the risk that it may sustain a loss as a
result of the failure of the counterparty to comply
with the terms of the transaction. The counterparty
risk for exchange-traded instruments is generally less
than for privately-negotiated or OTC currency
instruments, since generally a clearing agency, which
is the issuer or counterparty to each instrument,
provides a guarantee of performance. For privately-
negotiated instruments, there is no similar clearing
agency guarantee. In all transactions, the Fund will
bear the risk that the counterparty will default, and
this could result in a loss of the expected benefit of
the transaction and possibly other losses to the Fund.
The Funds will enter into transactions in currency-
related derivative instruments only with counterparties
that the Subadviser reasonably believes are capable of
performing under the contract.
Purchasers and sellers of currency-related
derivative instruments may enter into offsetting
closing transactions by selling or purchasing,
respectively, an instrument identical to the instrument
purchased or sold. Secondary markets generally do not
exist for forward currency contracts, with the result
that closing transactions generally can be made for
forward currency contracts only by negotiating directly
with the counterparty. Thus, there can be no assurance
that a Fund will, in fact, be able to close out a
forward currency contract (or any other currency-
related derivative instrument) at a time and price
favorable to the Fund. In addition, in the event of
insolvency of the counterparty, a Fund might be unable
to close out a forward currency contract at any time
prior to maturity. In the case of an exchange-traded
instrument, a Fund will be able to close the position
out only on an exchange which provides a market for the
instruments. The ability to establish and close out
positions on an exchange is subject to the maintenance
of a liquid market, and there can be no assurance that
a liquid market will exist for any instrument at any
specific time. In the case of a privately-negotiated
instrument, a Fund will be able to realize the value of
the instrument only by entering into a closing
transaction with the issuer or finding a third party
buyer for the instrument. While the Funds will enter
into privately-negotiated transactions only with
entities who are expected to be capable of entering
into a closing transaction, there can be no assurance
that the Funds will, in fact, be able to enter into
such closing transactions.
<PAGE>
The precise matching of currency-related
derivative instrument amounts and the value of the
portfolio securities involved generally will not be
possible because the value of such securities, measured
in the foreign currency, will change after the currency-
related derivative instrument position has been
established. Thus, a Fund might need to purchase or
sell foreign currencies in the spot (cash) market. The
projection of short-term currency market movements is
extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain.
Permissible foreign currency options will include
options traded primarily in the OTC market. Although
options on foreign currencies are traded primarily in
the OTC market, the Funds will normally purchase or
sell OTC options on foreign currency only when the
Subadviser reasonably believes a liquid secondary
market will exist for a particular option at any
specific time.
There will be a cost to the Funds of engaging in
transactions in currency-related derivative instruments
that will vary with factors such as the contract or
currency involved, the length of the contract period
and the market conditions then prevailing. A Fund
using these instruments may have to pay a fee or
commission or, in cases where the instruments are
entered into on a principal basis, foreign exchange
dealers or other counterparties will realize a profit
based on the difference ("spread") between the prices
at which they are buying and selling various
currencies. Thus, for example, a dealer may offer to
sell a foreign currency to a Fund at one rate, while
offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
When required by the SEC guidelines, the Funds
will set aside permissible liquid assets in segregated
accounts or otherwise cover their respective potential
obligations under currency-related derivatives
instruments. To the extent a Fund's assets are so set
aside, they cannot be sold while the corresponding
currency position is open, unless they are replaced
with similar assets. As a result, if a large portion
of a Fund's assets are so set aside, this could impede
portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
The Subadviser's decision to engage in a
transaction in a particular currency-related derivative
instrument will reflect the Subadviser's judgment that
the transaction will provide value to the Fund and its
shareholders and is consistent with the Fund's
objectives and policies. In making such a judgment,
the Subadviser will analyze the benefits and risks of
the transaction and weigh them in the context of the
Fund's entire portfolio and objectives. The
effectiveness of any transaction in a currency-related
derivative instrument is dependent on a variety of
factors, including the Subadviser's skill in analyzing
and predicting currency values and upon a correlation
between price movements of the currency instrument and
the underlying security. There might be imperfect
correlation, or even no correlation, between price
movements of an instrument and price movements of
investments being hedged. Such a lack of correlation
might occur due to factors unrelated to the value of
the investments being hedged, such as speculative or
other pressures on the markets in which these
instruments are traded. In addition, a Fund's use of
currency-related derivative instruments is always
subject to the risk that the currency in question could
be devalued by the foreign government. In such a case,
any long currency positions would decline in value and
could adversely affect any hedging position maintained
by the Fund.
The Funds' dealing in currency-related derivative
instruments will generally be limited to the
transactions described above. However, the Funds
reserve the right to use currency-related derivatives
instruments for different purposes and under different
circumstances. Of course, the Funds are not required
to use currency-related derivatives instruments and
will not do so unless deemed appropriate by the
Subadviser. It should also be realized that use of
these instruments does not eliminate, or protect
against, price movements in the Funds' securities that
are attributable to other (i.e., non-currency related)
causes. Moreover, while the use of currency-related
derivatives instruments may reduce the risk of loss due
to a decline in the value of a hedged currency, at the
same time the use of these instruments tends to limit
any potential gain which may result from an increase in
the value of that currency.
Swap Agreements. The Funds may enter into
interest rate, securities index, commodity, or security
and currency exchange rate swap agreements for any
lawful purpose consistent with each Fund's investment
objective, such as for the purpose of attempting to
obtain or preserve a particular desired return or
spread at a lower cost to the
<PAGE>
Fund than if the Fund had
invested directly in an instrument that yielded that
desired return or spread. The Funds may also enter
into swaps in order to protect against an increase in
the price of, or the currency exchange rate applicable
to, securities that the particular Fund anticipates
purchasing at a later date. Swap agreements are two-
party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to
several years. In a standard "swap" transaction, two
parties agree to exchange the returns (or differentials
in rates of return) earned or realized on particular
predetermined investments or instruments. The gross
returns to be exchanged or "swapped" between the
parties are calculated with respect to a "notional
amount," i.e., the return on or increase in value of a
particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in
a "basket" of securities representing a particular
index. Swap agreements may include interest rate caps,
under which, in return for a premium, one party agrees
to make payments to the other to the extent that
interest rates exceed a specified rate, or "cap;"
interest rate floors, under which, in return for a
premium, one party agrees to make payments to the other
to the extent that interest rates fall below a
specified level, or "floor;" and interest rate collars,
under which a party sells a cap and purchases a floor,
or vice versa, in an attempt to protect itself against
interest rate movements exceeding given minimum or
maximum levels.
The "notional amount" of the swap agreement is the
agreed upon basis for calculating the obligations that
the parties to a swap agreement have agreed to
exchange. Under most swap agreements entered into by a
Fund, the obligations of the parties would be exchanged
on a "net basis." Consequently, a Fund's obligation
(or rights) under a swap agreement will generally be
equal only to the net amount to be paid or received
under the agreement based on the relative values of the
positions held by each party to the agreement (the "net
amount"). A Fund's obligation under a swap agreement
will be accrued daily (offset against amounts owed to
the Fund) and any accrued but unpaid net amounts owed
to a swap counterparty will be covered by the
maintenance of a segregated account generally
consisting of liquid assets.
Whether a Fund's use of swap agreements will be
successful in furthering its investment objective will
depend, in part, on the Subadviser's ability to predict
correctly whether certain types of investments are
likely to produce greater returns than other
investments. Swap agreements may be considered to be
illiquid. Moreover, a Fund bears the risk of loss of
the amount expected to be received under a swap
agreement in the event of the default or bankruptcy of
a swap agreement counterparty. Certain restrictions
imposed on the Funds by the Internal Revenue Code may
limit the Funds' ability to use swap agreements. The
swaps market is largely unregulated.
The Funds will enter swap agreements only with
counterparties that the Subadviser reasonably believes
are capable of performing under the swap agreements.
If there is a default by the other party to such a
transaction, a Fund will have to rely on its
contractual remedies (which may be limited by
bankruptcy, insolvency or similar laws) pursuant to the
agreements related to the transaction.
Additional Derivative Instruments and Strategies.
In addition to the derivative instruments and
strategies described above and in the Funds'
Prospectus, the Subadviser expects to discover
additional derivative instruments and other hedging or
risk management techniques. The Subadviser may utilize
these new derivative instruments and techniques to the
extent that they are consistent with a Fund's
investment objective and permitted by the Fund's
investment limitations, operating policies, and
applicable regulatory authorities.
Foreign Securities
Investing in foreign securities involves a series
of risks not present in investing in U.S. securities.
Many of the foreign securities held by a Fund will not
be registered with the SEC, nor will the foreign
issuers be subject to SEC reporting requirements.
Accordingly, there may be less publicly available
information concerning foreign issuers of securities
held by a Fund than is available concerning U.S.
companies. Disclosure and regulatory standards in many
respects are less stringent in emerging market
countries than in the U.S. and other major markets.
There also may be a lower level of monitoring and
regulation of emerging markets and the activities of
investors in such markets, and enforcement of existing
regulations may be extremely limited. Foreign
companies, and in particular, companies in smaller and
emerging capital markets are not generally subject to
uniform accounting,
<PAGE>
auditing and financial reporting
standards, or to other regulatory requirements
comparable to those applicable to U.S. companies. A
Fund's net investment income and capital gains from its
foreign investment activities may be subject to non-
U.S. withholding on other taxes.
The costs attributable to foreign investing that a
Fund must bear frequently are higher than those
attributable to domestic investing; this is
particularly true with respect to emerging capital
markets. For example, the cost of maintaining custody
of foreign securities exceeds custodian costs for
domestic securities, and transaction and settlement
costs of foreign investing also frequently are higher
than those attributable to domestic investing. Costs
associated with the exchange of currencies also make
foreign investing more expensive than domestic
investing.
Foreign markets also have different clearance and
settlement procedures, and in certain markets there
have been times when settlements have failed to keep
pace with the volume of securities transactions, making
it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when
assets of a Fund are uninvested and no return is earned
thereon. The inability of a Fund to make intended
security purchases due to settlement problems could
cause the Fund to miss investment opportunities.
Inability to dispose of a portfolio security due to
settlement problems could result either in losses to a
Fund due to subsequent declines in the value of such
portfolio security or, if the Fund has entered into a
contract to sell the security, could result in possible
liability to the purchaser.
Depositary Receipts
Each Fund may invest in foreign securities by
purchasing depositary receipts, including American
Depositary Receipts ("ADRs") and European Depositary
Receipts ("EDRs") or other securities convertible into
securities or issuers based in foreign countries.
These securities may not necessarily be denominated in
the same currency as the securities into which they may
be converted. Generally, ADRs, in registered form, are
denominated in U.S. dollars and are designed for use in
the U.S. securities markets, while EDRs, in bearer
form, may be denominated in other currencies and are
designed for use in European securities markets. ADRs
are receipts typically issued by a U.S. Bank or trust
company evidencing ownership of the underlying
securities. EDRs are European receipts evidencing a
similar arrangement. For purposes of a Fund's
investment policies, ADRs and EDRs are deemed to have
the same classification as the underlying securities
they represent. Thus, an ADR or EDR representing
ownership of common stock will be treated as common
stock.
ADR facilities may be established as either
"unsponsored" or "sponsored." While ADRs issued under
these two types of facilities are in some respects
similar, there are distinctions between them relating
to the rights and obligations of ADR holders and the
practices of market participants. A depositary may
establish an unsponsored facility without participation
by (or even necessarily the acquiescence of) the issuer
of the deposited securities, although typically the
depositary requests a letter of non-objection from such
issuer prior to the establishment of the facility.
Holders of unsponsored ADRs generally bear all the
costs of such facilities. The depositary usually
charges fees upon the deposit and withdrawal of the
deposited securities, the conversion of dividends into
U.S. dollars, the disposition of non-cash distribution,
and the performance of other services. The depositary
of an unsponsored facility frequently is under no
obligation to distribute shareholder communications
received from the issuer of the deposited securities or
to pass through voting rights to ADR holders in respect
of the deposited securities. Sponsored ADR facilities
are created in generally the same manner as unsponsored
facilities, except that the issuer of the deposited
securities enters into a deposit agreement with the
depositary. The deposit agreement sets out the rights
and responsibilities of the issuer, the depositary and
the ADR holders. With sponsored facilities, the issuer
of the deposited securities generally will bear some of
the costs relating to the facility (such as dividend
payment fees of the depositary), although ADR holders
continue to bear certain other costs (such as deposit
and withdrawal fees). Under the terms of most
sponsored arrangements, depositories agree to
distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications
and other information to the ADR holders at the request
of the issuer of the deposited securities.
<PAGE>
Foreign Investment Companies
The Funds may invest, to a limited extent, in
foreign investment companies. Some of the countries in
which the Funds invest may not permit direct investment
by outside investors. Investments in such countries
may only be permitted through foreign government-
approved or -authorized investment vehicles, which may
include other investment companies. In addition, it
may be less expensive and more expedient for a Fund to
invest in a foreign investment company in a country
which permits direct foreign investment. Investing
through such vehicles may involve frequent or layered
fees or expenses and may also be subject to limitation
under the 1940 Act. Under the 1940 Act, a Fund may
invest up to 10% of its assets in shares of other
investment companies and up to 5% of its assets in any
one investment company as long as the investment does
not represent more than 3% of the voting stock of the
acquired investment company. The Funds do not intend
to invest in such investment companies unless, in the
judgment of the Subadviser, the potential benefits of
such investments justify the payment of any associated
fees and expenses.
Warrants
Each Fund may invest in warrants, valued at the
lower of cost or market value, if, after giving effect
thereto, not more than 5% of its net assets will be
invested in warrants other than warrants acquired in
units or attached to other securities. Of such 5%, not
more than 2% of a Fund's net assets at the time of
purchase may be invested in warrants that are not
listed on any stock exchange. Warrants are options to
purchase equity securities at a specific price for a
specific period of time. They do not represent
ownership of the securities but only the right to buy
them. Investing in warrants is purely speculative in
that they have no voting rights, pay no dividends and
have no rights with respect to the assets of the
corporation issuing them. In addition, the value of a
warrant does not necessarily change with the value of
the underlying securities, and a warrant ceases to have
value if it is not exercised prior to its expiration
date.
Short Sales Against the Box
Each Fund may sell securities short against the
box to hedge unrealized gains on portfolio securities.
Selling securities short against the box involves
selling a security that a Fund owns or has the right to
acquire, for delivery at a specified date in the
future. If a Fund sells securities short against the
box, it may protect unrealized gains, but will lose the
opportunity to profit on such securities if the price
rises.
Unseasoned Companies
The Funds may not invest more than 5% of their
respective total assets in unseasoned companies, which
are companies with less than three years of continuous
operation. While smaller companies generally have
potential for rapid growth, they often involve higher
risks because they lack the management experience,
financial resources, product diversification and
competitive strengths of larger corporations. In
addition, in many instances, the securities of smaller
companies are traded only over-the-counter or on
regional securities exchanges, and the frequency and
volume of their trading is substantially less than is
typical of larger companies. Therefore, the securities
of these companies may be subject to wider price
fluctuations. When making large sales, the Funds may
have to sell portfolio holdings of these companies at
discounts from quoted prices or may have to make a
series of smaller sales over an extended period of time
due to the trading volume in smaller company
securities.
DIRECTORS AND OFFICERS
The directors and officers of the Corporation,
together with information as to their principal
business occupations during the last five years, and
other information, are shown below. Each director who
is deemed an "interested person," as defined in the
1940 Act, is indicated by an asterisk.
<PAGE>
*Richard D. Brace, President and a Director of the
Corporation.
Mr. Brace was born in 1942 and has served as
President, Secretary and a Director of the
Distributor since 1995 and as President and a
Director of the Adviser since August 1996. Mr.
Brace has also served as President and Chief
Executive Officer of Bracewood Financial Group, a
financial and business consulting firm, from 1990
to 1995; President and a Director of Alpha
Telecommunications Network, Inc., a long distance
telecommunications service, from 1991 to 1993;
President and Chief Executive Officer of Alcom,
Inc. from 1986 to 1990; President and a Partner of
Creative Investment Strategies, an investment
consulting firm, from 1985 to 1986; Regional Vice
President of the Intercapital Division of Dean
Witter from 1983-1984; and an Account Executive of
Merrill Lynch from 1979 to 1982. Mr. Brace holds
a Bachelors degree in Accounting and Finance and a
MBA from Andrews University. Mr. Brace has been
President and a Director of the Corporation since
August 1996.
*Donald A. Taylor, Jr., Treasurer, Secretary and a
Director of the Corporation.
Mr. Taylor was born in 1948 and has served as a
Principal and as the Vice President and Secretary
of Financial Operations for the Distributor since
1995. Mr. Taylor also worked as a Counseling
Coordinator for the Tennessee Department of
Corrections from 1990 to 1995; a Business
Consultant/Auditor for The Advisory Group from
1985 to 1990; an Investigations Assistant for the
Federal Deposit Insurance Corp. from January to
November 1984; Vice President of Operations for
Financial Reserve Corp. from 1979-1983; and as a
Special Agent - Accountant (SAA) for the FBI from
1976 to 1979. Mr. Taylor currently holds an NASD
Financial Operations Principal (FINOP) Series 27
License. Mr. Taylor received his Bachelors degree
in Business Administration, Accounting and
Marketing from Miami University. Mr. Taylor has
been Treasurer, Secretary and a Director of the
Corporation since August 1996.
James R. Harrison, a Director of the Corporation.
Mr. Harrison was born in 1939 and since June 1996,
has been responsible for sales and marketing of
foreign exchange services for Travelex, a
corporate foreign exchange service. Previously,
from 1994 to 1996, Mr. Harrison served as Vice
President of The Selbst Group, a regional marketer
of training programs for banks and securities
firms; from 1992 to 1994, he worked as a regional
sales manager for Knight Ridder, Inc., a financial
printer; and from 1991 to 1992 he served as a
regional representative of First Union Bank. In
addition, Mr. Harrison has held a variety of
positions with the following entities in his 15
years of financial and management sales
experience: Telerate (Dow Jones); The Financial
Group; National Investment Distributors; J.C.
Bradford & Co.; and IDS. Mr. Harrison currently
holds insurance and real estate licenses in
several states. Mr. Harrison is a retired U.S.
Army Lieutenant Colonel, serving three tours of
duty in Vietnam as an Airborne Ranger, Green
Beret. Mr. Harrison earned his Bachelors degree
in Criminal Justice at the University of Nebraska
with minors in Business and Sociology. Mr.
Harrison has been a Director of the Corporation
since August 1996.
John F. Newsholme, a Director of the Corporation.
Mr. Newsholme was born in 1938 and since 1968, has
served as the President of Newsholme Financial
Services, Inc., an accounting/financial planning
investment advisory firm. Mr. Newsholme has been
a Director of the Corporation since December 1996.
Robert A. DeFruscio, Chairman and a Director of
the Corporation.
Mr. DeFruscio was born in 1955 and has served as
Managing Partner of R.A. DeFruscio & Co., a public
accounting firm, since 1986 and as Managing
Partner of Innovest Investors, Inc., an investment
partnership, since 1988. From 1987 until 1992,
Mr. DeFruscio served as Managing Partner of D&I
Associates, L.P., an investment partnership. Mr.
DeFruscio has been Chairman and a Director of the
Corporation since December 1996.
The address of Messrs. Brace and Taylor is 4901 NW
17th Way, Suite 407, Fort Lauderdale, Florida 33309.
Mr. Harrison's address is 4937 Montford Court, Duluth,
Georgia 30136. Mr. Newsholme's address is 160
Washington Avenue, South Ambray, New Jersey 08879. Mr.
DeFruscio's address is 10 Cobb Island Drive, Greenwich,
Connecticut 06830.
As of February __, 1997, officers and directors of
the Corporation did not beneficially own any of the
shares of common stock of the Income Fund's, the Total
Return Fund's or the Growth Fund's then outstanding
shares. Directors and officers of the Corporation who
are also officers, directors, employees, or
shareholders of the Adviser or Subadviser do not
receive any remuneration from any of the Funds for
serving as directors or officers.
The following table provides information relating
to annual compensation to be paid to directors of the
Corporation for their services as such(1):
Name Cash Other Total
Compensation(2) Compensation
Richard D. $0 $0 $0
Brace
Donald A. $0 $0 $0
Taylor, Jr.
James R. $5,000 $0 $5,000
Harrison
John F. $5,000 $0 $5,000
Newsholme
Robert A. $5,000 $0 $5,000
DeFruscio
All directors $15,000 $0 $15,000
as a group
(5 persons)
__________
(1)The amounts indicated are estimates of amounts to
be paid by the Corporation during its first fiscal
year.
(2)Each director who is not deemed an "interested
person" as defined in the 1940 Act, will receive
$500 for each Board of Directors meeting attended
by such person, plus a $3,000 per fiscal year
stipend. The Board anticipates holding four
meetings during fiscal 1997. Thus, each director
described above is entitled to $5,000 during such
time period from the Corporation.
PRINCIPAL SHAREHOLDERS
As of February __, 1997, the following person
owned of record or is known by the Corporation to own
of record or beneficially 5% or more of the outstanding
shares of each Fund:
Name and Address Fund No.Shares Percentage
AMquest International Ltd. Income 3,333 100%
4901 NW 17th Way, Suite 407 Total Return 3,333 100%
Fort Lauderdale, FL 33309 Growth 3,334 100%
Based on the foregoing, as of February __, 1997,
AMquest International Ltd., of which the Adviser is a
wholly-owned subsidiary, owned a controlling interest
in the Corporation. Shareholders with a controlling
interest could effect the outcome of proxy voting or
the direction of management of the Corporation.
INVESTMENT ADVISER AND SUBADVISER
AMquest Advisers, Inc. (the "Adviser") is the
investment adviser to the Funds. The Adviser is a
wholly owned subsidiary of AMquest International Ltd.,
a Nevada corporation, which is indirectly controlled by
David Morgenstern. A brief description of the
investment advisory agreement entered into between the
Adviser and the Corporation, on behalf of the Funds
(the "Advisory Agreement"), is set forth in the
Prospectus under "Fund Organization and Management."
The Advisory Agreement, which is dated December 13,
1996, has an initial term of two years and thereafter
is required to be approved annually by the Board of
Directors of the Corporation or by vote of a majority
of each of the Fund's outstanding voting securities (as
defined in the 1940 Act). Each annual renewal must
also be approved by the vote of a majority of the
Corporation's directors who are not parties to the
Advisory Agreement or interested persons of any such
party, cast in person at a meeting called for the
purpose of voting on such approval. The Advisory
Agreement was approved by the vote of a majority of the
Corporation's directors who are not parties to the
Advisory Agreement or interested persons of any such
party on December 13, 1996 and by the initial
shareholders of each Fund on December 13, 1996. The
Advisory Agreement is terminable without penalty, on 60
days' written notice by the Board of Directors of the
Corporation, by vote of a majority of each of the
Fund's outstanding voting securities or by the Adviser,
and will terminate automatically in the event of its
assignment.
Under the terms of the Advisory Agreement, the
Adviser supervises the management of the Funds'
investments and business affairs, subject to the
supervision of the Corporation's Board of Directors.
At its expense, the Adviser provides office space and
all necessary office facilities, equipment and
personnel for supervising the investments of the Funds.
As compensation for its services, the Income Fund pays
to the Adviser a monthly advisory fee at the annual
rate of 0.75% of its average daily net assets; the
Total Return Fund pays to the Adviser a monthly
advisory fee at the annual rate of 1.00% of its average
daily net assets; and the Growth Fund pays to the
Adviser a monthly advisory fee at the annual rate of
1.00% of its average daily net assets. The advisory
fee is accrued daily and paid monthly. From time to
time, the Adviser may voluntarily waive all or a
portion of its management fee for one or more of the
Funds. The organizational expenses of each Fund were
advanced by the Adviser and will be reimbursed by the
Funds over a period of not more than 60 months. The
organizational expenses were approximately $20,000 for
the Income Fund, $20,000 for the Total Return Fund, and
$20,000 for the Growth Fund.
The Advisory Agreement requires the Adviser to
reimburse the Funds in the event that the expenses and
charges payable by the Funds in any fiscal year exceed
those set forth in any statutory or regulatory formula
applicable to the Funds, in accordance with the
applicable statutory or regulatory formula. In
addition, the Adviser has agreed that until the earlier
of the end of the first 12 months of operations of the
Funds or the date upon which the Funds' aggregate net
assets exceed $30 million, the Adviser will waive its
fees and/or reimburse each Fund's respective operating
expenses to the extent necessary to ensure that no
Fund's total operating expenses exceed 2.75% of its
average daily net assets, and any reimbursement of
expenses will be made on a monthly basis and will be
paid to the Funds by reduction of the Adviser's fee,
subject to later adjustment, month by month, for the
remainder of the Funds' fiscal year. The Adviser may
from time to time voluntarily absorb expenses for the
Funds in addition to the reimbursement of expenses as
described above.
The Adviser has entered into an agreement dated
December 13, 1996 (the "Subadvisory Agreement") with
Tocqueville Asset Management L.P. (the "Subadviser")
under which the Subadviser serves as each Fund's
portfolio manager and, subject to the Adviser's
supervision, manages the Funds' portfolio assets. The
Subadvisory Agreement was approved by the initial
shareholders of each Fund on December 13, 1996. The
Subadviser is controlled by Francois D. Sicart. Under
the Subadvisory Agreement, the Subadviser receives from
the Adviser a subadvisory fee at the annual rate of
0.40% of the Income Fund's average daily net assets,
0.50% of the Total Return Fund's average daily net
assets and 0.50% of the Growth Fund's average daily net
assets. The subadvisory fee is accrued daily and paid
monthly.
FUND TRANSACTIONS AND BROKERAGE
Under the Advisory and Subadvisory Agreement, the
Subadviser, in its capacity as day-to-day portfolio
manager, is responsible for decisions to buy and sell
securities for the Funds and for the placement of the
Funds'
securities business, the negotiation of the commissions
to be paid on such transactions and the allocation of
portfolio brokerage and principal business. The
Subadviser seeks the best execution at the best
security price available with respect to each
transaction, in light of the overall quality of
brokerage and research services provided. The best
price to the Funds means the best net price without
regard to the mix between purchase or sale price and
commission, if any. Purchases may be made from
underwriters, dealers and, on occasion, issuers.
Commissions will be paid on the Funds' futures and
options transactions. The purchase price of portfolio
securities purchased from an underwriter or dealer may
include underwriting commissions and dealer spreads.
The Funds may pay mark-ups on principal transactions.
In selecting broker-dealers and in negotiating
commissions, the Subadviser considers the firm's
reliability, the quality of its execution services on a
continuing basis and its financial condition.
Brokerage will not be allocated based on the sale of a
Fund's shares.
As noted in the Prospectus under the heading "Fund
Organization and Management - Portfolio Transactions,"
pursuant to guidelines adopted by the Corporation's
Board of Directors and in accordance with SEC rules,
the Distributor and/or Tocqueville Securities L.P., an
affiliated broker/dealer of the Subadviser
("Tocqueville Securities"), may serve as brokers to the
Funds; however, in order for the Distributor or
Tocqueville Securities to effect any portfolio
transactions for the Funds on an exchange, the
commissions, fees or other remuneration received by the
Distributor or Tocqueville Securities must be
reasonable and fair compared to the commissions, fees
or other remuneration paid to other brokers in
connection with comparable transactions involving
similar securities being purchased or sold on any
exchange during a comparable period of time. This
standard allows the Distributor and Tocqueville
Securities to receive no more than the remuneration
which would be expected to be received by an
unaffiliated broker in a commensurate arm's-length
transaction.
Section 28(e) of the Securities Exchange Act of
1934, as amended, ("Section 28(e)"), permits an
investment adviser, under certain circumstances, to
cause an account to pay a broker or dealer who supplies
brokerage and research services a commission for
effecting a transaction in excess of the amount of
commission another broker or dealer would have charged
for effecting the transaction. Brokerage and research
services include (a) furnishing advice as to the value
of securities, the advisability of investing,
purchasing or selling securities and the availability
of securities or purchasers or sellers of securities;
(b) furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts; and
(c) effecting securities transactions and performing
functions incidental thereto (such as clearance,
settlement, and custody).
In selecting brokers, the Subadviser considers
investment and market information and other research,
such as economic, securities and performance
measurement research provided by such brokers and the
quality and reliability of brokerage services,
including execution capability, performance and
financial responsibility. Accordingly, the commissions
charged by any such broker may be greater than the
amount another firm might charge if the Subadviser
determines in good faith that the amount of such
commissions is reasonable in relation to the value of
the research information and brokerage services
provided by such broker to the Funds. The Subadviser
believes that the research information received in this
manner provides the Funds with benefits by
supplementing the research otherwise available to the
Funds. Such higher commissions will not be paid by the
Funds unless (a) the Subadviser determines in good
faith that the amount is reasonable in relation to the
services in terms of the particular transaction or in
terms of the Subadviser's overall responsibilities with
respect to the accounts, including the Funds, as to
which it exercises investment discretion; (b) such
payment is made in compliance with the provisions of
Section 28(e) and other applicable state and federal
laws; and (c) in the opinion of the Subadviser, the
total commissions paid by the Funds will be reasonable
in relation to the benefits to the Funds over the long
term. The investment advisory fees paid by the Funds
are not reduced as a result of receipt of research
services by the Subadviser.
The Subadviser places portfolio transactions for
other advisory accounts managed by the Subadviser.
Research services furnished by firms through which the
Funds effect their securities transactions may be used
by the
<PAGE>
Subadviser in servicing all of its accounts; not
all of such services may be used by the Subadviser in
connection with the Funds. The Subadviser believes it
is not possible to measure separately the benefits from
research services to each of the accounts (including
the Funds) managed by it. Because the volume and
nature of the trading activities of the accounts are
not uniform, the amount of commissions in excess of
those charged by another broker paid by each account
for brokerage and research services will vary.
However, the Subadviser believes such costs to the
Funds will not be disproportionate to the benefits
received by the Funds on a continuing basis. The
Subadviser seeks to allocate portfolio transactions
equitably whenever concurrent decisions are made to
purchase or sell securities by the Funds and another
advisory account. In some cases, this procedure could
have an adverse effect on the price or the amount of
securities available to the Funds. In making such
allocations between a Fund and other advisory accounts,
the main factors considered by the Subadviser are the
respective investment objectives, the relative size of
portfolio holdings of the same or comparable
securities, the availability of cash for investment and
the size of investment commitments generally held.
Each Fund anticipates that its annual portfolio
turnover rate will not exceed 100%, and is expected to
be between 50% and 75%. The annual portfolio turnover
rate indicates changes in a Fund's securities holdings;
for instance, a rate of 100% would result if all the
securities in a portfolio (excluding securities whose
maturities at acquisition were one year or less) at the
beginning of an annual period had been replaced by the
end of the period. The turnover rate may vary from
year to year, as well as within a year, and may be
affected by portfolio sales necessary to meet cash
requirements for redemptions of a Fund's shares.
CUSTODIAN
As custodian of the Funds' assets, Firstar Trust
Company ("Firstar"), Mutual Fund Services, Third Floor,
615 East Michigan Street, Milwaukee, Wisconsin 53202,
has custody of all securities and cash of each Fund,
delivers and receives payment for portfolio securities
sold, receives and pays for portfolio securities
purchased, collects income from investments and
performs other duties, all as directed by the officers
of the Corporation.
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
Firstar also acts as transfer agent and dividend-
disbursing agent for the Funds. Firstar is compensated
based on an annual fee per open account of $16 (subject
to a minimum annual fee of $44,000) plus out-of-pocket
expenses, such as postage and printing expenses in
connection with shareholder communications. Firstar
also receives an annual fee per closed account of $16.
DISTRIBUTOR AND PLAN OF DISTRIBUTION
Distributor
Under a distribution agreement dated December 13,
1996 (the "Distribution Agreement"), the Distributor
acts as principal distributor of the Funds' shares.
The Distribution Agreement provides that the
Distributor will use its best efforts to distribute the
Funds' shares, which shares are offered for sale by the
Funds continuously at net asset value per share plus a
maximum initial sales charge of 4.50% of the offering
price. No sales charge is imposed on the reinvestment
of dividends or capital gains or on exchanges between
Funds. Certain other exceptions to the imposition of
this sales charge apply, as discussed more fully in the
Prospectus under the heading "How To Purchase Shares."
These exceptions are made available because minimal or
no sales effort is required with respect to the
categories of investors so excepted. Also discussed in
the Prospectus under that same heading are certain
reduced sales charge plans that are made available with
respect to purchases of Fund shares. Pursuant to the
terms of the Distribution Agreement, the Distributor
bears the costs of printing prospectuses and
shareholder reports which are used for selling
purposes, as well as advertising and any other costs
attributable to the distribution of Fund shares.
Certain of theses expenses may be reimbursed pursuant
to the terms of the distribution plan discussed below.
<PAGE>
Distribution Plan
The Corporation, on behalf of the Funds, has
adopted a plan pursuant to Rule 12b-1 under the 1940
Act (the "Plan"), which requires it to pay the
Distributor, in its capacity as the principal
distributor of Fund shares, a distribution fee of up to
0.25% per annum of each Fund's average daily net
assets. Under the terms of the Plan, the Distributor
is authorized to, in turn, pay all or a portion of this
fee to any securities dealer, financial institution or
any other person (the "Recipient") who renders
assistance in distributing or promoting the sale of
Fund shares pursuant to a written agreement (the "Rule
12b-1 Related Agreement"). To the extent such fee is
not paid to such persons, the Distributor may use the
fee for its own distribution expenses incurred in
connection with the sale of Fund shares. A form of the
12b-1 Related Agreement referred to above has been
approved by a majority of the Board of Directors, and
of the members of the Board who are not "interested
persons" of the Funds as defined in the 1940 Act and
who have no direct or indirect financial interest in
the operation of the Plan or any Rule 12b-1 Related
Agreement (the "Disinterested Directors") voting
separately. Accordingly, the Distributor may enter
into Rule 12b-1 Related Agreements with securities
dealers, financial institutions or other persons
without further Board approval.
Pursuant to the terms of the Plan, payment of the
distribution fee is to be made quarterly, within 30
days after the close of the quarter for which the fee
is payable, upon the Distributor forwarding to the
Board of Directors a written report of all amounts
expensed pursuant to the Plan; provided, however, that
the aggregate payments by a Fund under the Plan to the
Distributor and all Recipients may not exceed 0.25% (on
an annualized basis) of the Fund's average net assets
for that quarter; and provided further that no fee may
be paid in excess of the distribution expenses as set
forth in the quarterly written report. Thus, the Plan
does not provide for the payment of distribution fees
in subsequent periods that relate to expenses incurred
in prior quarters.
From time to time, the Distributor may engage in
activities which jointly promote the sale of shares of
one or more of the Funds, the costs of which may not be
readily identifiable as related to any one Fund.
Generally, the expenses attributable to joint
distribution activities will be allocated among each
Fund on the basis of its respective net assets,
although the Board of Directors may allocate expenses
in any other manner it deems fair and equitable.
The Plan, and any Rule 12b-1 Related Agreement
which is entered into, will continue in effect for a
period of more than one year only so long as its
continuance is specifically approved at least annually
by a vote of a majority of the Corporation's Board of
Directors, and of the Disinterested Directors, cast in
person at a meeting called for the purpose of voting on
the Plan, or the Rule 12b-1 Related Agreement, as
applicable. In addition, the Plan, and any Rule 12b-1
Related Agreement, may be terminated with respect to
any Fund at any time, without penalty, by vote of a
majority of the outstanding voting securities of such
Fund, or by vote of a majority of Disinterested
Directors (on not more than sixty (60) days' written
notice in the case of the Rule 12b-1 Related Agreement
only).
Anticipated Benefits to the Funds
The Board considered various factors in connection
with its decision to approve the Plan, including: (a)
the nature and causes of the circumstances which make
implementation of the Plan necessary and appropriate;
(b) the way in which the Plan would address those
circumstances, including the nature and potential
amount of expenditures; (c) the nature of the
anticipated benefits; (d) the merits of possible
alternative plans or pricing structures; (e) the
relationship of the Plan to other distribution efforts
of the Funds, including the 4.50% front-end sales load;
and (f) the possible benefits of the Plan to any other
person relative to those of the Funds.
Based upon its review of the foregoing factors and
the material presented to it, and in light of its
fiduciary duties under relevant state law and the 1940
Act, the Board determined, in the exercise of its
business judgment, that the Plan was reasonably likely
to benefit the Funds and their respective shareholders
in at least one or several potential ways.
Specifically, the Board concluded that the Distributor
and any Recipients operating under Rule 12b-1 Related
Agreements would have little or no incentive to incur
promotional expenses on behalf of a Fund if a Rule
12b-1 Plan were not in place to reimburse them, thus
making the adoption of such Plan important to the
initial success and thereafter, continued viability of
the Funds. In addition, the Board determined that the
payment of
<PAGE>
distribution fees to these persons should
motivate them to provide an enhanced level of service
to Fund shareholders, which would, of course, benefit
such shareholders. Finally, the adoption of the Plan
would help to increase net assets under management in a
relatively short amount of time, given the marketing
efforts on the part of the Distributor and Recipients
to sell Fund shares.
While there is no assurance that the expenditure
of Fund assets to finance distribution of Fund shares
will have the anticipated results, the Board of
Directors believes there is a reasonable likelihood
that one or more of such benefits will result, and
since the Board will be in a position to monitor the
distribution expenses of the Funds, it will be able to
evaluate the benefit of such expenditures in deciding
whether to continue the Plan.
TAXES
Each Fund will be treated as a separate entity for
federal income tax purposes since the Tax Reform Act of
1986 requires that all portfolios of a series fund be
treated as separate taxpayers. As indicated under
"Dividends, Capital Gains Distributions, and Tax
Treatment" in the Prospectus, each Fund intends to
qualify annually as a "regulated investment company"
under the Code. This qualification does not involve
government supervision of the Funds' management
practices or policies.
A dividend or capital gain distribution received
shortly after the purchase of shares reduces the net
asset value of shares by the amount of the dividend or
distribution and, although in effect a return of
capital, will be subject to income taxes. Net gains on
sales of securities when realized and distributed are
taxable as capital gains. If the net asset value of
shares were reduced below a shareholder's cost by
distribution of gains realized on sales of securities,
such distribution would be a return of investment
although taxable as indicated above.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the same
caption, the net asset value of each of the Funds will
be determined as of the close of trading on each day
the New York Stock Exchange (the "NYSE") is open for
trading. The Funds do not determine net asset value on
days the NYSE is closed and at other times described in
the Prospectus. The NYSE is closed on New Year's Day,
President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Additionally, if any of the
aforementioned holidays falls on a Saturday, the NYSE
will not be open for trading on the preceding Friday
and when such holiday falls on a Sunday, the NYSE will
not be open for trading on the succeeding Monday,
unless unusual business conditions exist, such as the
ending of a monthly or the yearly accounting period.
SHAREHOLDER MEETINGS
Maryland law permits registered investment
companies, such as the Corporation, to operate without
an annual meeting of shareholders under specified
circumstances if an annual meeting is not required by
the 1940 Act. The Corporation has adopted the
appropriate provisions in its Bylaws and may, at its
discretion, not hold an annual meeting in any year in
which the election of directors is not required to be
acted on by shareholders under the 1940 Act.
The Corporation's Bylaws also contain procedures
for the removal of directors by shareholders of the
Corporation. At any meeting of shareholders, duly
called and at which a quorum is present, the
shareholders may, by the affirmative vote of the
holders of a majority of the votes entitled to be cast
thereon, remove any director or directors from office
and may elect a successor or successors to fill any
resulting vacancies for the unexpired terms of removed
directors.
<PAGE>
PERFORMANCE INFORMATION
As described in the "Fund Performance" section of
the Funds' Prospectus, the Funds' historical
performance or return may be shown in the form of
various performance figures. The Funds' performance
figures are based upon historical results and are not
necessarily representative of future performance.
Factors affecting the Funds' performance include
general market conditions, operating expenses, and
investment management.
Total Return
The average annual total return of each Fund is
computed by finding the average annual compounded rates
of return over the periods that would equate the
initial amount invested to the ending redeemable value,
according to the following formula:
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 the stated periods at
the end of the stated periods.
Performance for a specific period is calculated by
first taking an investment (assumed to be $1,000)
("initial investment") in a Fund's shares on the first
day of the period and computing the "ending value" of
that investment at the end of the period. The total
return percentage is then determined by subtracting the
initial investment from the ending value and dividing
the remainder by the initial investment and expressing
the result as a percentage. The calculation reflects
the deduction of the maximum initial sales charge and
assumes that all income and capital gains dividends
paid by a Fund have been reinvested at the net asset
value of the Fund on the reinvestment dates during the
period. Total return may also be shown as the
increased dollar value of the hypothetical investment
over the period.
Cumulative total return represents the simple
change in value of an investment over a stated period
and may be quoted as a percentage or as a dollar
amount. Total returns may be broken down into their
components of income and capital (including capital
gains and changes in share price) in order to
illustrate the relationship between
these factors and their contributions to total return.
Yield
Yield is computed in accordance with a
standardized method prescribed by rules of the SEC.
Under that method, the current yield quotation for a
Fund is based on a one month or 30-day period. The
yield is computed by dividing the net investment income
per share earned during the 30-day or one month period
by the maximum offering price per share on the last day
of the period, according to the following formula:
<PAGE>
YIELD=2[(a-b +1)6-1]
cd
Where: a = dividends and interest earned
during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the
last day of the period.
The calculation of yield reflects the deduction of
the maximum initial sales charge imposed on purchases
of Fund shares.
Comparisons
From time to time, in marketing and other Fund
literature, the Funds' performance may be compared to
the performance of other mutual funds in general or to
the performance of particular types of mutual funds
with similar investment goals, as tracked by
independent organizations. Among these organizations,
Lipper Analytical Services, Inc. ("Lipper"), a widely
used independent research firm which ranks mutual funds
by overall performance, investment objectives, and
assets, may be cited. Lipper performance figures are
based on changes in net asset value, with all income
and capital gains dividends reinvested. Such
calculations do not include the effect of any sales
charges imposed by other funds. The Funds will be
compared to Lipper's appropriate fund category, that
is, by fund objective and portfolio holdings.
The Funds' performance may also be compared to the
performance of other mutual funds by Morningstar, Inc.
("Morningstar"), which ranks funds on the basis of
historical risk and total return. Morningstar's
rankings range from five stars (highest) to one star
(lowest) and represent Morningstar's assessment of the
historical risk level and total return of a fund as a
weighted average for 3, 5 and 10 year periods.
Rankings are not absolute or necessarily predictive of
future performance.
Evaluations of Fund performance made by
independent sources may also be used in advertisements
concerning the Funds, including reprints of or
selections from, editorials or articles about the
Funds. Sources for Fund performance and articles about
the Funds may include publications such as Money,
Forbes, Kiplinger's, Financial World, Business Week,
U.S. News and World Report, the Wall Street Journal,
Barron's and a variety of investment newsletters.
The Funds may compare their performance to a wide
variety of indices and measures of inflation including
the Standard & Poor's Index of 500 Stocks, the NASDAQ
Over-the-Counter Composite Index, the Russell 2500
Index and the Lehman Aggregate Bond Index. There are
differences and similarities between the investments
that the Funds may purchase for their respective
portfolios and the investments measured by these
indices.
Investors may want to compare the Funds'
performance to that of certificates of deposit offered
by banks and other depository institutions.
Certificates of deposit may offer fixed or variable
interest rates and principal is guaranteed and may be
insured. Withdrawal of the deposits prior to maturity
normally will be subject to a penalty. Rates offered
by banks and other depository institutions are subject
to change at any time specified by the issuing
institution. Investors may also want to compare
performance of the Funds to that of money market funds.
Money market fund yields will fluctuate and shares are
not insured, but share values usually remain stable.
<PAGE>
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 100 E. Wisconsin Avenue,
Milwaukee, Wisconsin 53202, have been selected as the
independent accountants for the Funds.
FINANCIAL STATEMENTS
The following financial statements of each of the
Funds are contained herein:
(a) Report of Independent Accountants.
(b) Statement of Assets and Liabilities.
(c) Notes to Statement of Assets and
Liabilities.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board
of Directors of AMquest Matrix Funds, Inc.
In our opinion, the accompanying statement of assets
and liabilities presents fairly, in all material
respects, the financial position of AMquest Matrix
Income Fund, AMquest Matrix Total Return Fund and
AMquest Matrix Growth Fund (constituting AMquest Matrix
Funds, Inc., hereafter referred to as the "Funds") at
December 31, 1996, in conformity with generally
accepted accounting principles. This financial
statement is the responsibility of the Funds'
management; our responsibility is to express an opinion
on this financial statement based on our audit. We
conducted our audit of this financial statement in
accordance with generally accepted auditing standards
which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit
includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statement, assessing the accounting principles used and
significant estimates made by management, and
evaluating the overall financial statement
presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Milwaukee, Wisconsin
January 24, 1997
<PAGE>
AMQUEST MATRIX FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
AMquest AMquest AMquest
Matrix Matrix Total Matrix
Income Fund Return Fund Growth Fund
ASSETS
Cash $33,330 $33,330 $33,340
Unamortized organizational costs 50,000 50,000 50,000
Prepaid initial registration costs 20,000 20,000 20,000
Total Assets 103,330 103,330 103,340
LIABILITIES
Accounts payable 70,000 70,000 70,000
Total Liabilities 70,000 70,000 70,000
NET ASSETS $33,330 $33,330 $33,340
Capital Shares, $.01 par value;
Indefinite shares authorized;
10,000 shares outstanding 3,333 3,333 3,334
Net asset value and redemption
price per share (net assets/
shares outstanding) $ 10.00 $ 10.00 $ 10.00
Maximum offering price per share $ 10.47 $ 10.47 $ 10.47
The accompanying notes to the financial statement
are an integral part of this statement.
<PAGE>
AMQUEST MATRIX FUNDS, INC.
NOTES TO FINANCIAL STATEMENT
DECEMBER 31, 1996
1. Organization
AMquest Matrix Funds, Inc. (the "Company") was
incorporated as a Maryland corporation on July 19,
1996 and is in the process of registering under the
Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end, diversified management
investment company. AMquest Matrix Income Fund,
AMquest Matrix Total Return Fund and AMquest Matrix
Growth Fund (the "Funds") are each a diversified
mutual fund series of the Company. The Company has
had no operations other than those relating to
organizational matters and the sale of 10,000
shares of its common stock to its original
stockholder, AMquest International, Ltd. for cash
in the amount of $100,000. Shares of the Funds are
to be sold with a maximum sales charge of 4.50%.
2. Significant Accounting Policies
(a)Organization costs and initial registration
expenses
Costs incurred by the Funds in connection
with their organization, initial registration
and the initial public offering of shares, are
being deferred and amortized over the period of
benefit, but not to exceed sixty months from
the Funds' commencement of operations. These
costs were advanced by the Adviser and will be
reimbursed by the Funds. The proceeds of any
redemption of the initial shares by the
original stockholders will be reduced by a pro-
rata portion of any then unamortized
organizational expenses in the same proportion
as the number of initial shares being redeemed
bears to the number of initial shares
outstanding at the time of such redemption.
(b)Federal Income Taxes
The Funds intend to comply with the
requirements of the Internal Revenue Code
necessary to qualify as regulated investment
companies and to make the requisite
distributions of income and capital gains to
their shareholders sufficient to relieve it
from all or substantially all Federal income
taxes.
3. Investment Adviser
AMquest Matrix Funds, Inc. has an agreement with
the Adviser, with whom certain officers an
directors of AMquest Matrix Funds, Inc. are
affiliated, to furnish investment advisory services
to the Funds. Under the terms of this agreement,
the Adviser will receive an annual fee of 0.75% of
the Income Fund's average daily net assets and
1.00% of each of the Total Return and Growth Funds'
average daily net assets. The Adviser has
committed to reimburse expenses of the Funds to the
extent necessary to ensure that the total operating
expenses of each Fund during the year ending
September 30, 1997 do not exceed 2.75% of such
Fund's average net assets.
<PAGE>
APPENDIX
BOND RATINGS
Standard & Poor's Debt Ratings
A Standard & Poor's corporate or municipal debt
rating is a current assessment of the creditworthiness
of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors
such as guarantors, insurers, or lessees.
The debt rating is not a recommendation to
purchase, sell or hold a security, as it does not
comment as to market price or suitability for a
particular investor.
The ratings are based on current information
furnished by the issuer or obtained by S&P from other
sources it considers reliable. S&P does not perform an
audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such
information, or based on other circumstances.
The ratings are based, in varying degrees, on the
following considerations:
1. Likelihood of default -- capacity and
willingness of the obligor as to the timely
payment of interest and repayment of
principal in accordance with the terms of the
obligation;
2.Nature of and provisions of the
obligation; and
3.Protection afforded by, and relative
position of, the obligation in the event
of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy
and other laws affecting creditors'
rights.
Investment Grade
AAA Debt rated 'AAA' has the highest rating
assigned by S&P. Capacity to pay interest
and repay principal is extremely strong.
AA Debt rated 'AA' has a very strong
capacity to pay interest and repay principal
and differs from the highest rated issues
only in small degree.
A Debt rated 'A' has a strong capacity to
pay interest and repay principal although it
is somewhat more susceptible to the adverse
effects of changes in circumstances and
economic conditions than debt in higher rated
categories.
BBB Debt rated 'BBB' is regarded as having
an adequate capacity to pay interest and
repay principal. Whereas it normally
exhibits adequate protection parameters,
adverse economic conditions or changing
circumstances are more likely to lead to a
weakened capacity to pay interest and repay
principal for debt in this category than in
higher rated categories.
Speculative grade
Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is
regarded as having predominantly speculative
characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least
degree of speculation and 'C' the
<PAGE>
highest. While such
debt will likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse
conditions.
BB Debt rated 'BB' has less near-term
vulnerability to default than other
speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse
business, financial or economic conditions
which could lead to inadequate capacity to
meet timely interest and principal payments.
The 'BB' rating category is also used for
debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.
B Debt rated 'B' has a greater
vulnerability to default but currently has
the capacity to meet interest payments and
principal repayments. Adverse business,
financial or economic conditions will likely
impair capacity or willingness to pay
interest and repay principal. The 'B' rating
category is also used for debt subordinated
to senior debt that is assigned an actual or
implied 'BB' or 'BB-' rating.
CCC Debt rated 'CCC' has a currently
identifiable vulnerability to default, and is
dependent upon favorable business, financial,
and economic conditions to meet timely
payment of interest and repayment of
principal. In the event of adverse business,
financial, or economic conditions, it is not
likely to have the capacity to pay interest
and repay principal. The 'CCC' rating
category is also used for debt subordinated
to senior debt that is assigned an actual or
implied 'B' or 'B-' rating.
CC Debt rated 'CC' typically is applied to
debt subordinated to senior debt that is
assigned an actual or implied 'CCC' rating.
C Debt rated 'C' typically is applied to
debt subordinated to senior debt which is
assigned an actual or implied 'CCC-' debt
rating. The 'C' rating may be used to cover
a situation where a bankruptcy petition has
been filed, but debt service payments are
continued.
CI The rating 'CI' is reserved for income
bonds on which no interest is being paid.
D Debt rated 'D' is in payment default.
The 'D' rating category is used when interest
payments or principal payments are not made
on the date due even if the applicable grace
period has not expired, unless S&P believes
that such payments will be made during such
grace period. The 'D' rating also will be
used upon the filing of a bankruptcy petition
if debt service payments are jeopardized.
Moody's Long-Term Debt Ratings
Aaa - Bonds which are rated Aaa are
judged to be of the best quality. They carry
the smallest degree of investment risk and
are generally referred to as "gilt edged".
Interest payments are protected by a large or
by an exceptionally stable margin and
principal is secure. While the various
protective elements are likely to change,
such changes as can be visualized are most
unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds which are rated Aa are judged to
be of high quality by all standards.
Together with the Aaa group they comprise
what are generally known as high grade bonds.
They are rated lower than the best bonds
because margins of protection may not be as
large as in Aaa securities or fluctuation of
protective elements may be of greater
amplitude or there may be other elements
present which make the long-term risk appear
somewhat larger than in Aaa securities.
<PAGE>
A - Bonds which are rated A possess many
favorable investment attributes and are to be
considered as upper-medium grade obligations.
Factors giving security to principal and
interest are considered adequate, but
elements may be present which suggest a
susceptibility to impairment some time in the
future.
Baa - Bonds which are rated Baa are
considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly
secured). Interest payments and principal
security appear adequate for the present but
certain protective elements may be lacking or
may be characteristically unreliable over any
great length of time. Such Bonds lack
outstanding investment characteristics and in
fact have speculative characteristics as
well.
Ba - Bonds which are rated Ba are judged to
have speculative elements; their future
cannot be considered as well-assured. Often
the protection of interest and principal
payments may be very moderate, and thereby
not well safeguarded during both good and bad
times over the future. Uncertainty of
position characterizes Bonds in this class.
B - Bonds which are rated B generally lack
characteristics of the desirable investment.
Assurance of interest and principal payments
or of maintenance of other terms of the
contract over any long period of time may be
small.
Caa - Bonds which are rated Caa are of
poor standing. Such issues may be in default
or there may be present elements of danger
with respect to principal or interest.
Ca - Bonds which are rated Ca represent
obligations which are speculative in a high
degree. Such issues are often in default or
have other marked shortcomings.
C - Bonds which are rated C are the lowest
rated class of bonds, and issues so rated can
be regarded as having extremely poor
prospects of ever attaining any real
investment standing.
Fitch Investors Service, Inc. Bond Ratings
Fitch investment grade bond ratings provide a
guide to investors in determining the credit risk
associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class
of debt in a timely manner.
The rating takes into consideration special
features of the issue, its relationship to other
obligations of the issuer, the current and prospective
financial condition and operating performance of the
issuer and any guarantor, as well as the economic and
political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit
enhancement that may be provided by insurance policies
or financial guaranties unless otherwise indicated.
Bonds that have the same rating are of similar but
not necessarily identical credit quality since the
rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy,
sell, or hold any security. Ratings do not comment on
the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt
nature or taxability of payments made in respect of any
security.
<PAGE>
Fitch ratings are based on information obtained
from issuers, other obligors, underwriters, their
experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or
accuracy of such information. Ratings may be changed,
suspended, or withdrawn as a result of changes in, or
the unavailability of, information or for other
reasons.
AAA Bonds considered to be investment grade
and of the highest credit quality. The
obligor has an exceptionally strong ability
to pay interest and repay principal, which is
unlikely to be affected by reasonably
foreseeable events.
AA Bonds considered to be investment grade
and of very high credit quality. The
obligor's ability to pay interest and repay
principal is very strong, although not quite
as strong as bonds rated 'AAA'. Because
bonds rated in the 'AAA' and 'AA' categories
are not significantly vulnerable to
foreseeable future developments, short-term
debt of the issuers is generally rated 'F-
1+'.
A Bonds considered to be investment grade
and of high credit quality. The obligor's
ability to pay interest and repay principal
is considered to be strong, but may be more
vulnerable to adverse changes in economic
conditions and circumstances than bonds with
higher ratings.
BBB Bonds considered to be investment grade
and of satisfactory credit quality. The
obligor's ability to pay interest and repay
principal is considered to be adequate.
Adverse changes in economic conditions and
circumstances, however, are more likely to
have adverse impact on these bonds and,
therefore, impair timely payment. The
likelihood that the ratings of these bonds
will fall below investment grade is higher
than for bonds with higher ratings.
Fitch speculative grade bond ratings provide a
guide to investors in determining the credit risk
associated with a particular security. The ratings
('BB' to 'C') represent Fitch's assessment of the
likelihood of timely payment of principal and interest
in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating
('DDD' to 'D') is an assessment of the ultimate
recovery value through reorganization or liquidation.
The rating takes into consideration special
features of the issue, its relationship to other
obligations of the issuer, the current and prospective
financial condition and operating performance of the
issuer and any guarantor, as well as the economic and
political environment that might affect the issuer's
future financial strength.
Bonds that have the same rating are of similar but
not necessarily identical credit quality since the
rating categories cannot fully reflect the differences
in the degrees of credit risk.
BB Bonds are considered speculative. The
obligor's ability to pay interest and repay
principal may be affected over time by
adverse economic changes. However, business
and financial alternatives can be identified
which could assist the obligor in satisfying
its debt service requirements.
B Bonds are considered highly speculative.
While bonds in this class are currently
meeting debt service requirements, the
probability of continued timely payment of
principal and interest reflects the obligor's
limited margin of safety and the need for
reasonable business and economic activity
throughout the life of the issue.
CCC Bonds have certain identifiable
characteristics which, if not remedied, may
lead to default. The ability to meet
obligations requires an advantageous business
and economic environment.
CC Bonds are minimally protected. Default
in payment of interest and/or principal seems
probable over time.
C Bonds are in imminent default in payment
of interest or principal.
<PAGE>
DDD,
DD
and D Bonds are in default on interest
and/or principal payments. Such bonds are
extremely speculative and should be valued on
the basis of their ultimate recovery value in
liquidation or reorganization of the obligor.
'DDD' represents the highest potential for
recovery of these bonds, and 'D' represents
the lowest potential for recovery.
Duff & Phelps, Inc. Long-Term Debt Ratings
These ratings represent a summary opinion of the
issuer's long-term fundamental quality. Rating
determination is based on qualitative and quantitative
factors which may vary according to the basic economic
and financial characteristics of each industry and each
issuer. Important considerations are vulnerability to
economic cycles as well as risks related to such
factors as competition, government action, regulation,
technological obsolescence, demand shifts, cost
structure, and management depth and expertise. The
projected viability of the obligor at the trough of the
cycle is a critical determination.
Each rating also takes into account the legal form
of the security, (e.g., first mortgage bonds,
subordinated debt, preferred stock, etc.). The extent
of rating dispersion among the various classes of
securities is determined by several factors including
relative weightings of the different security classes
in the capital structure, the overall credit strength
of the issuer, and the nature of covenant protection.
The Credit Rating Committee formally reviews all
ratings once per quarter (more frequently, if
necessary). Ratings of 'BBB-' and higher fall within
the definition of investment grade securities, as
defined by bank and insurance supervisory authorities.
Structured finance issues, including real estate, asset-
backed and mortgage-backed financings, use this same
rating scale. Duff & Phelps Credit Rating claims
paying ability ratings of insurance companies use the
same scale with minor modification in the definitions.
Thus, an investor can compare the credit quality of
investment alternatives across industries and
structural types. A "Cash Flow Rating" (as noted for
specific ratings) addresses the likelihood that
aggregate principal and interest will equal or exceed
the rated amount under appropriate stress conditions.
Rating Scale Definition
AAA Highest credit quality. The risk
factors are negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors
are strong. Risk is modest, but may
AA vary slightly from time to time because
of economic conditions.
AA-
A+ Protection factors are average but
adequate. However, risk factors are more
A variable and greater in periods of
economic stress.
A-
<PAGE>
BBB+ Below average protection factors but
still considered sufficient for prudent
BBB investment. Considerable variability in
risk during economic cycles.
BBB-
BB+ Below investment grade but deemed likely
to meet obligations when due.
BB Present or prospective financial
protection factors fluctuate according to
BB- industry conditions or company fortunes.
Overall quality may move up or
down frequently within this category.
B+ Below investment grade and possessing
risk that obligations will not be met
B when due. Financial protection factors
will fluctuate widely according to
B- economic cycles, industry conditions
and/or company fortunes. Potential
exists for frequent changes in the
rating within this category or into a higher
or lower rating grade.
CCC Well below investment grade securities.
Considerable uncertainty exists as to
timely payment of principal, interest or
preferred dividends.
Protection factors are narrow and risk
can be substantial with unfavorable
economic/industry conditions, and/or
with unfavorable company developments.
DD Defaulted debt obligations. Issuer
failed to meet scheduled principal and/or
interest payments.
DP Preferred stock with dividend
arrearages.
SHORT-TERM RATINGS
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a
current assessment of the likelihood of timely payment
of debt considered short-term in the relevant market.
Ratings graded into several categories, ranging
from 'A-1' for the highest quality obligations to 'D'
for the lowest. These categories are as follows:
A-1 This highest category indicates that the
degree of safety regarding timely payment is
strong. Those issues determined to possess
extremely strong safety characteristics are
denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues
with this designation is satisfactory.
However, the relative degree of safety is not
as high as for issues designated 'A-1'.
A-3 Issues carrying this designation have
adequate capacity for timely payment. They
are, however, more vulnerable to the adverse
effects of changes in circumstances than
obligations carrying the higher designations.
B Issues rated 'B' are regarded as having
only speculative capacity for timely payment.
C This rating is assigned to short-term
debt obligations with doubtful capacity for
payment.
<PAGE>
D Debt rated 'D' is in payment default.
The 'D' rating category is used when interest
payments or principal payments are not made
on the date due, even if the applicable grace
period has not expired, unless S&P believes
that such payments will be made during such
grace period.
Moody's Commercial Paper Ratings
The term "commercial paper" as used by Moody's
means promissory obligations not having an original
maturity in excess of nine months. Moody's makes no
representation as to whether such commercial paper is
by any other definition "commercial paper" or is exempt
from registration under the Securities Act of 1933, as
amended.
Moody's commercial paper ratings are opinions on
the ability of issuers to repay punctually promissory
obligations not having an original maturity in excess
of nine months. Moody's makes no representation that
such obligations are exempt from registration under the
Securities Act of 1933, nor does it represent that any
specific note is a valid obligation of a rated issuer
or issued in conformity with any applicable law.
Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Issuers rated Prime-1 (or related supporting
institutions) have a superior capacity for repayment of
short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following
characteristics: (i) leading market positions in well
established industries, (ii) high rates of return on
funds employed, (iii) conservative capitalization
structures with moderate reliance on debt and ample
asset protection, (iv) broad margins in earnings
coverage of fixed financial charges and high internal
cash generation, and (v) well established access to a
range of financial markets and assured sources of
alternate liquidity.
Issuers rated Prime-2 (or related supporting
institutions) have a strong capacity for repayment of
short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still
appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting
institutions) have an acceptable capacity for repayment
of short-term promissory obligations. The effect of
industry characteristics and market composition may be
more pronounced. Variability in earnings and
profitability may result in changes in the level of
debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate
liquidity is maintained.
Issuers rated Not Prime do not fall within any of
the Prime rating categories.
Fitch Investors Service, Inc. Short-Term Ratings
Fitch's short-term ratings apply to debt
obligations that are payable on demand or have original
maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term
notes, and municipal and investment notes.
The short-term rating places greater emphasis than
a long-term rating on the existence of liquidity
necessary to meet the issuer's obligations in a timely
manner.
<PAGE>
F-1+ Exceptionally Strong Credit Quality
Issues assigned this rating are regarded as
having the strongest degree of assurance for
timely payment.
F-1 Very Strong Credit Quality Issues
assigned this rating reflect an assurance of
timely payment only slightly less in degree
than issues rated 'F-1+'.
F-2 Good Credit Quality Issues assigned this
rating have a satisfactory degree of
assurance for timely payment but the margin
of safety is not as great as for issues
assigned 'F-1+' and 'F-1' ratings.
F-3 Fair Credit Quality Issues assigned this
rating have characteristics suggesting that
the degree of assurance for timely payment is
adequate; however, near-term adverse changes
could cause these securities to be rated
below investment grade.
F-S Weak Credit Quality Issues assigned this
rating have characteristics suggesting a
minimal degree of assurance for timely
payment and are vulnerable to near-term
adverse changes in financial and economic
conditions.
D Default Issues assigned this rating are
in actual or imminent payment default.
LOC The symbol LOC indicates that the rating is
based on a letter of credit issued by a commercial
bank.
Duff & Phelps, Inc. Short-Term Debt Ratings
Duff & Phelps' short-term ratings are consistent
with the rating criteria used by money market
participants. The ratings apply to all obligations
with maturities of under one year, including commercial
paper, the uninsured portion of certificates of
deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit, and current
maturities of long-term debt. Asset-backed commercial
paper is also rated according to this scale.
Emphasis is placed on liquidity which is defined
as not only cash from operations, but also access to
alternative sources of funds including trade credit,
bank lines, and the capital markets. An important
consideration is the level of an obligor's reliance on
short-term funds on an ongoing basis.
The distinguishing feature of Duff & Phelps Credit
Ratings' short-term ratings is the refinement of the
traditional '1' category. The majority of short-term
debt issuers carry the highest rating, yet quality
differences exist within that tier. As a consequence,
Duff & Phelps Credit Rating has incorporated gradations
of '1+' (one plus) and '1-' (one minus) to assist
investors in recognizing those differences.
These ratings are recognized by the SEC for broker-
dealer requirements, specifically capital computation
guidelines. These ratings meet Department of Labor
ERISA guidelines governing pension and profit sharing
investments. State regulators also recognize the
ratings of Duff & Phelps Credit Rating for insurance
company investment portfolios.
Rating Scale: Definition
High Grade
D-1+ Highest certainty of timely
payment. Short-term liquidity,
including internal operating factors
and/or access to alternative sources of
funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-
term obligations.
<PAGE>
D-1 Very high certainty of timely
payment. Liquidity factors are
excellent and supported by good
fundamental protection factors. Risk
factors are minor.
D-1- High certainty of timely payment.
Liquidity factors are strong and
supported by good fundamental protection
factors. Risk factors are very small.
Good Grade
D-2 Good certainty of timely payment.
Liquidity factors and company
fundamentals are sound. Although
ongoing funding needs may enlarge total
financing requirements, access to
capital markets is good. Risk factors
are small.
Satisfactory Grade
D-3 Satisfactory liquidity and other
protection factors qualify issue as to
investment grade. Risk factors are
larger and subject to more variation.
Nevertheless, timely payment is
expected.
Non-investment Grade
D-4 Speculative investment
characteristics. Liquidity is not
sufficient to insure against disruption
in debt service. Operating factors and
market access may be subject to a high
degree of variation.
Default
D-5 Issuer failed to meet scheduled
principal and/or interest payments.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements (Included in Parts
A and B)
Report of Independent Accountants
Statement of Assets and Liabilities
Notes to Statement of Assets and
Liabilities
(b) Exhibits
(1) Registrant's Articles of Incorporation*
(2) Registrant's By-Laws*
(3) None
(4) None
(5.1) Investment Advisory Agreement with
AMquest Advisers, Inc.
(5.2) Subadvisory Agreement with
Tocqueville Asset Management L.P.
(6.1) Distribution Agreement with Sun
Consolidated Securities, Inc.
(6.2) Form of Selected Dealer Agreement
(7) None
(8) Custodian Agreement with Firstar Trust Company
(9.1) Transfer Agency Agreement with Firstar Trust Company
(9.2) Administration Agreement with Firstar Trust Company
(9.3) Fund Accounting Agreement with Firstar Trust Company
(9.4) Fulfillment Servicing Agreement with Firstar Trust Company
(10) Opinion and Consent of Godfrey & Kahn, S.C.
(11) Consent of Price Waterhouse LLP
(12) None
<PAGE>
(13) Subscription Agreement
(14) Individual Retirement Account Disclosure Statement
and Custodial Account
(15.1) Rule 12b-1 Distribution Plan
(15.2) Form of 12b-1 Related Agreement
(16) None
(17) None
(18) None
(19) Powers of Attorney for Directors and
Officers (see signature page)
______________
* Filed with the Commission on August 29, 1996 as
part of the Registrant's filing on Form N-1A.
Item 25. Persons Controlled by or under Common Control
with Registrant
Registrant neither controls any person nor is
under common control with any other person.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Securities as of February __, 1997
Common Stock, $.01 par value 1
Item 27. Indemnification
Article VI of Registrant's By-Laws provides as
follows:
ARTICLE VI INDEMNIFICATION
The Corporation shall indemnify (a) its
Directors and officers, whether serving the
Corporation or at its request any other entity, to
the full extent required or permitted by (i)
Maryland law now or hereafter in force, including
the advance of expenses under the procedures and
to the full extent permitted by law, and (ii) the
Investment Company Act of 1940, as amended, and
(b) other employees and agents to such extent as
shall be authorized by the Board of Directors and
be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any
other rights to which those seeking
indemnification may be entitled. The Board of
Directors may take such action as is necessary to
carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend
from time to time such resolutions or contracts
implementing such provisions or such further
indemnification arrangements as may be permitted
by law.
<PAGE>
Item 28. Business and Other Connections of Investment
Adviser and Subadviser
Besides serving as investment adviser to the
Registrant, the Adviser is not currently and has not
during the past two fiscal years engaged in any other
business, profession, vocation or employment of a
substantial nature. Information regarding the
business, profession, vocation or employment of a
substantial nature of each of the Adviser's directors
and officers is hereby incorporated by reference from
the information contained under "Directors and
Officers" in the Statement of Additional Information.
In addition to serving as subadviser to the Registrant,
the Subadviser provides investment advice to
individuals, banks, other registered investment
companies (including the Tocqueville Trust), pension
and profit sharing plans, trusts, corporations and
other business entities. The Subadviser is a limited
partnership, with Tocqueville Management Corp. serving
as the general partner and Tocqueville Group L.P.
serving as the limited partner. The following
individuals currently serve as officers and/or
directors of the general partner of the Subadviser, and
have served as such for at least the last two fiscal
years: Francois D. Sicart (CEO and Director since
January 1990); Robert W. Kleinschmidt (President since
July 1991); Jean-Pierre A. Conreur (Director and
Executive VP since January 1990); Joseph Cooper (VP and
Treasurer since January 1990); and Kieran C. Lyons
(Executive VP and CFO since January 1992). In addition
to their services to the Subadviser, Messrs. Sicart,
Conreur and Kleinschmidt are registered representatives
of an affiliated broker-dealer firm of the Subadviser
and, as such, may effect securities transactions for
the accounts of such broker-dealer. Moreover, in
addition to serving as Treasurer of the Subadviser, Mr.
Cooper continues, on a part-time basis, his activities
in rendering tax and accounting services to various
individuals, partly on behalf of the Subadviser. The
limited partner of the Subadviser consists of two
general partners and seven limited partners, with Mr.
Sicart serving as the managing general partner.
Item 29. Principal Underwriters
(a) None.
(b) The principal business address of Sun
Consolidated Securities, Inc. ("Sun"), the
Registrant's principal underwriter, is 4901
NW 17th Way, Suite 405, Fort Lauderdale,
Florida 33309. The following information
relates to each director and officer of Sun:
Positions
And Offices Positions and Offices
Name With Underwriter With Registrant
Richard D. Brace President, Secretary President
and a Director and a Director
Donald A. Taylor, Jr. FINOP, and Vice President Treasurer,.Secretary
and Secretary of and a Director
Financial Operations
Edward W. Strohm, III Chief Executive Officer None
(c) None.
Item 30. Location of Accounts and Records
All accounts, books or other documents required to
be maintained by Section 31(a) of the Investment
Company Act of 1940, as amended, and the rules
promulgated thereunder are in the possession of AMquest
Advisers, Inc., Registrant's investment adviser, at
Registrant's corporate offices, except records held and
maintained by Firstar Trust Company, Mutual Fund
Services, Third Floor, 615 E. Michigan Street,
Milwaukee, Wisconsin 53202, relating to its function
as custodian, transfer agent, administrator, and fund
accountant.
<PAGE>
Item 31. Management Services
All management-related service contracts entered
into by Registrant are discussed in Parts A and B of
this Registration Statement.
Item 32. Undertakings.
(a) Not Applicable.
(b) Registrant undertakes to file a post-
effective amendment to this Registration
Statement within four to six months of the
effective date of this Registration Statement
which will contain financial statements
(which need not be certified) as of and for
the time period reasonably close or as soon
as practicable to the date of such post-
effective amendment.
(c) Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act
of 1933 and the Investment Company Act of 1940, the
Registrant has duly caused this Pre-Effective Amendment
to its Registration Statement on Form N-1A to be signed
on its behalf by the undersigned, thereunto duly
authorized, in the City of Fort Lauderdale and State of
Florida on the 31st day of January, 1997.
AMquest MATRIX FUNDS, INC. (Registrant)
By: /s/ Richard D. Brace
--------------------------
Richard D. Brace
President
Each person whose signature appears below
constitutes and appoints Richard D. Brace and Donald A.
Taylor, Jr., and each of them, his true and lawful
attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to
sign any and all Pre-Effective Amendments to this
Registration Statement and to file the same, with all
exhibits thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission
and any other regulatory body, granting unto said
attorney-in-fact and agent, full power and authority to
do and perform each and every act and thing requisite
and necessary to be done, as fully to all intents and
purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact
and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act
of 1933, this Pre-Effective Amendment to the
Registration Statement on Form N-1A has been signed
below by the following persons in the capacities and on
the date(s) indicated.
Name Title Date
/s/ Richard D. Brace President and a Director January 31, 1997
- --------------------------
Richard D. Brace
/s/ Donald A. Taylor, Jr. Treasurer, Secretary January 31, 1997
- --------------------------- and a Director
Donald A. Taylor, Jr.
/s/ James R. Harrison Director January 31, 1997
- ---------------------------
James R. Harrison
/s/ John F. Newsholme Director January 31, 1997
- ---------------------------
John F. Newsholme
/s/ Robert A. DeFruscio Chairman and a Director January 31, 1997
- ---------------------------
Robert A. DeFruscio
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
(1) Registrant's Articles of Incorporation*
(2) Registrant's By-Laws*
(3) None
(4) None
(5.1) Investment Advisory Agreement with
AMquest Advisers, Inc.
(5.2) Subadvisory Agreement with Tocqueville
Asset Management L.P.
(6.1) Distribution Agreement with Sun
Consolidated Securities, Inc.
(6.2) Form of Selected Dealer Agreement
(7) None
(8) Custodian Agreement with Firstar Trust
Company
(9.1) Transfer Agency Agreement with Firstar Trust
Company
(9.2) Administration Agreement with Firstar Trust
Company
(9.3) Fund Accounting Agreement with Firstar
Trust Company
(9.4) Fulfillment Servicing Agreement with
Firstar Trust Company
(10) Opinion and Consent of Godfrey & Kahn, S.C.
(11) Consent of Price Waterhouse LLP
(12) None
(13) Subscription Agreement
(14) Individual Retirement Account Disclosure
Statement and Custodial Account
(15.1) Rule 12b-1 Distribution Plan
(15.2) Form of 12b-1 Related Agreement
(16) None
(17) None
(18) None
(19) Powers of Attorney for Directors and
Officers (see signature page)
___________________
* Filed with the Commission on August 29, 1996 as
part of the Registrant's filing on Form N-1A.
AMQUEST MATRIX FUNDS, INC.
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is entered into as of the 13th day
of December, 1996, between AMquest Matrix Funds, Inc.,
a Maryland corporation (the "Corporation") and AMquest
Advisers, Inc., a Delaware corporation (the "Adviser").
W I T N E S S E T H
WHEREAS, the Corporation is an open-end investment
company registered under the Investment Company Act of
1940, as amended (the "1940 Act"). The Corporation is
authorized to create separate series, each with its own
separate investment portfolio (the "Funds"), and the
beneficial interest in each such series will be
represented by a separate series of shares (the
"Shares").
WHEREAS, the Adviser is a registered investment
adviser, engaged in the business of rendering
investment advisory services.
WHEREAS, in managing the Corporation's assets, as
well as in the conduct of certain of its affairs, the
Corporation seeks the benefit of the Adviser's services
and its assistance in performing certain managerial
functions. The Adviser desires to furnish such
services and to perform the functions assigned to it
under this Agreement for the consideration provided for
herein.
NOW THEREFORE, the parties mutually agree as
follows:
1. Appointment of the Adviser. The Corporation
hereby appoints the Adviser as investment adviser for
each of the Funds of the Corporation on whose behalf
the Corporation executes an Exhibit to this Agreement,
and the Adviser, by execution of each such Exhibit,
accepts the appointments. Subject to the direction of
the Board of Directors (the "Directors") of the
Corporation, the Adviser shall manage the investment
and reinvestment of the assets of each Fund in
accordance with the Fund's investment objective and
policies and limitations, for the period and upon the
terms herein set forth. The investment of funds shall
also be subject to all applicable restrictions of the
Articles of Incorporation and Bylaws of the Corporation
as may from time to time be in force.
2. Delegation of Duties to a Subadviser. The
Adviser is hereby authorized to (i) delegate its duties
hereunder to a subadviser pursuant to a written
agreement under which the subadviser shall furnish the
services specified therein to the Adviser; provided,
however, that the Adviser shall remain ultimately
responsible for the provision of investment advisory
services to the Funds, and (ii) appoint a subadviser to
serve as the Corporation's and the Adviser's agent and
attorney-in-fact for the limited purpose of executing
account documentation and customary agreements,
contract and other documents as may be requested by
brokers, dealers, counterparties and other persons in
connection with the management of the assets of the
Funds; provided, however, that any such documentation
that such subadviser shall execute shall comply with
all laws, rules and regulations applicable to the
business of the Corporation, including but not limited
to the 1940 Act and the rules and regulations
thereunder.
3. Expenses Paid by the Adviser. In addition to
the expenses which the Adviser may incur in the
performance of its responsibilities under this
Agreement, and the expenses which it may expressly
undertake to incur and pay, the Adviser shall incur and
pay all reasonable compensation, fees and related
expenses of the Corporation's officers and its
Directors, except for such Directors who are not
interested persons (as that term is defined in Section
2(a)(19) of the 1940 Act) of the Adviser, and all
expenses related to the rental and maintenance of the
principal offices of the Corporation.
4. Investment Advisory Functions. In its
capacity as investment adviser, the Adviser shall have
the following responsibilities:
(a) To furnish continuous advice and
recommendations to the Funds, as to the acquisition,
holding or disposition of any or all of the securities
or other assets which the Funds may own or contemplate
acquiring from time to time;
(b) To cause its officers to attend meetings
and furnish oral or written reports, as the Corporation
may reasonably require, in order to keep the Directors
and appropriate officers of the Corporation fully
informed as to the condition of the investments of the
Funds, the investment recommendations of the Adviser,
and the investment considerations which have given rise
to those recommendations; and
(c) To supervise the purchase and sale of
securities or other assets as directed by the
appropriate officers of the Corporation.
The services of the Adviser are not to be deemed
exclusive and the Adviser shall be free to render
similar services to others as long as its services for
others does not in any way hinder, preclude or prevent
the Adviser from performing its duties and obligations
under this Agreement. In the absence of willful
misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the
part of the Adviser, the Adviser shall not be subject
to liability to the Corporation, the Funds, or to any
shareholder for any act or omission in the course of,
or in connection with, rendering services hereunder or
for any losses that may be sustained in the purchase,
holding or sale of any security.
5. Obligations of the Corporation. The
Corporation shall have the following obligations under
this Agreement:
(a) To keep the Adviser continuously and
fully informed as to the composition of the Funds'
investments and the nature of all of their respective
assets and liabilities;
(b) To furnish the Adviser with a copy of
any financial statement or report prepared for it by
certified or independent public accountants, and with
copies of any financial statements or reports made to
the Funds' shareholders or to any governmental body or
securities exchange;
(c) To furnish the Adviser with any further
materials or information which the Adviser may
reasonably request to enable it to perform its
functions under this Agreement; and
(d) To compensate the Adviser for its
services in accordance with the provisions of paragraph
6 hereof.
6. Compensation. The Corporation will pay the
Adviser a fee for its services with respect to each
Fund (the "Advisory Fee") at the annual rate set forth
on the Exhibits hereto. The Advisory Fee shall be
accrued each calendar day during the term of this
Agreement and the sum of the daily fee accruals shall
be paid monthly as soon as practicable following the
last day of each month. The daily fee accruals will be
computed by multiplying 1/365 by the annual rate and
multiplying the product by the net asset value of the
Fund as determined in accordance with the Corporation's
registration statement as of the close of business on
the previous day on which the Fund was open for
business, or in such other manner as the parties agree.
The Adviser may from time to time and for such periods
as it deems appropriate voluntarily reduce its
compensation hereunder (and/or voluntarily assume
expenses) for one or more of the Funds.
7. Expenses Paid by Corporation.
(a) Except as provided in this paragraph,
nothing in this Agreement shall be construed to impose
upon the Adviser the obligation to incur, pay, or
reimburse the Corporation for any expenses not
specifically assumed by the Adviser under paragraph 3
above. Each Fund shall pay or cause to be paid all of
its expenses and the Fund's allocable share of the
Corporation's expenses, including, but not limited to,
investment adviser fees; any compensation, fees, or
reimbursements which the Corporation pays to its
Directors who are not interested persons (as that
phrase is defined in Section 2(a)(19) of the 1940 Act)
of the Adviser; fees and expenses of the custodian,
transfer agent, registrar or dividend disbursing agent;
current legal, accounting and printing expenses;
administrative, clerical, recordkeeping and bookkeeping
expenses; brokerage commissions and all other expenses
in connection with the execution of Fund transactions;
interest; all federal, state and local taxes (including
stamp, excise, income and franchise taxes); expenses of
shareholders' meetings and of preparing, printing and
distributing proxy statements, notices and reports to
shareholders; expenses of preparing and filing reports
and tax returns with federal and state regulatory
authorities; and all expenses incurred in complying
with all federal and state laws and the laws of any
foreign country applicable to the issue, offer, or sale
of Shares of the Funds, including but not limited to,
all costs involved in the registration or qualification
of Shares of the Funds for sale in any jurisdiction and
all costs involved in preparing, printing and
distributing prospectuses and statements of additional
information to existing shareholders of the Funds.
(b) If expenses borne by a Fund in any
fiscal year exceed those set forth in any statutory or
regulatory formula applicable to the Fund, the Adviser
will reimburse the Fund for any excess in accordance
with the applicable statutory or regulatory formula.
In addition, the Adviser hereby agrees that until the
earlier of the end of the first 12 months of operations
of the Funds or the date upon which the Funds'
aggregate average net assets exceed $30 million, the
Adviser will waive its fees and/or reimburse each
Fund's respective operating expenses to the extent
necessary to ensure that no Fund's total operating
expenses (as defined in the Funds' Prospectus) exceed
2.75% of its average daily net assets, and any
reimbursement of expenses will be made on a monthly
basis and will be paid to the Funds by reduction of the
Adviser's fee, subject to later adjustment, month by
month, for the remainder of the Funds' fiscal year.
8. Brokerage Commissions. For purposes of this
Agreement, brokerage commissions paid by a Fund upon
the purchase or sale of securities shall be considered
a cost of the securities of the Fund and shall be paid
by the respective Fund. The Adviser is authorized and
directed to place Fund transactions only with brokers
and dealers who render satisfactory service in the
execution of orders at the most favorable prices and at
reasonable commission rates; provided, however, that
the Adviser may pay a broker or dealer an amount of
commission for effecting a securities transaction in
excess of the amount of commission another broker or
dealer would have charged for effecting that
transaction, if the Adviser determines in good faith
that such amount of commission was reasonable in
relation to the value of the brokerage and research
services provided by such broker or dealer viewed in
terms of either that particular transaction or the
overall responsibilities of the Adviser. In placing
Fund business with such broker or dealers, the Adviser
shall seek the best execution of each transaction, and
all such brokerage placement shall be made in
compliance with Section 28(e) of the Securities
Exchange Act of 1934, as amended, and other applicable
state and federal laws. Notwithstanding the foregoing,
the Corporation shall retain the right to direct the
placement of all Fund transactions, and the Directors
may establish policies or guidelines to be followed by
the Adviser in placing Fund transactions for the Funds
pursuant to the foregoing provisions.
9. Proprietary Rights. The Adviser has
proprietary rights in each Fund's name and the
Corporation's name. The Adviser may withdraw the use
of such names from the Funds or the Corporation.
10. Termination. This Agreement may be
terminated at any time, without penalty, by the
Directors of the Corporation or by the shareholders of
a Fund acting by the vote of at least a majority of its
outstanding voting securities (as that phrase is
defined in Section 2(a)(42) of the 1940 Act), provided
in either case that 60 days' written notice of
termination be given to the Adviser at its principal
place of business. This Agreement may also be
terminated by the Adviser at any time by giving 60
days' written notice of termination to the Corporation,
addressed to its principal place of business.
11. Assignment. This Agreement shall terminate
automatically in the event of any assignment (as the
term is defined in Section 2(a)(4) of the 1940 Act) of
this Agreement.
12. Term. This Agreement shall begin for each
Fund as of the date of execution of the applicable
Exhibit and shall continue in effect with respect to
each Fund (and any subsequent Funds added pursuant to
an Exhibit during the initial term of this Agreement)
for two years from the date of this Agreement and
thereafter for successive periods of one year, subject
to the provisions for termination and all of the other
terms and conditions hereof if such continuation shall
be specifically approved at least annually (i) by the
vote of a majority of the Directors of the Corporation,
including a majority of the Directors who are not
parties to this Agreement or "interested persons" of
any such party (as defined in the 1940 Act), cast in
person at a meeting called for that purpose or (ii) by
the vote of a majority of the outstanding voting
securities (as that phrase is defined in Section
2(a)(42) of the 1940 Act) of each Fund. If a Fund is
added after the first approval as described above, this
Agreement will be effective as to that Fund upon
execution of the applicable Exhibit and will continue
in effect until the next annual approval of this
Agreement by the Directors or Fund shareholders and
thereafter for successive periods of one year, subject
to approval as described above.
13. Amendments. This Agreement may be amended by
the mutual consent of the parties, provided that the
terms of each such amendment shall be approved by the
Directors or by of the affirmative vote of a majority
of the outstanding voting securities (as that phrase is
defined in Section 2(a)(42) of the 1940 Act) of each
Fund.
14. Governing Law. This Agreement shall be
governed by and construed in accordance with the
internal laws of the State of Florida; provided,
however that nothing herein shall be construed in a
manner that is inconsistent with the 1940 Act, the
Investment Advisers Act of 1940, as amended, or the
rules and regulations promulgated with respect to such
respective Acts.
This Agreement will become binding on the parties
hereto upon their execution of the Exhibit(s) to this
Agreement.
EXHIBIT A
to the
Investment Advisory Agreement
AMQUEST MATRIX INCOME FUND
For all services rendered by the Adviser
hereunder, the Corporation shall pay the Adviser, on
behalf of the above-named Fund, and the Adviser agrees
to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee
equal to 0.75% of the average daily net assets of the
Fund.
The annual investment advisory fee shall be
accrued daily at the rate of 1/365th of 0.75% applied
to the daily net assets of the Fund. The advisory fee
so accrued shall be paid by the Corporation to the
Adviser monthly.
Executed this 13th day of December, 1996.
The Adviser:
AMQUEST ADVISERS, INC.
By: /s/ Donald A. Taylor, Jr.
-------------------------
Donald A. Taylor, Jr., Secretary
The Corporation:
AMQUEST MATRIX FUNDS, INC.
By: /s/ Richard D. Brace
--------------------------
Richard D. Brace, President
EXHIBIT B
to the
Investment Advisory Agreement
AMQUEST MATRIX TOTAL RETURN FUND
For all services rendered by the Adviser
hereunder, the Corporation shall pay the Adviser, on
behalf of the above-named Fund, and the Adviser agrees
to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee
equal to 1.00% of the average daily net assets of the
Fund.
The annual investment advisory fee shall be
accrued daily at the rate of 1/365th of 1.00% applied
to the daily net assets of the Fund. The advisory fee
so accrued shall be paid by the Corporation to the
Adviser monthly.
Executed this 13th day of December, 1996.
The Adviser:
AMQUEST ADVISERS, INC.
By: /s/ Donald A. Taylor, Jr.
--------------------------
Donald A. Taylor, Jr., Secretary
The Corporation:
AMQUEST MATRIX FUNDS, INC.
By: /s/ Richard D. Brace
---------------------------
Richard D. Brace, President
EXHIBIT C
to the
Investment Advisory Agreement
AMQUEST MATRIX GROWTH FUND
For all services rendered by the Adviser
hereunder, the Corporation shall pay the Adviser, on
behalf of the above-named Fund, and the Adviser agrees
to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee
equal to 1.00% of the average daily net assets of the
Fund.
The annual investment advisory fee shall be
accrued daily at the rate of 1/365th of 1.00% applied
to the daily net assets of the Fund. The advisory fee
so accrued shall be paid by the Corporation to the
Adviser monthly.
Executed this 13th day of December, 1996.
The Adviser:
AMQUEST ADVISERS, INC.
By: /s/ Donald A. Taylor, Jr.
--------------------------
Donald A. Taylor, Jr., Secretary
The Corporation:
AMQUEST MATRIX FUNDS, INC.
By: /s/ Richard D. Brace
----------------------------
Richard D. Brace, President
SUBADVISORY AGREEMENT
THIS SUBADVISORY AGREEMENT is entered into as of
the 13th day of December, 1996 between AMquest
Advisers, Inc., a Delaware corporation (the "Adviser")
and Tocqueville Asset Management L.P., a Delaware
Limited Partnership (the "Subadviser").
W I T N E S S E T H
WHEREAS, AMquest Matrix Funds, Inc., a Maryland
corporation (the "Corporation") is registered with the
Securities and Exchange Commission (the "SEC") as an
open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, pursuant to an Investment Advisory
Agreement with the Adviser dated as of the date hereof
(the "Advisory Agreement"), the Corporation has
retained the Adviser to act as investment adviser to
certain of its investment portfolios (individually
referred to herein as a "Fund" or collectively as the
"Funds");
WHEREAS, the Advisory Agreement permits the
Adviser to delegate certain of its duties to a
subadviser, subject to the requirements of the 1940
Act; and
WHEREAS, the Adviser desires to retain the
Subadviser as subadviser for certain of the Funds and
the Subadviser desires to render such services.
NOW, THEREFORE, the Adviser and the Subadviser
mutually agree as follows:
1. Appointment as Subadviser. The Adviser
hereby retains the Subadviser to act as investment
subadviser for each of the Funds on whose behalf the
Adviser executes an Exhibit to this Agreement, subject
to the supervision of the Adviser and the Board of
Directors of the Corporation and subject to the terms
of this Agreement, and the Subadviser, by execution of
each such Exhibit, agrees to accept such engagement.
2. Duties and Agreements of Subadviser.
(a) Investments. Subject to the 1940 Act
and the direction of the Adviser, the Board of
Directors of the Corporation and the investment
policies and restrictions of each Fund as set forth in
the Corporation's current registration statement on
Form N-1A, the Subadviser is authorized and directed to
purchase, hold, sell and monitor on a continuous basis
investments for the account of each Fund (the
"Investments"). In providing these services, the
Subadviser shall conduct a continual program of
investment, evaluation and, if appropriate, sale and
reinvestment of each Fund's assets. The Adviser shall
provide the Subadviser with reasonable assistance in
connection with the Subadviser's activities under this
Agreement, including without limitation, information
concerning each Fund, its funds available for
investment and the general affairs of the Corporation.
(b) Allocation of Brokerage. Subject to the
supervision and any specific instructions or
authorizations of the Adviser and the Board of
Directors of the Corporation, the Subadviser is
authorized and directed to establish and maintain
accounts on behalf of each Fund with, and place orders
for the purchase and sale of Investments with or
through, such persons, brokers or dealers as the
Subadviser may elect, including Tocqueville Securities
L.P., an affiliate of the Subadviser which is
registered as a broker-dealer (subject to the Board of
Directors of the Corporation having adopted procedures
relating to affiliated brokerage pursuant to Rule 17e-1
of the 1940 Act), and to negotiate commissions to be
paid on such transactions. In selecting brokers or
dealers and placing orders, the Subadviser shall seek
to obtain the most favorable price and execution
available (considering all factors it deems relevant,
including price, size of transaction, nature of the
market for the security, amount of commission, if any,
timing, reputation of the broker or dealer and other
factors), except to the extent it may be permitted to
pay higher brokerage commissions for brokerage and
research services as provided below. The Subadviser
may cause a Fund to pay a broker that provides
brokerage and research services to the Subadviser a
commission in excess of the commission that another
broker would have charged for effecting that
transaction provided (i) the Subadviser determines in
good faith that the commission is reasonable in
relation to the value of the brokerage and research
services provided by the executing broker in the terms
of the particular transaction or in terms of the
Subadviser's overall responsibilities with respect to
such Fund and the other accounts as to which the
Subadviser exercises investment discretion, (ii) such
commission is paid in compliance with all applicable
state and federal laws, including Section 28(e) of the
Securities Exchange Act of 1934, as amended, and in
accordance with this Agreement, and (iii) in the
opinion of the Subadviser, the total commissions paid
by such Fund will be reasonable in relation to the
benefits to the Fund over the long term. To the extent
not prohibited by applicable law, if the Subadviser
deems the purchase or sale of a security to be in the
best interests of a Fund as well as other of its
clients, it may aggregate the securities to be sold or
purchased in order to obtain the most favorable price
or lower brokerage commissions and efficient execution.
In such event, allocation of these securities and the
expenses incurred in the transaction will be made by
the Subadviser in the manner it considers to be the
most equitable and consistent with its fiduciary
obligations to the Funds and its other clients.
(c) Securities Transactions. The
Subadviser and any of its "affiliated persons" (as
defined in the 1940 Act) shall not purchase securities
or other instruments from or sell securities or other
instruments to a Fund; provided, however, the
Subadviser may purchase securities or other instruments
from or sell securities or other instruments to a Fund
if such transaction is permissible under applicable law
or any exemptive regulatory order. The Subadviser
shall observe and comply with Rule 17j-l under the 1940
Act and the Subadviser's Code of Ethics (which shall
comply in all material respects with Rule 17j-1), as
the same may be amended from time to time. Upon
request during any business day, the Subadviser
immediately shall make available to the Adviser or the
Corporation any reports concerning the Funds required
to be made by the Subadviser pursuant to Rule 17j-1
under the 1940 Act.
(d) Books and Records. The Subadviser
shall maintain all books and records required to be
maintained pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to the
transactions made by it on behalf of the Funds,
including without limitation, a daily ledger of assets
and liabilities relating to each such Fund and
brokerage and other records of all securities
transactions, and shall furnish to the Adviser and the
Board of Directors of the Corporation in a timely
manner such periodic and special reports as the Board
or the Adviser may reasonably request. The Subadviser
will also preserve such books and records for the
periods prescribed in Rule 31a-2 under the 1940 Act,
and agrees that all such books and records remain the
sole property of the Corporation and shall be
immediately surrendered to the Corporation upon
request, provided that the Subadviser may retain a copy
of the books and records. The Subadviser further
agrees that all books and records maintained under this
Agreement immediately shall be made available to the
Corporation or the Adviser upon request during any
business day.
(e) Information Concerning Investments. At
such times as the Adviser or the Board of Directors of
the Corporation may reasonably request, the Subadviser
shall furnish reports on portfolio transactions and
reports on Investments held in each Fund's portfolio in
such detail as the requesting party may request. On a
regular basis, the Subadviser shall also provide the
Adviser and the Corporation economic and investment
analyses and reports or other investment services
normally available to the Subadviser's other clients.
Upon reasonable advance notice, the Subadviser shall
make its officers and employees available to meet with
the Adviser and the Corporation's Board of Directors at
the Corporation's principal place of business or
another mutually agreed location to review the
Investments of each Fund. The Subadviser shall inform
the Corporation and the Adviser on a timely basis of
changes in investment strategy, tactics or key
personnel. The Subadviser shall also provide such
information or perform such additional acts as are
customarily provided or performed by a subadviser or
which are required for the Funds or the Adviser to
comply with their respective obligations under
applicable law, including without limitation the
Internal Revenue Code of 1986, as amended, the 1940
Act, the Investment Advisers Act of 1940, as amended
(the "Advisers Act"), the Securities Act of 1933, as
amended (the "1933 Act") and any state securities law,
rule or regulation.
(f) Custody Arrangements. The Subadviser
acknowledges receipt of a Custody Agreement for the
Funds and, to the extent within its control, will
comply with the requirements of the Custody Agreement.
On each business day, the Subadviser shall provide the
Funds' custodian with information relating to all
transactions concerning the Funds' assets as the
Adviser or the custodian requests.
(g) Voting of Proxies. The Subadviser
shall have the power to vote all securities in which it
invests Fund assets and shall not be required to seek
or take instructions from the Adviser or the Funds with
respect to any such vote.
(h) Agent. Subject to any other written
instructions of the Adviser or the Corporation, the
Subadviser is hereby appointed as the Adviser's and the
Corporation's agent and attorney-in-fact for the
limited purpose of executing account documentation and
customary agreements, contracts and other documents as
the Subadviser is requested by brokers, dealers,
counterparties and other persons in connection with its
management of the Investments; provided, however, that
any such documentation that the Subadviser shall
execute shall comply with all laws, rules and
regulations applicable to the business of the Adviser
and the Corporation, including but not limited to the
Advisers Act, the 1940 Act and the rules and
regulations thereunder. The Subadviser shall provide
the Adviser and the Corporation with copies of any
documents executed on behalf of the Adviser or the
Corporation hereunder as soon as possible after the
execution of any such documents.
(i) Compliance with Applicable Law and
Governing Documents. With respect to all matters
relating to its performance under this Agreement, the
Subadviser and its directors, officers, partners,
employees and "interested persons" (as defined in the
1940 Act) shall act in accordance with all applicable
laws. The Subadviser shall act in accordance with the
Corporation's governing instruments and regulatory
filings, including the Corporation's Articles of
Incorporation, Bylaws, currently effective Registration
Statement under the 1940 Act and the 1933 Act and its
Notice of Eligibility under Rule 4.5 of the Commodities
Exchange Act (the "CEA") (collectively, "Governing
Instruments and Regulatory Filings") and any
instructions or directions of the Corporation, its
Board of Directors or the Adviser. The Adviser shall
provide the Subadviser with any amendments, supplements
or other changes to the Governing Instruments and
Regulatory Filings as soon as practicable after such
materials become available, and upon receipt, the
Subadviser shall act in accordance with such
amendments, supplements or other changes.
(j) Corporation's Name; The Adviser's Name.
The Subadviser will have no rights relating to the
Corporation's name, any Fund's name or in the name
"AMquest" as it is used in connection with investment
products, services or otherwise, and it will make no
use of such names without the express written consent
of the Corporation, the Funds or the Adviser, as the
case may be.
3. Duties of Adviser. The Adviser shall
continue to be responsible for all services to be
provided to each Fund pursuant to the Advisory
Agreement, and shall oversee and review the
Subadviser's performance under this Agreement.
4. Independent Contractor. The Subadviser will
be an independent contractor in performing its duties
under this Agreement and unless otherwise expressly
provided herein or otherwise authorized in writing,
will have no authority to act for or represent the
Corporation, the Funds or the Adviser in any way or
otherwise be deemed an agent of the Corporation, the
Funds or the Adviser.
5. Compensation. The Adviser will pay the
Subadviser a fee for its services with respect to each
Fund (the "Subadvisory Fee") at the annual rate set
forth on the Exhibits hereto. The Subadvisory Fee
shall be accrued each calendar day during the term of
this Agreement and the sum of the daily fee accruals
shall be paid monthly as soon as practicable following
the last day of each month. The daily fee accruals
will be computed by multiplying 1/365 by the annual
rate and multiplying the product by the net asset value
of the Fund as determined in accordance with the
Corporation's registration statement as of the close of
business on the previous business day on which the Fund
was open for business, or in such other manner as the
parties agree. The Adviser agrees that it will
instruct the Corporation's custodian to remit the
Subadvisory Fee, on behalf of the Adviser, directly to
the Subadviser at its principal place of business or
pursuant to instructions issued by the Subadviser;
provided, however, that the Adviser shall remain
ultimately responsible for payment of the Subadvisory
Fee.
6. Expenses. The Subadviser shall bear all
expenses incurred by it in connection with its services
under this Agreement other than the cost of securities,
commodities and other investments (including brokerage
commissions and other transaction charges, if any)
purchased by the Funds. In addition, the Subadviser
will, from time to time at its sole expense, employ
such persons as it believes to be particularly fitted
to assist it in the execution of its duties hereunder.
The Subadviser shall not be responsible for the Funds'
or the Adviser's expenses. The Corporation or the
Adviser, as the case may be, shall reimburse the
Subadviser for any expenses of the Corporation or the
Adviser as may be reasonably incurred by such
Subadviser on behalf of the Corporation or the Adviser.
The Subadviser shall keep and supply to the Corporation
and the Adviser reasonable records of all such
expenses.
7. Representations, Warranties and Covenants of
the Subadviser. The Subadviser represents, warrants
and covenants as follows:
(a) The Subadviser is registered as an
investment adviser under the Advisers Act and any
applicable state securities laws as required in
connection with this Agreement;
(b) The Subadviser has filed a notice of
exemption pursuant to Rule 4.14 under the CEA with the
Commodity Futures Trading Commission and the National
Futures Association, a copy of which has been provided
to the Adviser;
(c) The Subadviser is a Delaware Limited
Partnership duly organized and validly existing with
the power to carry on its business as it is now being
conducted;
(d) The execution, delivery and performance
by the Subadviser of this Agreement are within its
powers and have been duly authorized by all necessary
action, and no action or filing with any governmental
body, agency or official is required for the execution,
delivery and performance of this Agreement, and the
execution, delivery and performance by the Subadviser
of this Agreement do not contravene or constitute a
default under (i) any provision of applicable law, rule
or regulation, (ii) the Subadviser's governing
instruments, or (iii) any agreement, judgment,
injunction, order, decree or other instrument binding
upon the Subadviser;
(e) This Agreement is a valid and binding
agreement of the Subadviser;
(f) The Subadviser (i) has provided its
current Form ADV to the Adviser, which is a true and
complete copy of the form filed with the SEC and the
information contained therein is accurate and complete
in all material respects and does not omit to state any
material fact necessary in order to make the statements
made, in light of the circumstances under which they
were made, not misleading, and (ii) agrees to provide
the Subadviser with a copy of all amendments to the
Form ADV as filed with the SEC; and
(g) The Subadviser (i) has provided to the
Adviser its Code of Ethics which meets the requirements
of Rule 17j-1 under the 1940 Act, and (ii) agrees to
certify to the Adviser and the Corporation within 45
days after the end of each calendar year during the
term of this Agreement, or more frequently as requested
by the Adviser or the Corporation, that it has complied
with the requirements of Rule 17j-l under the 1940 Act
with regard to its duties under this Agreement during
the prior year and that there has been no violation of
its Code of Ethics with respect to the Funds or in
respect of any matter or circumstance that is material
to the performance of its duties or, if such violation
has occurred, that appropriate action was taken in
response to such violation.
8. Survival of Representations and Warranties;
Duty to Update Information. All representations and
warranties made by the Subadviser pursuant to Section 7
shall survive for the duration of this Agreement, and
the Subadviser will promptly notify the Adviser and the
Corporation in writing upon becoming aware that any of
the foregoing representations and warranties are no
longer true. In addition, the Subadviser will deliver
to the Adviser and the Corporation copies of any
material amendments, supplements or updates to any of
the information provided to the Adviser within 15 days
after becoming available.
9. Liability and Indemnification.
(a) Liability. In the absence of willful
misfeasance, bad faith, gross negligence, or reckless
disregard on the part of the Subadviser of its duties
or obligations under this Agreement, the Subadviser
shall not be subject to any liability to the Adviser,
the Corporation or the Funds or any of the Funds'
shareholders, and, in the absence of willful
misfeasance, bad faith, gross negligence, or reckless
disregard on the part of the Adviser of its duties or
obligations under this Agreement, the Adviser shall not
be subject to any liability to the Subadviser, for any
act or omission in the course of, or in connection
with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale
of Investments; provided, however, that nothing herein
shall relieve the Adviser and the Subadviser from any
of its obligations under applicable law, including
without limitation, federal and state securities laws
and the CEA.
(b) Indemnification. The Subadviser shall
indemnify the Adviser and the Corporation, and their
respective officers, directors and "controlling
persons" (within the meaning of the federal securities
laws), for any liability and expenses, including
reasonable attorneys' fees, which may be sustained as a
result of the Subadviser's willful misfeasance, bad
faith, gross negligence, or reckless disregard of its
duties or obligations hereunder or any violations of
applicable law, including, without limitation, federal
and state securities laws and the CEA. The Adviser
shall indemnify the Subadviser and its officers,
directors, and "controlling persons" (within the
meaning of the federal securities laws) for any
liability and expenses, including reasonable attorneys'
fees, which may be sustained as a result of the
Adviser's willful misfeasance, bad faith, gross
negligence, or reckless disregard of its duties and
obligations hereunder or any violations of applicable
law, including, without limitation, federal and state
securities laws and the CEA.
10. Duration and Termination.
(a) Duration. This Agreement shall begin
for each Fund as of the date of execution of the
applicable Exhibit and shall continue in effect with
respect to each Fund (and any subsequent Funds added
pursuant to an Exhibit during the initial term of this
Agreement) for two years from the date of this
Agreement and thereafter for successive periods of one
year, subject to the provisions for termination and all
of the other terms and conditions hereof, if such
continuation shall be specifically approved at least
annually (i) by the vote of a majority of the Board of
Directors of the Corporation, including a majority of
the directors who are not parties to this Agreement or
"interested persons" of any such party (as defined in
the 1940 Act), cast in person at a meeting called for
that purpose or (ii) by the vote of a majority of the
outstanding voting securities (as that phrase is
defined in Section 2(a)(42) of the 1940 Act) of each
Fund. If a Fund is added after the first approval as
described above, this Agreement will be effective as to
that Fund upon execution of the applicable Exhibit and
will continue in effect until the next annual approval
of this Agreement by the directors or Fund shareholders
and thereafter for successive periods of one year,
subject to approval as described above.
(b) Termination. Notwithstanding anything
to the contrary provided herein, this Agreement may be
terminated at any time with respect to a Fund or Funds,
without payment of any penalty: (i) by vote of a
majority of the Board of Directors of the Corporation,
or by vote of a "majority of the outstanding voting
securities" (as defined in the 1940 Act) of a Fund or
Funds (as applicable), in each case upon 60 days
written notice to the Subadviser, or (ii) by the
Adviser or Subadviser upon 60 days written notice to
the other party. This Agreement shall also terminate
automatically in the event of its "assignment" (as
defined in the 1940 Act) or upon the termination of the
Advisory Agreement.
11. Amendment. This Agreement may be amended by
the mutual consent of the parties, provided that the
terms of each such amendment shall be approved by the
Board of Directors of the Corporation in the manner
required by the 1940 Act or by a vote of a "majority of
the outstanding voting securities" (as defined in the
1940 Act) of the affected Fund or Funds (as
applicable). If such amendment is proposed in order to
comply with the requirements of the SEC, state
regulatory bodies or other governmental authorities, or
to expressly obtain any advantage for the Adviser
and/or the Subadviser under federal or state laws, the
Adviser shall notify the Subadviser of the form of
amendment which it deems necessary or advisable and the
reasons therefor, and if the Subadviser declines to
assent to such amendment, the Adviser may terminate
this Agreement forthwith.
12. Confidentiality. Subject to the duties of
the Subadviser to comply with applicable laws,
including any demand of any regulatory or taxing
authority having jurisdiction, the Subadviser shall,
during the term of this Agreement and for a period of 5
years thereafter, treat as confidential all non-public
information pertaining to the Funds and the actions of
the Subadviser, the Adviser and the Corporation in
respect thereof. Information disclosed in voluntary
and required reports to shareholders of the Corporation
and to regulatory authorities is deemed to be public
information.
13. Notice. Any notice that is required to be
given by the parties to each other under the terms of
this Agreement shall be in writing, delivered or mailed
postpaid to the other party, or transmitted by
facsimile with acknowledgment of receipt, to the
parties at their principal places of business, which
may from time to time be changed by a party by notice
to the other party.
14. Governing Law. This Agreement shall be
governed by and construed in accordance with the
internal laws of the State of Florida; provided,
however, that nothing herein shall be construed in a
manner that is inconsistent with the 1940 Act, the
Advisers Act or the rules and regulations promulgated
with respect to such respective Acts.
15. Severability. If any provision of this
Agreement is held or made invalid by a court decision
or applicable law, the remainder of the Agreement shall
not be affected adversely and shall remain in full
force and effect.
16. Third-Party Rights. In addition to the
parties hereto, this Agreement is intended to be for
the benefit of the Corporation, which is intended to be
a third-party beneficiary hereunder and may, as such,
exercise such rights as if it were the Adviser. With
the exception of such parties, no other party shall
have any rights hereunder.
17. Use of Subadviser's Name.
(a) The Adviser agrees that it will, prior
to using any sales literature or other materials which
mention the Subadviser's name, including any Fund
prospectus, statement of additional information, annual
report or other document required to be provided to
shareholders of the Funds pursuant to the federal
securities laws, provide the Subadviser with a copy of
all such material.
(b) With respect to the Adviser's use of
sales literature which mentions the Subadviser's name,
the Adviser shall obtain the Subadviser's prior consent
before using any such material. With respect to the
Adviser's use of any other material listed in paragraph
(a) above which mentions the Subadviser's name, the
Adviser shall obtain the Subadviser's prior consent
before using any such material only if such material is
materially different from similar material used by the
Adviser with respect to which the Subadviser has
already consented.
(c) If the Subadviser's prior consent is
required, such consent will be presumed to have been
given if the Adviser does not receive a response from
the Subadviser (i) within 3 business days after the
Subadviser's receipt of the materials requiring
consent, if such consent relates to sales literature,
or (ii) within 5 business days after the Subadviser's
receipt of materials requiring consent, if such consent
relates to any other material listed in paragraph (a)
above.
(d) If the Subadviser denies its consent
with respect to a particular item, such denial shall be
in writing and shall include the Subadviser's reason(s)
therefor.
This Agreement will become binding on the parties
hereto upon their execution of the Exhibit(s) to this
Agreement.
EXHIBIT A
to the
Subadvisory Agreement
AMQUEST MATRIX INCOME FUND
For all services rendered by the Subadviser
hereunder with respect to the above-named Fund, the
Adviser shall pay the Subadviser, and the Subadviser
agrees to accept as full compensation for all services
rendered hereunder, an annual subadvisory fee equal to
.40% of the average daily net assets of the Fund.
The annual subadvisory fee shall be accrued daily
at the rate of 1/365th of .40% applied to the daily net
assets of the Fund. The subadvisory fee so accrued
shall be paid by (or on behalf of) the Adviser to the
Subadviser monthly.
Executed this 13th day of December, 1996.
The Adviser:
AMQUEST ADVISERS, INC.
By: /s/ Richard D. Brace, President
-------------------------------
Richard D. Brace, President
The Subadviser:
TOCQUEVILLE ASSET MANAGEMENT L.P.
By: /s/ Kieran Lyons
--------------------------------
Its: Vice President
EXHIBIT B
to the
Subadvisory Agreement
AMQUEST MATRIX TOTAL RETURN FUND
For all services rendered by the Subadviser
hereunder with respect to the above-named Fund, the
Adviser shall pay the Subadviser, and the Subadviser
agrees to accept as full compensation for all services
rendered hereunder, an annual subadvisory fee equal to
.50% of the average daily net assets of the Fund.
The annual subadvisory fee shall be accrued daily
at the rate of 1/365th of .50% applied to the daily net
assets of the Fund. The subadvisory fee so accrued
shall be paid by (or on behalf of) the Adviser to the
Subadviser monthly.
Executed this 13th day of December, 1996.
The Adviser:
AMQUEST ADVISERS, INC.
By: /s/ Richard D. Brace, President
-------------------------------
Richard D. Brace, President
The Subadviser:
TOCQUEVILLE ASSET MANAGEMENT L.P.
By: /s/ Kieran Lyons
--------------------------------
Its: Vice President
EXHIBIT C
to the
Subadvisory Agreement
AMQUEST MATRIX GROWTH FUND
For all services rendered by the Subadviser
hereunder with respect to the above-named Fund, the
Adviser shall pay the Subadviser, and the Subadviser
agrees to accept as full compensation for all services
rendered hereunder, an annual subadvisory fee equal to
.50% of the average daily net assets of the Fund.
The annual subadvisory fee shall be accrued daily
at the rate of 1/365th of .50% applied to the daily net
assets of the Fund. The subadvisory fee so accrued
shall be paid by (or on behalf of) the Adviser to the
Subadviser monthly.
Executed this 13th day of December, 1996.
The Adviser:
AMQUEST ADVISERS, INC.
By: /s/ Richard D. Brace, President
-------------------------------
Richard D. Brace, President
The Subadviser:
TOCQUEVILLE ASSET MANAGEMENT L.P.
By: /s/ Kieran Lyons
--------------------------------
Its: Vice President
AMQUEST MATRIX FUNDS, INC.
DISTRIBUTION AGREEMENT
THIS AGREEMENT is entered into as of the 13th day
of December, 1996 between AMquest Matrix Funds, Inc., a
Maryland corporation (the "Corporation") and Sun
Consolidated Securities, Inc., a Georgia corporation
(the "Distributor").
W I T N E S S E T H
WHEREAS, the Corporation is an open-end investment
company registered under the Investment Company Act of
1940, as amended (the "1940 Act"). The Corporation is
authorized to create separate series, each with its own
separate investment portfolio (the "Funds"), and the
beneficial interest in each such series will be
represented by a separate series of shares (the
"Shares").
WHEREAS, the Distributor is a registered broker-
dealer under state and federal laws and regulations and
is a member of the National Association of Securities
Dealers, Inc. (the "NASD").
WHEREAS, the Corporation desires to retain the
Distributor as the principal distributor of Shares of
certain Funds of the Corporation.
NOW, THEREFORE, the Corporation and the
Distributor mutually agree and promise as follows:
1. Appointment of the Distributor; Acceptance of
Appointment. The Corporation hereby appoints the
Distributor as its agent for the distribution of Shares
for each of the Funds on whose behalf the Corporation
executes an Exhibit to this Agreement in jurisdictions
wherein the Shares may lawfully be offered for sale,
and the Distributor, by execution of each such Exhibit,
hereby accepts such appointment.
2. Exclusive Nature of Distribution Services.
The Distributor shall be the exclusive representative
of the Corporation to act as the principal distributor
of each Fund's Shares, except that the exclusive rights
granted to the Distributor to sell Shares shall not
apply to (i) Shares issued by the Corporation directly
to Fund investors upon such terms and conditions and
for such consideration, if any, as the Corporation may
determine, whether in connection with the reinvestment
of dividends or capital gains distributions or through
the exercise of any exchange privilege, or otherwise,
and (ii) purchases made by investors through Firstar
Trust Company, the Corporation's transfer and dividend
disbursing agent (the "Transfer Agent"), or any
successor Transfer Agent, in the manner set forth in
the Prospectus of the Corporation. The term
"Prospectus" shall mean the Prospectus and Statement of
Additional Information included as part of the
Corporation's Registration Statement, as such
Prospectus and Registration Statement may be amended
from time to time, and the term "Registration
Statement" shall mean the Registration Statement on
Form N-1A filed by the Corporation with the Securities
and Exchange Commission (the "SEC") and effective under
the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act, as may be amended from time to
time.
3. Services of the Distributor.
(a) Distribution of Shares. The Distributor
shall use its best efforts to solicit orders for the
sale of such part of the authorized Shares of each Fund
remaining unissued as from time to time shall be
effectively registered under the 1933 Act, at prices
determined as hereinafter provided and on terms
hereinafter set forth, all subject to applicable
federal and state laws and regulations and to the
Articles of Incorporation, Bylaws and Registration
Statement of the Corporation; provided, however, the
Distributor is not obligated to sell any specific
number of Shares. In addition, the Distributor shall
undertake such advertising and promotion as it believes
is reasonable in connection with such solicitation.
(b) Selected Dealer Agreements. The Distributor
may enter into selected dealer agreements with
registered and qualified dealers and other financial
institutions of its choice for the sale of Shares (the
"Selected Dealers"), provided that the Corporation
shall approve the form of such agreements and provided
further that, in entering into any such agreement, the
Distributor shall act only on its own behalf as
principal and not as agent for the Corporation. Shares
sold to Selected Dealers by the Distributor shall be
for resale by such dealers only at the prices as set
forth herein.
(c) Transmission of Sales Orders. The
Distributor shall transmit any order received by it for
purchase of Shares to the Transfer Agent. Any order
may be rejected by the Transfer Agent, upon
instructions from the Corporation; provided, however
that the Corporation will not arbitrarily or without
reasonable cause refuse to accept orders for the
purchase of Shares. The Corporation will cause the
Transfer Agent to confirm orders for Shares upon their
receipt and make appropriate book entries therefor
pursuant to the instructions of the Distributor. The
Distributor shall cause payment for Shares and
instructions as to book entries to be delivered
promptly to the Transfer Agent. With respect to Shares
sold by any Selected Dealer, the Distributor is
authorized to direct the Transfer Agent to receive
instructions directly from the Selected Dealer on
behalf of the Distributor as to the registration of
Shares in the names of investors and to confirm the
issuance of such Shares to such investors. The
Distributor is also authorized to instruct the Transfer
Agent to receive payment directly from a Selected
Dealer on behalf of the Distributor for the purchase
price of the Shares. In such event, the Distributor
shall obtain from the Selected Dealer and maintain a
record of such registration and payments.
(d) Suspension of Sales. The Distributor
acknowledges that, whenever in the judgment of the
Corporation's officers such action is warranted for any
reason, including, without limitation, market, economic
or political conditions, the Corporation's officers may
decline to accept orders for, or make any sales of,
Shares of a Fund or Funds until such time as those
officers deem it advisable to accept such orders and to
make such sales.
(e) Redemption of Shares. The Distributor is
authorized, as agent for the Corporation, to repurchase
Shares held in an investor's account with a Fund or
Funds in accordance with applicable provisions in the
Prospectus. The Distributor shall promptly transmit to
the Transfer Agent of the Corporation, for redemption,
all such orders for the repurchase of Shares. Payment
for such Shares repurchased may be made to the
Distributor directly for the account of the investor
and the Distributor shall, in such circumstances, be
solely responsible for transmitting funds or crediting
a client's account. The Distributor shall be
responsible for the accuracy of the instructions
transmitted to the Transfer Agent in connection with
all such repurchases. With respect to Shares tendered
for redemption by any Selected Dealer on behalf of an
investor, the Distributor is authorized to instruct the
Transfer Agent to accept orders for redemption directly
from the Selected Dealer on behalf of the Distributor
and to instruct the Corporation to transmit payments
for such redemptions directly to the Selected Dealer on
behalf of the Distributor for the account of the
investor and, in such circumstances, the Distributor
shall be solely responsible for the transmission of
funds or crediting of a client's account by the
Selected Dealer. The Distributor shall obtain from the
Selected Dealer and maintain a record of all such
orders.
(f) Rule 12b-1 Plan Reports. In connection with
the distribution services provided hereunder and with
respect to a Rule 12b-1 Plan (the "Rule 12b-1 Plan")
adopted by the Corporation on behalf of the Funds, the
Distributor shall provide the Corporation such
information as may be reasonably requested concerning
the Distributor's activities and the costs incurred in
performing such activities with respect to the Funds.
(g) Exclusive Services. The services of the
Distributor hereunder are exclusive, it being
understood that the Distributor may not act as
principal distributor for other registered investment
companies. It is also understood, however, that the
Selected Dealers may sell shares for other registered
investment companies in addition to the Corporation.
(h) Use of Unauthorized Information. Neither the
Distributor nor any Selected Dealer shall give any
information or make any representations, other than
those contained in the Registration Statement or
Prospectus and any sales literature specifically
approved by appropriate officers of the Corporation.
(i) Compliance with Applicable Law. The
Distributor will in all material respects conform its
activities hereunder to the requirements of applicable
state and federal laws and all applicable rules of the
NASD. In addition, the Distributor will observe and be
bound by all the provisions of the Corporation's
Articles of Incorporation, Bylaws and Registration
Statement which at any time in any way require, limit,
restrict, or prohibit or otherwise regulate any action
on the part of the Distributor.
4. Price of Shares.
(a) Sales. Shares offered for sale or sold by
the Distributor or any Selected Dealer for the account
of a Fund shall be so offered or sold at a price per
Share determined in accordance with the Prospectus
relating to the sale of such Shares. The price the
Corporation shall receive for any Shares purchased by
an investor from the Corporation through the
Distributor or a Selected Dealer shall be the net asset
value (the "NAV") used in determining the public
offering price applicable to the sale of such Shares,
as calculated in the manner set forth in the
Prospectus. Any excess amounts paid by an investor for
the purchase of Shares shall be allocated as set forth
in Paragraph 6(a) below.
(b) Redemptions. Shares tendered for redemption
by the Distributor or a Selected Dealer on behalf of an
investor shall be redeemed in accordance with the
applicable provisions as set forth in the Prospectus at
a price equal to the NAV of the Fund as determined in
accordance with the procedures set forth in the
Prospectus.
5. Duties of the Corporation.
(a) Registration of Shares with SEC. The
Corporation agrees that it will use its best efforts to
keep effectively registered under the 1933 Act for sale
as herein contemplated such Shares as the Distributor
shall reasonably request and as the SEC shall permit to
be so registered.
(b) Qualification of Shares with States;
Registration of Corporation. The Corporation agrees to
execute any and all documents, furnish any and all
information and take any other actions which may be
reasonably necessary in connection with the
qualification of Shares for sale, including the
qualification of the Corporation as a broker or dealer
where necessary or advisable, in such states as the
Distributor may reasonably request (it being understood
that the Corporation shall not be required without its
consent to comply with any requirement which in its
opinion is unduly burdensome).
(c) Available Information. At the expense of the
Distributor, the Corporation shall furnish to the
Distributor copies of all information, financial
statements, annual and interim reports, and other
papers which the Distributor may reasonably request for
use in connection with the distribution of Shares.
6. Payments to the Distributor.
(a) Front-End Sales Charge. With respect to
Funds which impose a front-end sales charge, the
Distributor shall receive and may retain any portion of
any front-end sales charge which is imposed on such
sales and not reallocated by the Distributor to
Selected Dealers as set forth in the Prospectus,
subject to applicable NASD rules.
(b) Rule 12b-1 Fee. Pursuant to the terms of
the Rule 12b-1 Plan, the Corporation may pay the
Distributor up to 0.25% per annum of each Fund's
average daily net assets to the extent specified under
the Rule 12b-1 Plan. The Distributor may pay all or a
portion of this fee to Selected Dealers or any other
qualified persons who render assistance in distributing
or promoting the sale of Shares pursuant to a written
agreement, provided the form of such agreement shall be
approved by the Corporation and provided further that
in entering into any such agreement, the Distributor
shall act only on its own behalf as principal and not
as agent for the Corporation. To the extent such fee
is not paid to such persons, the Distributor may use
the fee for its own distribution expenses incurred in
connection with its services to the Corporation
hereunder to the extent specified under the Rule 12b-1
Plan.
7. Expenses.
(a) Payable by the Corporation. The Corporation
shall bear the expenses of (i) registering the Shares
under the 1933 Act, (ii) qualifying or continuing the
qualification of Shares for sale under the laws of such
states as may be designated by the Distributor under
the conditions herein specified, (iii) qualifying or
continuing the qualification of the Corporation as a
broker or dealer under the laws of such states as may
be designated by the Distributor under the conditions
herein specified, and (iv) issuing Shares, such as
issue taxes and fees of the transfer agent.
(b) Payable by the Distributor. Other than the
expenses payable by the Corporation as set forth in
paragraph 7(a) above or as otherwise provided herein,
the Distributor shall bear all expenses incident to the
sale and distribution of the Shares issued or sold
hereunder, including, without limitation, (i) any sales
commissions or other expenses payable to Selected
Dealers and others for their services in connection
with the sale of Shares, (ii) the expenses of printing
and distributing Prospectuses and any other literature,
advertising and selling aids used in connection with
the offering of Shares for sale (except that such
expenses shall not include expenses incurred by the
Corporation in connection with the preparation,
printing and distribution of any prospectus, report or
other communication to holders of Shares in their
capacity as such), and (iii) the expenses of
advertising in connection with the offering of Shares.
In addition, so long as the Rule 12b-1 Plan continues
in effect, any expenses incurred by the Distributor
hereunder may be paid from amounts the Distributor and
any Selected Dealer or other person are entitled to
receive from the Corporation under such plan.
8. Indemnification.
(a) By the Corporation. The Corporation agrees
to indemnify the Distributor and its officers,
directors and controlling persons (within the meaning
of the federal securities laws) for any liability and
expenses, including reasonable attorneys' fees, which
may be sustained as a result of (i) any untrue
statement or alleged untrue statement of a material
fact contained in the Registration Statement,
Prospectus or Statement of Additional Information with
respect to the Shares, (ii) any omission or alleged
omission to state a material fact required to be stated
in the Registration Statement, Prospectus or Statement
of Additional Information or necessary to make the
statements in any of them not misleading, or (iii) the
Corporation's willful misfeasance, bad faith, gross
negligence, or reckless disregard of its duties and
obligations hereunder; provided, however, that the
Corporation shall not be required to indemnify the
Distributor or any of its officers, directors or
controlling persons for any liability or expenses
arising out of or based upon any statements or
representations made by the Distributor or its
representatives or agents other than such statements or
representations as are contained in the Registration
Statement, Prospectus or Statement of Additional
Information with respect to the Shares (other than
statements or omissions relating to the Distributor)
and in such other financial and other statements as are
furnished to the Distributor pursuant to paragraph 5(c)
hereof.
(b) By the Distributor. In addition to the
indemnification agreed to by the Distributor in
paragraph 7(c), the Distributor agrees to indemnify the
Corporation and its officers, directors and controlling
persons (within the meaning of the federal securities
laws) for any liability and expenses, including
reasonable attorneys' fees, which may be sustained as a
result of (i) any unauthorized sales literature,
advertisements, information, statements or
representations or wrongful sales activities of the
Distributor or its representatives or agents, or (ii)
the Distributor's willful misfeasance, bad faith, gross
negligence, or reckless disregard of its duties and
obligations hereunder.
9. Duration and Termination.
(a) Duration. This Agreement shall become
effective for each Fund as of the date of execution of
the applicable Exhibit and shall continue in effect
with respect to each Fund (and any subsequent Funds
added pursuant to an Exhibit during the initial term of
this Agreement) for two years from the date of this
Agreement and thereafter for successive periods of one
year, subject to the provisions for termination and all
other terms and conditions hereof, if such continuation
shall be specifically approved at least annually (i) by
the vote of a majority of the Board of Directors of the
Corporation, including a majority of the Directors who
are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of any such
party, cast in person at a meeting called for that
purpose or (ii) by a vote of a majority of the
outstanding voting securities (as that phrase is
defined in Section 2(a)(42) of the 1940 Act) of each
Fund. If a Fund is added after the first approval as
described above, this Agreement will be effective as to
that Fund upon execution of the applicable Exhibit and
will continue in effect until the next annual approval
of this Agreement by the Board of Directors of the
Corporation or Fund shareholders and thereafter for
successive periods of one year, subject to approval as
described above.
(b) Termination. Notwithstanding whatever may be
provided herein to the contrary, this Agreement may be
terminated at any time, without penalty, by the Board
of Directors of the Corporation or by the shareholders
of a Fund acting by the vote of at least "a majority of
its outstanding voting securities" (as that phrase is
defined in Section 2(a)(42) of the 1940 Act), or by the
Distributor, in each case, on not more than 60 days'
written notice to the other party. In addition, this
Agreement shall automatically terminate in the event of
its "assignment" (as defined in Section 2(a)(4) of the
1940 Act).
10. Notice. Any notice under this Agreement
shall be in writing, delivered or mailed, postage
prepaid, or transmitted by facsimile with
acknowledgment of receipt, to the other party at such
party's principal place of business, which may from
time to time be changed by one party by notice to the
other party.
11. Miscellaneous.
(a) Governing Law. This Agreement shall be
construed in accordance with the laws of the State of
Florida, provided that nothing herein shall be
construed in a manner inconsistent with the 1940 Act,
the 1933 Act, the Securities Exchange Act of 1934, as
amended, or any rule or order of the SEC under such
Acts or any rule of the NASD.
(b) Captions. The captions of this Agreement are
included for convenience only and in no way define or
limit any of the provisions hereof or otherwise affect
their construction or effect.
(c) Severability. If any provision of this
Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby and, to
this extent, the provisions of this Agreement shall be
deemed to be severable.
This Agreement will become binding on the parties
hereto upon their execution of the Exhibit(s) to this
Agreement.
EXHIBIT A
to the
Distribution Agreement
AMQUEST MATRIX INCOME FUND
The Corporation hereby appoints the Distributor,
and the Distributor hereby accepts such appointment, as
the Corporation's agent for the distribution of Shares
of the above-named Fund, subject to the terms of the
Distribution Agreement of which this Exhibit is a part.
Executed this 13th day of December, 1996.
The Corporation:
AMQUEST MATRIX FUNDS, INC.
By: /s/ Donald A. Taylor, Jr.
--------------------------------
Donald A. Taylor, Jr., Secretary
The Distributor:
SUN CONSOLIDATED SECURITIES, INC.
By: /s/ Richard D. Brace
---------------------------------
Richard D. Brace, President
EXHIBIT B
to the
Distribution Agreement
AMQUEST MATRIX TOTAL RETURN FUND
The Corporation hereby appoints the Distributor,
and the Distributor hereby accepts such appointment, as
the Corporation's agent for the distribution of Shares
of the above-named Fund, subject to the terms of the
Distribution Agreement of which this Exhibit is a part.
Executed this 13th day of December, 1996.
The Corporation:
AMQUEST MATRIX FUNDS, INC.
By: /s/ Donald A. Taylor,Jr.
--------------------------------
Donald A. Taylor, Jr., Secretary
The Distributor:
SUN CONSOLIDATED SECURITIES, INC.
By: /s/ Richard D. Brace
---------------------------------
Richard D. Brace, President
EXHIBIT C
to the
Distribution Agreement
AMQUEST MATRIX GROWTH FUND
The Corporation hereby appoints the Distributor,
and the Distributor hereby accepts such appointment, as
the Corporation's agent for the distribution of Shares
of the above-named Fund, subject to the terms of the
Distribution Agreement of which this Exhibit is a part.
Executed this 13th day of December, 1996.
The Corporation:
AMQUEST MATRIX FUNDS, INC.
By: /s/ Donald A. Taylor,Jr.
--------------------------------
Donald A. Taylor, Jr., Secretary
The Distributor:
SUN CONSOLIDATED SECURITIES, INC.
By: /s/ Richard D. Brace
----------------------------------
Richard D. Brace, President
FORM OF SELECTED DEALER AGREEMENT
Sun Consolidated Securities, Inc.
4901 NW 17th Way, Suite 405
Fort Lauderdale, Florida 33309
Telephone: (954) 772-9541
Facsimile: (954) ___-____
____________, 1996
[Dealer Name and Address]
Gentlemen:
We have entered into a distribution agreement (the
"Distribution Agreement") with AMquest Matrix Funds,
Inc. (the "Corporation"), a Maryland corporation
registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940
Act"), pursuant to which we act as principal
distributor for the sale of shares (the "Shares") of
each series of the Corporation listed on Schedule A
attached hereto, as may be amended from time to time
(each, a "Fund" and collectively, the "Funds"). Under
the Distribution Agreement, we have the right to enter
into separate selected dealer agreements with
registered and qualified dealers and other financial
institutions of our choice. You have received a copy
of the Distribution Agreement and reference is made
herein to certain provisions thereof. The terms used
herein that are not otherwise defined shall have the
same meaning in this Agreement as in the Distribution
Agreement.
We invite you to participate as a Selected Dealer
in the distribution of Shares of any and all the Funds
upon the following terms and conditions:
1. Orders for Fund Shares.
(a) Orders for the purchase of Shares received
from you and accepted by us will be at the public
offering price applicable to each order, as set forth
in the Prospectus. Orders for the repurchase or
redemption of Shares received from you and accepted by
us will be at the NAV applicable to each order, as set
forth in the Prospectus. All orders are subject to
acceptance by us, and we reserve the right in our sole
discretion to reject any order. We also reserve the
right to establish minimum orders for individual
investors as well as for Selected Dealers.
(b) You agree that your transactions in Shares of
the Funds will be limited to (i) purchases of Shares
from us for the purpose of covering purchase orders
already received by you from your customers, which
purchase orders shall be processed at the public
offering price then in effect, or for your own bona
fide investment, and (ii) repurchases or redemptions
which are made in accordance with the procedures set
forth in the Prospectus.
(c) Except for sales of Shares made pursuant to
plans established by the Corporation providing for the
periodic investment of new monies, purchase orders will
not be accepted by us for less than the minimum dollar
amounts set forth in the Prospectus.
(d) You agree that you will not withhold placing
customers' orders so as to profit yourself as a result
of such withholding.
(e) Settlement of sales shall be made within
three (3) business days after our acceptance of a
purchase order. If payment is not so received or made,
the sale may be canceled forthwith without any respon
sibility or liability on our part or on the part of the
Corporation (in which case you will be responsible for
any loss, including loss of profit suffered by the
Corporation as a result of your failure to make payment
as aforesaid), or, at our option, we may sell on your
behalf the Shares ordered back to the Corporation (in
which case we may hold you responsible for any loss
suffered by us as a result of your failure to make
payment as aforesaid).
(f) You are hereby authorized (i) to place
purchase orders directly with the Transfer Agent for
Shares of any Fund, subject to the applicable terms and
conditions governing the placement of orders for the
purchase of Shares as set forth in the Distribution
Agreement, and (ii) to tender Shares of any Fund
directly to the Transfer Agent for repurchase or
redemption, subject to the applicable terms and
conditions governing the redemption of Shares as set
forth in the Distribution Agreement.
2. Compensation.
(a) You will be compensated for your services
herein with respect to sales made by you to persons who
are not excepted from having to pay a sales load on the
basis of a dealer concession from the public offering
price, as established in the Prospectus. You will not,
however, be compensated for your services herein with
respect to sales made to persons who, according to the
Prospectus, may purchase Shares of a Fund at net asset
value (without the imposition of a sales load). The
sales load and related dealer concession applicable to
sales of Shares of the Funds may be increased or
decreased in our discretion in the manner described in
Paragraph 5(a) below.
(b) In certain cases as specified in the
Prospectus, investors may be entitled to a reduction in
sales load on purchases of Shares made pursuant to a
letter of intent (a "LOI"). In such cases, the dealer
concession payable to you will be based upon a reduced
sales load, as described in the Prospectus; subject,
however, to adjustment to a higher concession amount to
reflect the investor's actual purchases in the event
such investor should fail to fulfill his LOI.
(c) In addition to the LOI, in certain cases as
specified in the Prospectus, a reduced sales load may
be applicable with respect to investor accounts through
a right of accumulation (a "ROA") under which investors
are permitted to purchase Shares in one or more of the
Funds at the sales charge applicable to the sum of (i)
the dollar amount then being purchased and (ii) the
higher of the current value or the actual purchase
price of all Shares already held by the investor, his
spouse and their minor children. In such case, you
agree to furnish to us sufficient information to permit
us to confirm the qualification for a reduced sales
load. Acceptance by us of a purchase order made
pursuant to a ROA is subject to such confirmation.
(d) If any Shares sold to you under the terms of
this Agreement are redeemed by a Fund, repurchased for
the account of a Fund, or are tendered to a Fund for
redemption or repurchase within seven (7) business days
after the date of our confirmation to you of your
original purchase order therefor, you agree to pay
forthwith to us the full amount of any dealer
concession allowed to you on the original sale, and we
agree to pay the amount of any such dealer concession
to the appropriate Fund when received by us. We also
agree to pay to the Fund the amount of our share, if
any, of any sales load on the original sale of such
Shares.
3. Representations, Warranties and Covenants.
(a) You represent that you are registered as a
broker-dealer with the SEC and a member in good
standing of the NASD. In addition, you represent that
you are an entity duly organized and validly existing
under the laws of your state of incorporation or
organization and that you are empowered under
applicable laws, your organization documents to enter
into and perform this Agreement and that there are no
impediments, prior or existing, regulatory, self-
regulatory, administrative, civil or criminal,
affecting your ability to perform hereunder.
(b) You agree that in offering and selling Shares
of any Fund, you will abide by all applicable rules of
the NASD and all applicable federal and state rules and
regulations
(c) You agree to offer and sell Shares of the
Funds only in those states in which such Shares may
legally be offered for sale and where you are qualified
to act as a broker-dealer.
(d) You agree that neither you nor any of your
officers, directors, registered representatives or
other employees are authorized to make any
representation concerning any Fund or its Shares except
those contained in the Prospectus, Statement of
Additional Information ("SAI"), sales material approved
by us, and printed information subsequently issued by
us or the Corporation as information supplemental to
the Prospectus. In offering and selling Shares which
you have purchased from us, you and such other persons
listed above shall rely solely on the representations
contained in the Prospectus, SAI, sales material, and
supplemental information mentioned above.
(e) You agree that in connection with offers and
sales of Shares, you will furnish to each person to
whom any such offer or sale is made, a copy of the
Prospectus at or prior to the time of offering or sale,
and, with respect to persons who purchase Shares, you
agree thereafter to deliver to such purchasers copies
of the Corporation's annual and interim reports and
proxy solicitation materials. You further agree to
endeavor to obtain proxies from such purchasers. We
agree to supply to you additional copies of the
Prospectus, SAI, annual or interim reports, proxy
solicitation materials, and sales literature in
reasonable quantities upon request. You agree not to
use any other advertising or sales material relating to
the Funds, unless forwarded to our attention for review
and approval prior to use.
4. Indemnification. We agree to indemnify you
and your officers, directors and controlling persons
(within the meaning of the federal securities laws) for
any liability and expenses, including reasonable
attorneys' fees, which may be sustained by you and/or
such other persons in connection with rendering
services hereunder as a result of our willful
misfeasance, bad faith, gross negligence, or reckless
disregard of our duties under this Agreement. You
agree to indemnify us and our officers, directors and
controlling persons (within the meaning of the federal
securities laws) for any liability and expenses,
including reasonable attorneys' fees, which may be
sustained by us and/or such other persons as a result
of your willful misfeasance, bad faith, gross
negligence, or reckless disregard of your duties under
this Agreement.
5. Miscellaneous.
(a) All sales will be subject to receipt of
Shares by us from the applicable Fund. We reserve the
right in our discretion without notice to you to
suspend sales or withdraw any offering of Shares
entirely or with respect to one or more Funds, or to
change the public offering prices, sales loads or
dealer concessions, as provided in the Prospectus. We
further reserve the right upon written notice to you to
amend this Agreement to include one or more additional
Funds, to exclude from this Agreement one or more Funds
then covered by this Agreement, to increase or decrease
the amount of any concessions to be paid to you by us
on the sale of Shares of any of the Funds, or otherwise
amend or cancel this Agreement with respect to one or
more Funds. You agree that any order to purchase
Shares of a Fund placed by you after your receipt of a
revised or supplemented Prospectus and reflecting any
such amendment, or your receipt of written notice of
any such amendment, as the case may be, shall
constitute your agreement to such amendment.
(b) In no transaction shall you have any
authority whatsoever to act as agent of the
Corporation, a Fund, us, or any other Selected Dealer
and nothing in this Agreement shall constitute either
of us the agent of the other. Except as otherwise
indicated herein, all transactions in Shares between
you and us are as principal, each for his own account.
This Agreement shall not be assignable by you.
(c) Any notice under this Agreement shall be in
writing, delivered or mailed, postage prepaid, or
transmitted by facsimile with acknowledgment of
receipt, to the other party as follows: if to you, at
the address as specified below; if to us, at the
address as specified on the first page of this
Agreement.
(d) All expenses incurred in connection with your
activities under this Agreement shall be borne by you.
(e) This Agreement shall become effective on the
date accepted by you, as reflected on the signature
page hereof. Each party hereto has the right to cancel
this Agreement either in its entirety or with respect
to any one or more Funds upon written notice to the
other party. Notwithstanding anything to the contrary
contained herein, this Agreement will automatically
terminate without notice upon your expulsion or
suspension from the NASD.
(f) This Agreement shall be construed in
accordance with the laws of the State of Florida;
provided, however, that nothing herein shall be
construed in a manner inconsistent with the 1940 Act,
the 1933 Act, the Securities Exchange Act of 1934, as
amended, any rule or order of the SEC under such Acts
or any rule of the NASD.
Sincerely,
SUN CONSOLIDATED SECURITIES, INC.
Richard D. Brace,
President
The undersigned has caused this Agreement to be
executed by its duly authorized officer as of this ____
day of ____________, 19__, to evidence its acceptance
to become a Selected Dealer and agrees to abide by the
foregoing terms and conditions.
(Selected Dealer)
By:
Its:
(Address)
(Facsimile Number)
Please return one signed copy of this Agreement to Sun
Consolidated Securities, Inc. at the address indicated
on the first page of this Agreement.
Schedule A
Separate Series of AMquest Matrix Funds, Inc.
Name of Series
AMquest Matrix Income Fund
AMquest Matrix Total Return Fund
AMquest Matrix Growth Fund
CUSTODIAN AGREEMENT
THIS AGREEMENT made on September 27, 1996, between
the AMquest Matrix Funds, Inc., a Maryland corporation
(hereinafter called the "Company") and FIRSTAR TRUST
COMPANY, a corporation organized under the laws of the
State of Wisconsin (hereinafter called the
"Custodian").
WHEREAS, the Company is an open-ended management
investment company which is registered under the
Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Company is authorized to create
separate series, each with its own separate investment
portfolio; and
WHEREAS, the Company desires that the securities
and cash of each series of the Company listed on
Schedule A attached hereto (hereinafter collectively
called the "Funds"), as may be amended from time to
time, shall be hereafter held and administered by the
Custodian pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual
agreements herein made, the Company and the Custodian
agree as follows:
1. Definitions
The word "securities" as used herein includes
stocks, shares, bonds, debentures, notes, mortgages or
other obligations, 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
interests therein, or in any property or assets.
The words "officers' certificate" shall mean a
request or direction or certification in writing signed
in the name of the Company by any two of the President,
a Vice President, the Secretary and the Treasurer of
the Company, or any other persons duly authorized to
sign by the Board of Directors.
The word "Board" shall mean Board of Directors of
the AMquest Matrix Funds, Inc.
2. Names, Titles, and Signatures of the Company's
Officers
An officer of the Company will certify to the
Custodian the names and signatures of those persons
authorized to sign the officers' certificates described
in Section 1 hereof, and the names of the members of
the Board of Directors, together with any changes which
may occur from time to time.
3. Receipt and Disbursement of Money
A. The Custodian shall open and maintain a
separate account or accounts in the name of the
Company, subject only to draft or order by the
Custodian acting pursuant to the terms of this
Agreement. The Custodian shall hold in such account or
accounts, subject to the provisions hereof, all cash
received by it from or for the account of the Company.
The Custodian shall make payments of cash to, or for
the account of, the Company from such cash only:
(a) for the purchase of securities for the
portfolio of a Fund upon the delivery of such
securities to the Custodian, registered in
the name of the Company or of the nominee of
the Custodian referred to in Section 7 or in
proper form for transfer;
(b) for the purchase or redemption of shares
of common stock of a Fund upon delivery
thereof to the Custodian, or upon proper
instructions from the Company;
(c) for the payment of interest, dividends,
taxes, investment adviser's fees or operating
expenses (including, without limitation
thereto, fees for legal, accounting, auditing
and custodian services and expenses for
printing and postage);
(d) for payments in connection with the
conversion, exchange or surrender of
securities owned or subscribed to by a Fund
held by or to be delivered to the Custodian;
or
(e) for other proper corporate purposes
certified by resolution of the Board of
Directors of the Company.
Before making any such payment, the Custodian
shall receive (and may rely upon) an officers'
certificate requesting such payment and stating that it
is for a purpose permitted under the terms of items
(a), (b), (c), or (d) of this Subsection A, and also,
in respect of item (e), upon receipt of an officers'
certificate specifying the amount of such payment,
setting forth the purpose for which such payment is to
be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to
whom such payment is to be made, provided, however,
that an officers' certificate need not precede the
disbursement of cash for the purpose of purchasing a
money market instrument, or any other security with
same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the
Company issues appropriate oral or facsimile
instructions to the Custodian and an appropriate
officers' certificate is received by the Custodian
within two business days thereafter.
B. The Custodian is hereby authorized to endorse
and collect all checks, drafts or other orders for the
payment of money received by the Custodian for the
account of the Company.
C. The Custodian shall, upon receipt of proper
instructions, make federal funds available to the
Company as of specified times agreed upon from time to
time by the Company and the Custodian in the amount of
checks received in payment for shares of a Fund which
are deposited into such Fund's account.
4. Segregated Accounts
Upon receipt of proper instructions, the Custodian
shall establish and maintain segregated accounts for
and on behalf of each Fund, into which accounts may be
transferred cash and/or securities.
5. Transfer, Exchange, Redelivery, etc. of Securities
The Custodian shall have sole power to release or
deliver any securities of the Company held by it
pursuant to this Agreement. The Custodian agrees to
transfer, exchange or deliver securities held by it
hereunder only:
(a) for sales of such securities for the
account of a Fund upon receipt by the
Custodian of payment therefor;
(b) when such securities are called,
redeemed or retired or otherwise become
payable;
(c) for examination by any broker selling
any such securities in accordance with
"street delivery" custom;
(d) in exchange for, or upon conversion
into, other securities alone or other
securities and cash whether pursuant to any
plan of merger, consolidation,
reorganization, recapitalization or
readjustment, or otherwise;
(e) upon conversion of such securities
pursuant to their terms into other
securities;
(f) upon exercise of subscription, purchase
or other similar rights represented by such
securities;
(g) for the purpose of exchanging interim
receipts or temporary securities for
definitive securities;
(h) for the purpose of redeeming in kind
shares of common stock of a Fund upon
delivery thereof to the Custodian; or
(i) for other proper corporate purposes.
As to any deliveries made by the Custodian
pursuant to items (a), (b), (d), (e), (f), and (g),
securities or cash receivable in exchange therefor
shall be deliverable to the Custodian.
Before making any such transfer, exchange or
delivery, the Custodian shall receive (and may rely
upon) an officers' certificate requesting such
transfer, exchange or delivery, and stating that it is
for a purpose permitted under the terms of items (a),
(b), (c), (d), (e), (f), (g), or (h) of this Section 5
and also, in respect of item (i), upon receipt of an
officers' certificate specifying the securities to be
delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be
made, provided, however, that an officers' certificate
need not precede any such transfer, exchange or
delivery of a money market instrument, or any other
security with same or next-day settlement, if the
President, a Vice President, the Secretary or the
Treasurer of the Company issues appropriate oral or
facsimile instructions to the Custodian and an
appropriate officers' certificate is received by the
Custodian within two business days thereafter.
6. The Custodian's Acts Without Instructions
Unless and until the Custodian receives an
officers' certificate to the contrary, the Custodian
shall: (a) present for payment all coupons and other
income items held by it for the account of a Fund and
hold the cash received by it upon such payment for the
account of such Fund; (b) collect interest and cash
dividends received, with notice to the Company, for the
account of a Fund; (c) hold for the account of a Fund
hereunder all stock dividends, rights and similar
securities issued with respect to any securities held
by it hereunder; and (d) execute, as agent on behalf of
the Company, all necessary ownership certificates
required by the Internal Revenue Code (the "Code") or
the Income Tax Regulations (the "Regulations") of the
United States Treasury Department (the "Treasury
Department") or under the laws of any state now or
hereafter in effect, inserting the Company's name on
such certificates as the owner of the securities
covered thereby, to the extent it may lawfully do so.
7. Registration of Securities
Except as otherwise directed by an officers'
certificate, the Custodian shall register all
securities, except such as are in bearer form, in the
name of a registered nominee of the Custodian as
defined in the Code and any Regulations of the Treasury
Department issued thereunder or in any provision of any
subsequent federal tax law exempting such transaction
from liability for stock transfer taxes, and shall
execute and deliver all such certificates in connection
therewith as may be required by such laws or
regulations or under the laws of any state. All
securities held by the Custodian hereunder shall be at
all times held in an account or accounts of the
Custodian containing only the assets of the Company.
The Company shall from time to time furnish to the
Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for
transfer, or to register in the name of its registered
nominee, any securities which it may hold for the
account of the Company and which may from time to time
be registered in the name of the Company.
8. Voting and Other Action
Neither the Custodian nor any nominee of the
Custodian shall vote any of the securities held
hereunder by or for the account of the Company, except
in accordance with the instructions contained in an
officers' certificate. The Custodian shall deliver, or
cause to be executed and delivered, to the Company all
notices, proxies and proxy soliciting materials with
respect to such securities, such proxies to be executed
by the registered holder of such securities (if
registered otherwise than in the name of the Company),
but without indicating the manner in which such proxies
are to be voted.
9. Transfer Tax and Other Disbursements
The Company shall pay or reimburse the Custodian
from time to time for any transfer taxes payable upon
transfers of securities made hereunder, and for all
other necessary and proper disbursements and expenses
made or incurred by the Custodian in the performance of
this Agreement.
The Custodian shall execute and deliver such
certificates in connection with securities delivered to
it or by it under this Agreement as may be required
under the provisions of the Code and any Regulations of
the Treasury Department issued thereunder, or under the
laws of any state, to exempt from taxation any
exemptible transfers and/or deliveries of any such
securities.
10. Concerning the Custodian
The Custodian shall be paid as compensation for
its services pursuant to this Agreement such
compensation as may from time to time be agreed upon in
writing between the two parties. Until modified in
writing, such compensation shall be as set forth in
Schedule B attached hereto.
The Custodian shall not be liable for any action
taken in good faith upon any certificate herein
described or certified copy of any resolution of the
Board, and may rely on the genuineness of any such
document which it may in good faith believe to have
been validly executed.
The Company agrees to indemnify and hold harmless
the Custodian and its nominee from all taxes, charges,
expenses, assessments, claims and liabilities
(including reasonable counsel fees) incurred or
assessed against it or by its nominee in connection
with the performance of this Agreement, except such as
may arise from its or its nominee's own bad faith,
negligent action, negligent failure to act or willful
misconduct. The Custodian is authorized to charge any
account of the Fund for such items.
In the event of any advance of cash for any
purpose made by the Custodian resulting from orders or
instructions of the Company, or in the event that the
Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this
Agreement, except such as may arise from its or its
nominee's own bad faith, negligent action, negligent
failure to act or willful misconduct, any property at
any time held for the account of the Company shall be
security therefor.
The Custodian agrees to indemnify and hold
harmless the Company from all charges, expenses,
assessments, and claims/liabilities (including
reasonable counsel fees) incurred or assessed against
it in connection with the performance of this
Agreement, except such as may arise from the Company's
own bad faith, negligent action, negligent failure to
act or willful misconduct.
11. Subcustodians
The Custodian is hereby authorized to engage
another bank or trust company as a subcustodian for all
or any part of the Company's assets, so long as any
such bank or trust company is itself qualified under
the 1940 Act and the rules and regulations thereunder,
and provided further that, if the Custodian utilizes
the services of a subcustodian, the Custodian shall
remain fully liable and responsible for any losses
caused to the Company by the subcustodian as fully as
if the Custodian was directly responsible for any such
losses under the terms of this Agreement.
Notwithstanding anything contained herein, if the
Company requires the Custodian to engage specific
subcustodians for the safekeeping and/or clearing of
assets, the Company agrees to indemnify and hold
harmless the Custodian from all claims, expenses and
liabilities incurred or assessed against it in
connection with the use of such subcustodian in regard
to the Company's assets, except as may arise from the
Custodian's own bad faith, negligent action, negligent
failure to act or willful misconduct.
12. Reports by the Custodian
The Custodian shall furnish the Company
periodically as agreed upon with a statement
summarizing all transactions and entries for the
account of the Company. The Custodian shall furnish to
the Company, at the end of every month, a list of the
portfolio securities for each Fund showing the
aggregate cost of each issue. The books and records of
the Custodian pertaining to its actions under this
Agreement shall be open to inspection and audit at
reasonable times by officers of, and by auditors
employed by, the Company.
13. Termination or Assignment
This Agreement may be terminated by the Company,
or by the Custodian, on ninety (90) days notice, given
in writing and sent by registered mail to the Custodian
at P.O. Box 2054, Milwaukee, Wisconsin 53201, or to the
Company at 4901 NW 17th Way, Suite 407, Fort
Lauderdale, Florida 33309, as the case may be. Upon
any termination of this Agreement, pending appointment
of a successor to the Custodian or a vote of the
shareholders of the Company to dissolve or to function
without a custodian of its cash, securities and other
property, the Custodian shall not deliver cash,
securities or other property of the Company to the
Company, but may deliver them to a bank or trust
company of its own selection that meets the
requirements of the 1940 Act to act as a Custodian for
the Company to be held under terms similar to those of
this Agreement, provided, however, that the Custodian
shall not be required to make any such delivery or
payment until full payment shall have been made by the
Company of all liabilities constituting a charge on or
against the properties then held by the Custodian or on
or against the Custodian, and until full payment shall
have been made to the Custodian of all its fees,
compensation, costs and expenses, subject to the
provisions of Section 10 of this Agreement.
This Agreement may not be assigned by the
Custodian without the consent of the Company,
authorized or approved by a resolution of its Board of
Directors.
14. Deposits of Securities in Securities Depositories
No provision of this Agreement shall be deemed to
prevent the use by the Custodian of a central
securities clearing agency or securities depository,
provided, however, that the Custodian and the central
securities clearing agency or securities depository
meet all applicable federal and state laws and
regulations, and the Board of Directors of the Company
approves by resolution the use of such central
securities clearing agency or securities depository.
15. Records
The Custodian shall keep records relating to its
services to be performed hereunder, in the form and
manner, and for such period, as it may deem advisable
and is agreeable to the Company but not inconsistent
with the rules and regulations of appropriate
government authorities, in particular Section 31 of the
1940 Act and the rules thereunder. The Custodian
agrees that all such records prepared or maintained by
the Custodian relating to the services performed by the
Custodian hereunder are the property of the Company and
will be preserved, maintained, and made available in
accordance with such section and rules of the 1940 Act
and will be promptly surrendered to the Company on and
in accordance with its request.
16. Miscellaneous
The captions in this Agreement are included for
convenience of reference only and in no way define or
limit any of the provisions hereof or otherwise affect
their construction or effect. If any provision of this
Agreement shall be held invalid by a court or
regulatory agency decision, statute, rule, or
otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be governed by
Wisconsin law. However, nothing herein shall be
construed in a manner inconsistent with the 1940 Act or
any rule or regulation promulgated by the SEC
thereunder. This Agreement constitutes the entire
Agreement of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed as of the date first
above-written by their respective officers thereunto
duly authorized.
Executed in several counterparts, each of which is
an original.
FIRSTAR TRUST COMPANY
By: /s/ Michael R. McVoy
-----------------------------
Vice President
Attest:
/s/ Gail M. Zess
-------------------------------
Assistant Secretary
AMquest Matrix Funds, Inc.
By: /s/ Richard D. Brace
-------------------------------
Richard D. Brace, President
Attest:
/s/ Donald A. Taylor, Jr.
--------------------------------
Donald A. Taylor, Jr., Secretary
Schedule A
SEPARATE SERIES OF AMQUEST MATRIX FUNDS, INC.
Name of Series Date Added
AMquest Matrix Income Fund September 27, 1996
AMquest Matrix Total Return September 27, 1996
AMquest Matrix Growth Fund September 27, 1996
Schedule B
Mutual Fund Custodial Agent Service
Domestic Portfolios
Annual Fee Schedule
Fund groups less than $500 million
Annual fee based on market value of assets:
$0.20 per $1,000 (2.0 basis points)
Minimum annual fee per fund: $3,000
Investment transactions: (purchase, sale, exchange,
tender, redemption, maturity, receipt delivery)
$12.00 per book entry security (depository or
Federal Reserve system)
$25.00 per definitive security (physical)
$75.00 per Euroclear
$ 8.00 per principal reduction on pass-through certificates
$35.00 per option/future contracts
Variable Amount Notes: Used as a short-term
investment, variable amount notes offer safety and
prevailing high interest rates. Our charge, which is
1/4 of 1%, is deducted from the variable amount note
income at the time it is credited to your account
Extraordinary expenses: Based on time and complexity
involved
Out-of-pocket expenses charged to the account include
but are not limited to:
$10.00 per variation margin transaction
$10.00 per Fed wire deposit or withdrawal
Fees are billed monthly, based on market value at the
beginning of the month
TRANSFER AGENT AGREEMENT
THIS AGREEMENT is made and entered into on this
27th day of September, 1996, by and between AMquest
Matrix Funds, Inc., a corporation organized under the
laws of the State of Maryland (hereinafter referred to
as the "Company") and Firstar Trust Company, a
corporation organized under the laws of the State of
Wisconsin (hereinafter referred to as the "Agent").
WHEREAS, the Company is an open-ended management
investment company which is registered under the
Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Company is authorized to create
separate series, each with its own separate investment
portfolio;
WHEREAS, the Agent is a trust company and, among
other things, is in the business of administering
transfer and dividend disbursing agent functions for
the benefit of its customers; and
WHEREAS, the Company desires to retain the Agent
to provide transfer and dividend disbursing agent
services to each series of the Company listed on
Schedule A attached hereto (hereinafter collectively
referred to as the "Funds"), as may be amended from
time to time.
NOW, THEREFORE, the Company and the Agent do
mutually promise and agree as follows:
1. Terms of Appointment; Duties of the Agent
Subject to the terms and conditions set forth in
this Agreement, the Company hereby employs and
appoints the Agent to act as transfer agent and
dividend disbursing agent for each of the Funds.
The Agent shall perform all of the customary
services of a transfer agent and dividend
disbursing agent, and as relevant, agent in
connection with accumulation, open account or
similar plans (including without limitation any
periodic investment plan or periodic withdrawal
program), including, but not limited to:
A. Process purchase orders with prompt
delivery, where appropriate, of payment and
supporting documentation to the Company's
custodian, and issue the appropriate number
of certificated or uncertificated shares with
such uncertificated shares being held in the
appropriate shareholder accounts;
B. Process redemption requests received in
good order and, where relevant, deliver
appropriate documentation to the Company's
custodian;
C. Pay monies (upon receipt from the
Company's custodian, where relevant) in
accordance with the instructions of redeeming
shareholders;
D. Process transfers of shares in
accordance with the shareowner's
instructions;
E. Process exchanges between the Funds and
the Portico Money Fund;
F. Issue and/or cancel certificates as
instructed; replace lost, stolen or destroyed
certificates upon receipt of satisfactory
indemnification or surety bond;
G. Prepare and transmit payments for
dividends and distributions declared by the
Company with respect to the Funds;
H. Make changes to shareholder records,
including, but not limited to, address
changes in plans (i.e., systematic
withdrawal, automatic investment, dividend
reinvestment, etc.);
I. Record the issuance of shares of each
Fund and maintain, pursuant to Rule
17ad-10(e) promulgated under the Securities
Exchange Act of 1934, as amended (the
"Exchange Act"), a record of the total number
of shares of each Fund which are authorized,
issued and outstanding;
J. Prepare shareholder meeting lists and,
if applicable, mail, receive and tabulate
proxies;
K. Mail shareholder reports and
prospectuses to current shareholders;
L. Prepare and file U.S. Treasury
Department Forms 1099 and other appropriate
information returns required with respect to
dividends and distributions for all
shareholders;
M. Provide shareholder account information
upon request and prepare and mail
confirmations and statements of account to
shareholders for all purchases, redemptions
and other confirmable transactions as agreed
upon with the Company; and
N. Provide a Blue Sky System which will
enable the Company to monitor the total
number of shares of each Fund sold in each
state. In addition, the Company or its
agent, including the Agent, shall identify to
the Agent in writing those transactions and
assets to be treated as exempt from Blue Sky
reporting to the Company for each state. The
responsibility of the Agent for the Company's
Blue Sky state registration status is solely
limited to the initial compliance by the
Company and the reporting of such
transactions to the Company or its agent.
2. Compensation
The Company agrees to pay the Agent for the
performance of the duties listed in this Agreement
as set forth on Schedule B attached hereto; the
fees and out-of-pocket expenses include, but are
not limited to the following: printing, postage,
forms, stationery, record retention (if requested
by the Company), mailing, insertion, programming
(if requested by the Company), labels, shareholder
lists and proxy expenses.
These fees and reimbursable expenses may be
changed from time to time subject to mutual
written agreement between the Company and the
Agent.
The Company agrees to pay all fees and
reimbursable expenses within ten (10) business
days following the mailing of the billing notice.
3. Representations of the Agent
The Agent represents and warrants to the Company
that:
A. It is a trust company duly organized,
existing and in good standing under the laws
of Wisconsin;
B. It is a registered transfer agent under
the Exchange Act;
C. It is duly qualified to carry on its
business in the State of Wisconsin;
D. It is empowered under applicable laws
and by its charter and bylaws to enter into
and perform this Agreement;
E. All requisite corporate proceedings have
been taken to authorize it to enter and
perform this Agreement;
F. It has and will continue to have access
to the necessary facilities, equipment and
personnel to perform its duties and
obligations under this Agreement; and
G. It will comply with all applicable
requirements of the Securities Act of 1933,
as amended (the "Securities Act"), the
Exchange Act, the 1940 Act, and any laws,
rules, and regulations of governmental
authorities having jurisdiction.
4. Representations of the Company
The Company represents and warrants to the Agent
that:
A. The Company is an open-ended diversified
investment company under the 1940 Act;
B. The Company is a corporation organized,
existing, and in good standing under the laws
of Maryland;
C. The Company is empowered under
applicable laws and by its Articles of
Incorporation and Bylaws to enter into and
perform this Agreement;
D. All necessary proceedings required by
the Articles of Incorporation have been taken
to authorize it to enter into and perform
this Agreement;
E. The Company will comply with all
applicable requirements of the Securities
Act, the Exchange Act, the 1940 Act, and any
laws, rules and regulations of governmental
authorities having jurisdiction; and
F. A registration statement under the
Securities Act is currently effective and
will remain effective, and appropriate state
securities law filings have been made and
will continue to be made, with respect to all
shares of the Company being offered for sale.
5. Covenants of the Company and the Agent
The Company shall furnish the Agent a certified
copy of the resolution of the Board of Directors
of the Company authorizing the appointment of the
Agent and the execution of this Agreement. The
Company shall provide to the Agent a copy of its
Articles of Incorporation, Bylaws, and all
amendments thereto.
The Agent shall keep records relating to the
services to be performed hereunder, in the form
and manner as it may deem advisable. To the
extent required by Section 31 of the 1940 Act and
the rules thereunder, the Agent agrees that all
such records prepared or maintained by the Agent
relating to the services to be performed by the
Agent hereunder are the property of the Company
and will be preserved, maintained and made
available in accordance with such section and
rules and will be surrendered to the Company on
and in accordance with its request.
6. Indemnification; Remedies Upon Breach
The Agent shall exercise reasonable care in the
performance of its duties under this Agreement.
The Agent shall not be liable for any error of
judgment or mistake of law or for any loss
suffered by the Company in connection with matters
to which this Agreement relates, including losses
resulting from mechanical breakdowns or the
failure of communication or power supplies beyond
the Agent's control, except a loss resulting from
the Agent's refusal or failure to comply with the
terms of this Agreement or from bad faith,
negligence, or willful misconduct on its part in
the performance of its duties under this
Agreement. Notwithstanding any other provision of
this Agreement, the Company shall indemnify and
hold harmless the Agent from and against any and
all claims, demands, losses, expenses, and
liabilities (whether with or without basis in fact
or law) of any and every nature (including
reasonable attorneys' fees) which the Agent may
sustain or incur or which may be asserted against
the Agent by any person arising out of any action
taken or omitted to be taken by it in performing
the services hereunder (i) in accordance with the
foregoing standards, or (ii) in reliance upon any
written or oral instruction provided to the Agent
by any duly authorized officer of the Company,
such duly authorized officer to be included in a
list of authorized officers furnished to the Agent
and as amended from time to time in writing by
resolution of the Board of Directors of the
Company.
Further, the Company will indemnify and hold the
Agent harmless against any and all losses, claims,
damages, liabilities or expenses (including
reasonable counsel fees and expenses) resulting
from any claim, demand, action, or suit as a
result of the negligence of the Company or the
principal underwriter of the Company (unless
contributed to by the Agent's breach of this
Agreement or other Agreements between the Company
and the Agent, or the Agent's own negligence or
bad faith); or as a result of the Agent acting
upon telephone instructions relating to the
exchange or redemption of shares received by the
Agent and reasonably believed by the Agent under a
standard of care customarily used in the industry
to have originated from the record owner of the
subject shares; or as a result of acting in
reliance upon any genuine instrument or stock
certificate signed, countersigned, or executed by
any person or persons authorized to sign,
countersign, or execute the same.
In the event of a mechanical breakdown or failure
of communication or power supplies beyond its
control, the Agent shall take all reasonable steps
to minimize service interruptions for any period
that such interruption continues beyond the
Agent's control. The Agent will make every
reasonable effort to restore any lost or damaged
data and correct any errors resulting from such a
breakdown at the expense of the Agent. The Agent
agrees that it shall, at all times, have
reasonable contingency plans with appropriate
parties, making reasonable provision for emergency
use of electrical data processing equipment to the
extent appropriate equipment is available.
Representatives of the Company shall be entitled
to inspect the Agent's premises and operating capa
bilities at any time during regular business hours
of the Agent, upon reasonable notice to the Agent.
Regardless of the above, the Agent reserves the
right to reprocess and correct administrative
errors at its own expense.
In order that the indemnification provisions
contained in this section shall apply, it is
understood that if in any case the Company may be
asked to indemnify or hold the Agent harmless, the
Company shall be fully and promptly advised of all
pertinent facts concerning the situation in
question, and it is further understood that the
Agent will use all reasonable care to notify the
Company promptly concerning any situation which
presents or appears likely to present the
probability of such a claim for indemnification
against the Company. The Company shall have the
option to defend the Agent against any claim which
may be the subject of this indemnification. In
the event that the Company so elects, it will so
notify the Agent and thereupon the Company shall
take over complete defense of the claim, and the
Agent shall in such situation initiate no further
legal or other expenses for which it shall seek
indemnification under this section. The Agent
shall in no case confess any claim or make any
compromise in any case in which the Company will
be asked to indemnify the Agent except with the
Company's prior written consent.
The Agent shall indemnify and hold the Company
harmless from and against any and all claims,
demands, losses, expenses, and liabilities
(whether with or without basis in fact or law) of
any and every nature (including reasonable
attorneys' fees) which may be asserted against the
Company by any person arising out of any action
taken or omitted to be taken by the Agent as a
result of the Agent's refusal or failure to comply
with the terms of this Agreement, its bad faith,
negligence, or willful misconduct.
7. Confidentiality
The Agent agrees on behalf of itself and its
directors, officers and employees to treat
confidentially and as proprietary information of
the Company all records and other information
relative to the Company and prior, present, or
potential shareholders (and clients of said
shareholders) and not to use such records and
information for any purpose other than the
performance of its responsibilities and duties
hereunder, except after prior notification to and
approval in writing by the Company, which approval
shall not be unreasonably withheld and may not be
withheld where the Agent may be exposed to civil
or criminal contempt proceedings for failure to
comply after being requested to divulge such
information by duly constituted authorities, or
when so requested by the Company.
8. Miscellaneous
The captions in this Agreement are included for
convenience of reference only and in no way define
or limit any of the provisions hereof or otherwise
affect their construction or effect. If any
provision of this Agreement shall be held invalid
by a court or regulatory agency decision, statute,
rule, or otherwise, the remainder of this
Agreement shall not be affected thereby. This
Agreement shall be governed by Wisconsin law,
provided, however, that nothing herein shall be
construed in a manner inconsistent with the 1940
Act or any rule or regulation promulgated by the
SEC thereunder. This Agreement constitutes the
entire Agreement of the parties hereto.
9. Amendment, Assignment, Termination and Notice
A. This Agreement may be amended by the
mutual written consent of the parties.
B. This Agreement may be terminated upon
ninety (90) days' written notice given by one
party to the other.
C. This Agreement and any right or
obligation hereunder may not be assigned by
either party without the signed, written
consent of the other party.
D. Any notice required to be given by the
parties to each other under the terms of this
Agreement shall be in writing, addressed and
delivered, or mailed to the principal place
of business of the other party. If to the
Agent, such notice should be sent to P.O. Box
2054, Milwaukee, Wisconsin 53201. If to the
Company, such notice should be sent to
Richard D. Brace, AMquest Matrix Funds, Inc.,
4901 NW 17th Way, Suite 407, Fort Lauderdale,
Florida 33309.
E. In the event that the Company gives to
the Agent its written intention to terminate
and appoint a successor transfer agent, the
Agent agrees to cooperate in the transfer of
its duties and responsibilities to the
successor, including any and all relevant
books, records and other data established or
maintained by the Agent under this Agreement.
F. Should the Company exercise its right to
terminate, all reasonable out-of-pocket
expenses associated with the movement of
records and material will be paid by the
Company.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by a duly authorized
officer on one or more counterparts as of the day and
year first written above.
AMquest Matrix Funds, Inc. Firstar Trust Company:
By: /s/ Richard D. Brace By: /s/ Michael R. McVoy
--------------------------- -------------------------------
Richard D. Brace, President Michael R. McVoy, Vice President
Attest: /s/ Donald A. Taylor, Jr. Attest: /s/ Gail M. Zess
------------------------- --------------------
Donald A. Taylor, Jr., Secretary Assistant Secretary
Schedule A
SEPARATE SERIES OF AMQUEST MATRIX FUNDS, INC.
Name of Series Date Added
AMquest Matrix Income Fund September 27, 1996
AMquest Matrix Total Return September 27, 1996
AMquest Matrix Growth Fund September 27, 1996
Schedule B
Shareholder Accounting Services
Load Funds
Annual Fee Schedule
$16.00 per shareholder account
Minimum annual fee of $24,000 for the first fund and
$10,000 for each additional fund
Plus out-of-pocket expenses, including, but not
limited to:
Telephone - toll-free lines
Postage
Programming
Stationery/envelopes
Mailing
Insurance
Proxies
Retention of Records
Microfilm/fiche of records
Special reports
All other out-of-pocket expenses
ACH fees
Fees are billed monthly
Shareholder Fees
(Charged to Investors)
Defined Contribution
403(b)(7), 401(k)
I. Qualified Plan Fees IRA Accounts Plan Accounts
Annual maintenance fee per account $ 12.50 $ 12.50
Transfer to successor trustee 15.00 15.00
Distribution to a participant (exclusive
of systematic withdrawal plans) 15.00 15.00
Refund of excess contribution 15.00 15.00
II. Additional Shareholder Fees Amount
Any outgoing wire $7.50/wire
Telephone exchange 5.00/telephone exchange
Return check fee 15.00/return check
Stop payment fee (liquidation, dividend, 15.00/stop payment
draft check)
Research fee 5.00/research item
(For requested items of the
second calendar year [or previous]
to the request)
These fees are subject to change upon notification by
Firstar Trust Company to the Mutual Fund client.
Shareholder Accounting Services
Automatic Investment Plan Processing
ACH Service
Automatic Investment Plan
Telephone Purchase, Liquidation
EFT Payments of Dividends, Capital Gains, SWP's
$125.00 per month
$0.50 per account set-up and/or change
$0.35 per item
$3.50 per correction, reversal, or return item
Fees are billed monthly
FUND ADMINISTRATION SERVICING AGREEMENT
This Agreement is made and entered into on this
27th day of September, 1996, by and between the AMquest
Matrix Funds, Inc., a Maryland corporation (hereinafter
referred to as the "Company") and Firstar Trust
Company, a corporation organized under the laws of the
State of Wisconsin (hereinafter referred to as "FTC").
WHEREAS, the Company is an open-ended management
investment company which is registered under the
Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Company is authorized to create
separate series, each with its own separate investment
portfolio;
WHEREAS, FTC is a trust company and, among other
things, is in the business of providing fund
administration services for the benefit of its
customers; and
WHEREAS, the Company desires to retain FTC to act
as Administrator for each series of the Company listed
on Schedule A attached hereto (hereinafter collectively
referred to as the "Funds"), as may be amended from
time to time.
NOW, THEREFORE, the Company and FTC do mutually
promise and agree as follows:
I. Appointment of the Administrator
The Company hereby appoints FTC as
Administrator of the Funds on the terms and
conditions set forth in this Agreement, and FTC
hereby accepts such appointment and agrees to
perform the services and duties set forth in this
Agreement in consideration of the compensation
provided for herein.
II. Duties and Responsibilities of FTC
A. General Fund Management
1. Act as liaison among all
Company service providers
2. Coordinate Board communication
by:
a. Assisting Company
counsel in establishing meeting
agendas
b. Preparing Board
reports based on financial and
administrative data
c. Evaluating
independent auditor
d. Securing and
monitoring fidelity bond and
director and officer liability
coverage, and making the necessary
SEC filings relating thereto
e. Preparing minutes of
meetings of the Board and
shareholders
3. Audits
a. Prepare appropriate
schedules and assist independent
auditors
b. Provide information
to SEC and facilitate audit process
c. Provide office
facilities
4. Assist in overall operations
of the Company
5. Maintain the Company's
governing documents, including the
Articles of Incorporation, the By-laws
and the minute book
B. Compliance
1. Regulatory Compliance
a. Monitor compliance
with 1940 Act requirements,
including:
1) Asset
diversification tests
2) Total
return and SEC yield
calculations
3)
Maintenance of books and
records under Rule 31a-3
4) Code of
Ethics
b. Monitor compliance
with the policies and investment
limitations of each Fund as set
forth in the Funds' Prospectus and
Statement of Additional Information
2. Blue Sky Compliance
a. Prepare and file
with the appropriate state
securities authorities any and all
required compliance filings
relating to the registration of the
securities of the Company so as to
enable the Company to make a
continuous offering of its shares
b. Monitor status and
maintain registrations in each
state
3. SEC Registration and Reporting
a. Assist Company
counsel in updating Prospectus and
Statement of Additional Information
and in preparing proxy statements
and Rule 24f-2 notices
b. Prepare annual and
semiannual reports
c. Coordinate the
printing of publicly disseminated
Prospectuses and reports
4. IRS Compliance
a. Monitor Company's
status as a regulated investment
company under Subchapter M through
review of the following:
1) Asset
diversification requirements
2) Qualifying
income requirements
3)
Distribution requirements
b. Monitor short-short
testing
c. Calculate required
distributions (including excise tax
distributions)
C. Financial Reporting
1. Provide financial data
required by Funds' Prospectus and
Statement of Additional Information
2. Prepare financial reports for
shareholders, the Board, the SEC, and
independent auditors
3. Supervise the Company's
Custodian and Fund Accountants in the
maintenance of the Company's general
ledger and in the preparation of the
Company's financial statements,
including oversight of expense accruals
and payments, of the determination of
net asset value of each Fund's net
assets and of each Fund's shares, and of
the declaration and payment of dividends
and other distributions to shareholders
D. Tax Reporting
1. Prepare and file on a timely
basis appropriate federal and state tax
returns including Forms 1120/8610 with
any necessary schedules
2. Prepare state income
breakdowns where relevant
3. File Form 1099 Miscellaneous
for payments to directors and other
service providers
4. Monitor wash losses
5. Calculate eligible dividend
income for corporate shareholders
III. Compensation
The Company, on behalf of the Funds, agrees
to pay FTC for the performance of the duties
listed in this Agreement and the fees and out-of-
pocket expenses as set forth in the attached
Schedule B.
The Company agrees to pay all fees and
reimbursable expenses within ten (10) business
days following the mailing of the billing notice.
IV. Performance of Service; Limitation of Liability
A. FTC shall exercise reasonable care in
the performance of its duties under this
Agreement. FTC shall not be liable for any
error of judgment or mistake of law or for
any loss suffered by the Company in
connection with matters to which this
Agreement relates, including losses resulting
from mechanical breakdowns or the failure of
communication or power supplies beyond FTC's
control, except a loss resulting from FTC's
refusal or failure to comply with the terms
of this Agreement or from bad faith,
negligence, or willful misconduct on its part
in the performance of its duties under this
Agreement. Notwithstanding any other
provision of this Agreement, the Company
shall indemnify and hold harmless FTC from
and against any and all claims, demands,
losses, expenses, and liabilities (whether
with or without basis in fact or law) of any
and every nature (including reasonable
attorneys' fees) which FTC may sustain or
incur or which may be asserted against FTC by
any person arising out of any action taken or
omitted to be taken by it in performing the
services hereunder (i) in accordance with the
foregoing standards, or (ii) in reliance upon
any written or oral instruction provided to
FTC by any duly authorized officer of the
Company, such duly authorized officer to be
included in a list of authorized officers
furnished to FTC and as amended from time to
time in writing by resolution of the Board of
Directors of the Company.
In the event of a mechanical breakdown
or failure of communication or power supplies
beyond its control, FTC shall take all
reasonable steps to minimize service
interruptions for any period that such
interruption continues beyond FTC's control.
FTC will make every reasonable effort to
restore any lost or damaged data and correct
any errors resulting from such a breakdown at
the expense of FTC. FTC agrees that it
shall, at all times, have reasonable
contingency plans with appropriate parties,
making reasonable provision for emergency use
of electrical data processing equipment to
the extent appropriate equipment is
available. Representatives of the Company
shall be entitled to inspect FTC's premises
and operating capabilities at any time during
regular business hours of FTC, upon
reasonable notice to FTC.
Regardless of the above, FTC reserves
the right to reprocess and correct
administrative errors at its own expense.
B. In order that the indemnification
provisions contained in this section shall
apply, it is understood that if in any case
the Company may be asked to indemnify or hold
FTC harmless, the Company shall be fully and
promptly advised of all pertinent facts
concerning the situation in question, and it
is further understood that FTC will use all
reasonable care to notify the Company
promptly concerning any situation which
presents or appears likely to present the
probability of such a claim for
indemnification against the Company. The
Company shall have the option to defend FTC
against any claim which may be the subject of
this indemnification. In the event that the
Company so elects, it will so notify FTC and
thereupon the Company shall take over
complete defense of the claim, and FTC shall
in such situation initiate no further legal
or other expenses for which it shall seek
indemnification under this section. FTC
shall in no case confess any claim or make
any compromise in any case in which the
Company will be asked to indemnify FTC except
with the Company's prior written consent.
C. FTC shall indemnify and hold the Company
harmless from and against any and all claims,
demands, losses, expenses, and liabilities
(whether with or without basis in fact or
law) of any and every nature (including
reasonable attorneys' fees) which may be
asserted against the Company by any person
arising out of any action taken or omitted to
be taken by FTC as a result of FTC's refusal
or failure to comply with the terms of this
Agreement, its bad faith, negligence, or
willful misconduct.
V. Proprietary and Confidential information
FTC agrees on behalf of itself and its
directors, officers, and employees to treat
confidentiality and as proprietary information of
the Company all records and other information
relative to the Company and prior, present, or
potential shareholders of the Company (and clients
of said shareholders), and not to use such records
and information for any purpose other than the
performance of its responsibilities and duties
hereunder, except after prior notification to and
approval in writing by the Company, which approval
shall not be unreasonably withheld and may not be
withheld where FTC may be exposed to civil or
criminal contempt proceedings for failure to
comply, when requested to divulge such information
by duly constituted authorities, or when so
requested by the Company.
VI. Data Necessary to Perform Services
The Company or its agent, which may be FTC,
shall furnish to FTC the data necessary to perform
the services described herein at times and in such
form as mutually agreed upon.
VII. Terms of the Agreement
This Agreement shall become effective as of
the date hereof and, unless sooner terminated as
provided herein, shall continue automatically in
effect for successive annual periods. The
Agreement may be terminated by either party upon
giving ninety (90) days prior written notice to
the other party or such shorter period as is
mutually agreed upon by the parties.
The terms of this Agreement shall not be
waived, altered, modified, amended, or
supplemented in any manner whatsoever except by a
written instrument signed by FTC and the Company.
VIII. Duties in the Event of Termination
In the event that, in connection with
termination, a successor to any of FTC's duties or
responsibilities hereunder is designated by the
Company by written notice to FTC, FTC will
promptly, upon such termination and at the expense
of the Company, transfer to such successor all
relevant books, records, correspondence, and other
data established or maintained by FTC under this
Agreement in a form reasonably acceptable to the
Company (if such form differs from the form in
which FTC has maintained, the Company shall pay
any expenses associated with transferring the data
to such form), and will cooperate in the transfer
of such duties and responsibilities, including
provision for assistance from FTC's personnel in
the establishment of books, records, and other
data by such successor.
IX. Choice of Law
This Agreement shall be construed in
accordance with the laws of the State of
Wisconsin.
X. Notices
Notices of any kind to be given by either
party to the other party shall be in writing and
shall be duly given if mailed or delivered as
follows: Notice to FTC shall be sent to P.O. Box
2054, Milwaukee, Wisconsin 53201, and notice to
the Company shall be sent to Richard D. Brace,
AMquest Matrix Funds, Inc., 4901 NW 17th Way,
Suite 407, Fort Lauderdale, Florida 33309.
XI. Records
FTC shall keep records relating to the
services to be performed hereunder in the form and
manner and for such period as it may deem
advisable and is agreeable to the Company but not
inconsistent with the rules and regulations of
appropriate government authorities, in particular,
Section 31 of the 1940 Act and the rules
thereunder. FTC agrees that all such records
prepared or maintained by FTC relating to the
services to be performed by FTC hereunder are the
property of the Company and will be preserved,
maintained, and made available in accordance with
such section and rules of the 1940 Act and will be
promptly surrendered to the Company on and in
accordance with its request.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by a duly authorized
officer on one or more counterparts as of the day and
year first written above.
AMquest Matrix Funds, Inc. Firstar Trust Company:
By: /s/ Richard D. Brace By: /s/ Michael R. McVoy
--------------------------- ----------------------------
Richard D. Brace, President Michael R. McVoy
Attest: /s/ Donald A. Taylor, Jr. Attest: /s/ Gail M. Zess
------------------------------- -----------------------
Donald A. Taylor, Jr., Secretary Gail M. Zess
Schedule A
SEPARATE SERIES OF AMQUEST MATRIX FUNDS, INC.
Name of Series Date Added
AMquest Matrix Income Fund September 27, 1996
AMquest Matrix Total Return Fund September 27, 1996
AMquest Matrix Growth Fund September 27, 1996
Schedule B
Fund Administration and Compliance
Annual Fee Schedule
Minimum annual fee per fund: $30,000
6 basis points (.0006) on the first $200,000,000
5 basis points (.0005) on the next $300,000,000
3 basis points (.0003) on the balance
Out-of-Pocket expenses, including, but not limited to:
Postage
Stationery
Programming
Proxies
Retention of records
Special reports
Federal and state regulatory filing fees
Certain insurance premiums
All other out-of-pocket expenses
Expenses from Board of Directors meetings
Auditing and legal expenses
Fees are billed monthly.
FUND ACCOUNTING SERVICING AGREEMENT
This contract between the AMquest Matrix Funds,
Inc., a Maryland corporation (hereinafter called the
"Company") and Firstar Trust Company, a Wisconsin
corporation (hereinafter called "FTC") is entered into
on this 27th day of September, 1996.
WHEREAS, the Company is an open-ended management
investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Company is authorized to create
separate series, each with its own separate investment
portfolio;
WHEREAS, FTC is in the business of providing,
among other things, mutual fund accounting services to
investment companies; and
WHEREAS, the Company desires to retain FTC to
provide accounting services to each series of the
Company listed on Schedule A attached hereto
(hereinafter collectively called the "Funds"), as may
be amended from time to time.
NOW, THEREFORE, the parties do mutually promise
and agree as follows:
1. Services. FTC agrees to provide the
following mutual fund accounting services to the
Company and each of the Funds:
A. Portfolio Accounting Services:
(1) Maintain portfolio records on
a trade date +1 basis using security trade
information communicated from the investment
manager on a timely basis.
(2) For each valuation date,
obtain prices from a pricing source approved
by the Board of Directors of the Company and
apply those prices to the portfolio
positions. For those securities where market
quotations are not readily available, the
Board of Directors of the Company shall
approve, in good faith, the method for
determining the fair value for such
securities.
(3) Identify interest and dividend
accrual balances as of each valuation date
and calculate gross earnings on investments
for the accounting period.
(4) Determine gain/loss on
security sales and identify them as to short-
short, short- or long-term status; account
for periodic distributions of gains or losses
to shareholders and maintain undistributed
gain or loss balances as of each valuation
date.
B. Expense Accrual and Payment
Services:
(1) For each valuation date,
calculate the expense accrual amounts as
directed by the Company as to methodology,
rate or dollar amount.
(2) Record payments for Fund
expenses upon receipt of written
authorization from the Company.
(3) Account for Fund expenditures
and maintain expense accrual balances at the
level of accounting detail, as agreed upon by
FTC and the Company.
(4) Provide expense accrual and
payment reporting.
C. Fund Valuation and Financial
Reporting Services:
(1) Account for Fund share
purchases, sales, exchanges, transfers,
dividend reinvestments, and other Fund share
activity as reported by the transfer agent on
a timely basis.
(2) Apply equalization accounting
as directed by the Company.
(3) Determine net investment
income (earnings) for each Fund as of each
valuation date. Account for periodic
distributions of earnings to shareholders and
maintain undistributed net investment income
balances as of each valuation date.
(4) Maintain a general ledger and
other accounts, books and financial records
for each Fund in the form as agreed upon.
(5) Determine the net asset value
of each Fund according to the accounting
policies and procedures set forth in the
Funds' Prospectus.
(6) Calculate per share net asset
value, per share net earnings, and other per
share amounts reflective of Fund operations
at such time as required by the nature and
characteristics of each Fund.
(7) Communicate, at an agreed upon
time, the per share price for each valuation
date to parties as agreed upon from time to
time.
(8) Prepare monthly reports which
document the adequacy of accounting detail to
support month-end ledger balances.
D. Tax Accounting Services:
(1) Maintain accounting records
for the investment portfolio of the Funds to
support the tax reporting required for IRS-
defined regulated investment companies.
(2) Maintain tax lot detail for
the investment portfolio.
(3) Calculate taxable gain/loss on
security sales using the tax lot relief
method designated by the Company.
(4) Provide the necessary
financial information to support the taxable
components of income and capital gains
distributions to the transfer agent to
support tax reporting to the shareholders.
E. Compliance Control Services:
(1) Support reporting to
regulatory bodies and support financial
statement preparation by making the Funds'
accounting records available to the Company,
the Securities and Exchange Commission, and
the outside auditors.
(2) Maintain accounting records
according to the 1940 Act and regulations
provided thereunder.
2. Pricing of Securities. For each valuation
date, obtain prices from a pricing source selected by
FTC but approved by the Company's Board of Directors
and apply those prices to the portfolio positions of
each Fund. For those securities where market
quotations are not readily available, the Company's
Board of Directors shall approve, in good faith, the
method for determining the fair value for such
securities.
If the Company desires to provide a price which
varies from the pricing source, the Company shall
promptly notify and supply FTC with the valuation of
any such security on each valuation date. All pricing
changes made by the Company will be in writing and must
specifically identify the securities to be changed by
CUSIP, name of security, new price or rate to be
applied, and, if applicable, the time period for which
the new price is effective.
3. Changes in Accounting Procedures. Any
resolution passed by the Board of Directors of the
Company that affects accounting practices and
procedures under this Agreement shall be effective upon
written receipt and acceptance by FTC.
4. Changes in Equipment, Systems, Service, Etc.
FTC reserves the right to make changes from time to
time, as it deems advisable, relating to its services,
systems, programs, rules, operating schedules and
equipment, so long as such changes do not adversely
affect the service provided to the Company under this
Agreement.
5. Compensation. FTC shall be compensated for
providing the services set forth in this Agreement in
accordance with the fee schedule attached hereto as
Schedule B and as mutually agreed upon and amended from
time to time.
6. Performance of Service.
A. FTC shall exercise reasonable care in the
performance of its duties under this Agreement.
FTC shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the
Company in connection with matters to which this
Agreement relates, including losses resulting from
mechanical breakdowns or the failure of
communication or power supplies beyond FTC's
control, except a loss resulting from FTC's
refusal or failure to comply with the terms of
this Agreement or from bad faith, negligence, or
willful misconduct on its part in the performance
of its duties under this Agreement.
Notwithstanding any other provision of this
Agreement, the Company shall indemnify and hold
harmless FTC from and against any and all claims,
demands, losses, expenses, and liabilities
(whether with or without basis in fact or law) of
any and every nature (including reasonable
attorneys' fees) which FTC may sustain or incur or
which may be asserted against FTC by any person
arising out of any action taken or omitted to be
taken by it in performing the services hereunder
(i) in accordance with the foregoing standards, or
(ii) in reliance upon any written or oral
instruction provided to FTC by any duly authorized
officer of the Company, such duly authorized
officer to be included in a list of authorized
officers furnished to FTC and as amended from time
to time in writing by resolution of the Board of
Directors of the Company.
In the event of a mechanical breakdown or
failure of communication or power supplies beyond
its control, FTC shall take all reasonable steps
to minimize service interruptions for any period
that such interruption continues beyond FTC's
control. FTC will make every reasonable effort to
restore any lost or damaged data and correct any
errors resulting from such a breakdown at the
expense of FTC. FTC agrees that it shall, at all
times, have reasonable contingency plans with
appropriate parties, making reasonable provision
for emergency use of electrical data processing
equipment to the extent appropriate equipment is
available. Representatives of the Company shall
be entitled to inspect FTC's premises and
operating capabilities at any time during regular
business hours of FTC, upon reasonable notice to
FTC.
Regardless of the above, FTC reserves the
right to reprocess and correct administrative
errors at its own expense.
B. In order that the indemnification
provisions contained in this section shall apply,
it is understood that if in any case the Company
may be asked to indemnify or hold FTC harmless,
the Company shall be fully and promptly advised of
all pertinent facts concerning the situation in
question, and it is further understood that FTC
will use all reasonable care to notify the Company
promptly concerning any situation which presents
or appears likely to present the probability of
such a claim for indemnification against the
Company. The Company shall have the option to
defend FTC against any claim which may be the
subject of this indemnification. In the event
that the Company so elects, it will so notify FTC
and thereupon the Company shall take over complete
defense of the claim, and FTC shall in such
situation initiate no further legal or other
expenses for which it shall seek indemnification
under this section. FTC shall in no case confess
any claim or make any compromise in any case in
which the Company will be asked to indemnify FTC
except with the Company's prior written consent.
C. FTC shall indemnify and hold the Company
harmless from and against any and all claims,
demands, losses, expenses, and liabilities
(whether with or without basis in fact or law) of
any and every nature (including reasonable
attorneys' fees) which may be asserted against the
Company by any person arising out of any action
taken or omitted to be taken by FTC as a result of
FTC's refusal or failure to comply with the terms
of this Agreement, its bad faith, negligence, or
willful misconduct.
7. No Agency Relationship. Nothing herein
contained shall be deemed to authorize or empower FTC
to act as agent for the other party to this Agreement,
or to conduct business in the name of, or for the
account of, the other party to this Agreement.
8. Records. FTC shall keep records relating to
the services to be performed hereunder, in the form and
manner, and for such period as it may deem advisable
and is agreeable to the Company but not inconsistent
with the rules and regulations of appropriate
government authorities, in particular, Section 31 of
the 1940 Act and the rules thereunder. FTC agrees that
all such records prepared or maintained by FTC relating
to the services to be performed by FTC hereunder are
the property of the Company and will be preserved, main
tained, and made available in accordance with such
section and rules of the 1940 Act and will be promptly
surrendered to the Company on and in accordance with
its request.
9. Proprietary and Confidential Information.
FTC agrees on behalf of itself and its directors,
officers, and employees to treat confidentiality and as
proprietary information of the Company all records and
other information relative to the Company and prior,
present, or potential shareholders of the Company (and
clients of said shareholders), and not to use such
records and information for any purpose other than the
performance of its responsibilities and duties
hereunder, except after prior notification to and
approval in writing by the Company, which approval
shall not be unreasonably withheld and may not be
withheld where FTC may be exposed to civil or criminal
contempt proceedings for failure to comply, when
requested to divulge such information by duly
constituted authorities, or when so requested by the
Company.
10. Data Necessary to Perform Services. The
Company or its agent, which may be FTC, shall furnish
to FTC the data necessary to perform the services
described herein at such times and in such form as
mutually agreed upon.
11. Notification of Error. The Company will
notify FTC of any balancing or control error caused by
FTC within three (3) business days after receipt of any
reports rendered by FTC to the Company, or within three
(3) business days after discovery of any error or
omission not covered in the balancing or control
procedure, or within three (3) business days of
receiving notice from any shareholder.
12. Term of Agreement. This Agreement may be
terminated by either party upon giving ninety (90) days
prior written notice to the other party or such shorter
period as is mutually agreed upon by the parties.
However, this Agreement may be replaced or modified by
a subsequent agreement between the parties.
13. Duties in the Event of Termination. In the
event that in connection with termination, a successor
to any of FTC's duties or responsibilities hereunder is
designated by the Company by written notice to FTC, FTC
will promptly, upon such termination and at the expense
of the Company, transfer to such successor all relevant
books, records, correspondence and other data
established or maintained by FTC under this Agreement
in a form reasonably acceptable to the Company (if such
form differs from the form in which FTC has maintained
the same, the Company shall pay any expenses associated
with transferring the same to such form), and will
cooperate in the transfer of such duties and
responsibilities, including provision for assistance
from FTC's personnel in the establishment of books,
records and other data by such successor.
14. Notices. Notices of any kind to be given by
either party to the other party shall be in writing and
shall be duly given if mailed or delivered as follows:
Notice to FTC shall be sent to P.O. Box 2054,
Milwaukee, Wisconsin 53201 and notice to the Company
shall be sent to Richard D. Brace, AMquest Matrix
Funds, Inc., 4901 NW 17th Way, Suite 407, Fort
Lauderdale, Florida 33309.
15. Miscellaneous. The captions in this
Agreement are included for convenience of reference
only and in no way define or limit any of the
provisions hereof or otherwise affect their
construction or effect. If any provision of this
Agreement shall be held invalid by a court or
regulatory agency decision, statute, rule, or
otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be governed by
Wisconsin law, provided, however, that nothing herein
shall be construed in a manner inconsistent with the
1940 Act or any rule or regulation promulgated by the
SEC thereunder. This Agreement constitutes the entire
Agreement of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by a duly authorized
officer on one or more counterparts as of the day and
year first written above.
AMquest Matrix Funds, Inc. Firstar Trust Company:
By: /s/ Richard D. Brace By: /s/ Michael R. McVoy
------------------------- ---------------------------
Richard D. Brace, President Michael R. McVoy, Vice President
Attest: /s/ Donald A. Taylor, Jr. Attest: /s/ Gail M. Zess
-------------------------- -----------------------
Donald A. Taylor, Jr., Secretary Gail M. Zess
Schedule A
SEPARATE SERIES OF AMQUEST MATRIX FUNDS, INC.
Name of Series Date Added
AMquest Matrix Income Fund September 27, 1996
AMquest Matrix Total Return September 27, 1996
AMquest Matrix Growth Fund September 27, 1996
Schedule B
Fund Valuation and Accounting
Domestic Portfolios
Annual Fee Schedule
Fixed Income Funds
Annual fee per fund based on market value of assets:
$25,000 for the first $40,000,000
2/100 of 1% (2 basis points) on the next $200,000,000
1/100 of 1% (1 basis point) on the balance
Out-of-pocket expenses, including daily pricing service
Equity/Balance Funds
Annual fee per fund based on market value of assets:
$22,000 for the first $40,000,000
1/100 of 1% (1 basis point) on the next $200,000,000
5/1000 of 1% (1/2 basis point) on the balance
Out-of-pocket expenses, including daily pricing service
Money Market Funds
Annual fee per fund based on market value of assets:
$25,000 for the first $40,000,000
1/100 of 1% (1 basis point) on the next $200,000,000
5/1000 of 1% (1/2 basis point) on the balance
Out-of-pocket expenses, including daily pricing service
All fees and out-of-pocket expenses are billed monthly.
Fund Valuation and Accounting
Asset Pricing Cost
Charge per Item and Valuation
Asset Type (daily, weekly, etc.)
Domestic and Canadian Equities $0.15
Options $0.15
Corporate/Government/Agency Bonds $0.50
CMOs $0.80
International Equities and Bonds $0.50
Municipal Bonds $0.80
Money Market Instruments $0.80
Pricing costs are billed monthly.
FULFILLMENT SERVICING AGREEMENT
This Agreement between Firstar Trust Company
("FTC"), AMquest Advisers, Inc. (the "Adviser"), Sun
Consolidated Securities, Inc. ("Sun"), and Amquest
Matrix Funds, Inc. (the "Company") is entered into on
this 27th day of September, 1996.
WHEREAS, the Adviser is a registered investment
adviser under the Investment Advisers Act of 1940, as
amended;
WHEREAS, the Adviser serves as investment adviser
to the Company, a registered investment company under
the Investment Company Act of 1940, as amended, which
is authorized to create separate series of funds;
WHEREAS, Sun is a registered broker-dealer under
the Securities Exchange Act of 1934, as amended, and
serves as principal underwriter of Company shares;
WHEREAS, FTC provides fulfillment services to
mutual funds;
WHEREAS, the Adviser, Sun and the Company desire
to retain FTC to provide fulfillment services for each
series of funds of the Company listed on Schedule A
attached hereto (collectively, the "Funds"), as may be
amended from time to time.
NOW, THEREFORE, the parties agree as follows:
Duties and Responsibilities of FTC
1. Answer all prospective shareholder calls
concerning any of the Funds.
2. Send all available Fund materials requested by the
prospect within 24 hours from time of call.
3. Receive and update all Company fulfillment
literature so that the most current information is
sent and quoted.
4. Provide 24 hour answering service to record
prospect calls made after hours (7 p.m. to 8 a.m.
CT).
5. Maintain and store Company fulfillment inventory.
6. Send periodic fulfillment reports to the Company
as agreed upon between the parties.
Duties and Responsibilities of the Company
1. Provide Fund fulfillment literature updates to FTC
as necessary.
2. Supply FTC with sufficient inventory of
fulfillment materials as requested from time to
time by FTC.
3. Provide FTC with any sundry information about the
Company and the Funds in order to answer prospect
questions.
Compensation
The Company, if permissible under any Rule 12b-1
Plan in effect from time to time for the benefit of the
Funds and only to the extent consistent with the terms
of such plan, or the Advisor, agrees to compensate FTC
for the services performed under this Agreement in
accordance with the attached Schedule B. All invoices
shall be paid within 10 days of receipt.
Proprietary and Confidential Information
FTC agrees on behalf of itself and its directors,
officers, and employees to treat confidentially and as
proprietary information of the Company all records and
other information relative to the Company and prior,
present, or potential shareholders of the Company (and
clients of said shareholders), and not to use such
records and information for any purpose other than the
performance of its responsibilities and duties
hereunder, except after prior notification to and
approval in writing by the Company, which approval
shall not be unreasonably withheld and may not be
withheld where FTC may be exposed to civil or criminal
contempt proceedings for failure to comply, when
requested to divulge such information by duly
constituted authorities, or when so requested by the
Company.
Termination
This Agreement may be terminated by either party
upon 30 days written notice.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by a duly authorized
officer on one or more counterparts as of the day and
year first written above.
FIRSTAR TRUST COMPANY
By: /s/ Michael R. McVoy
--------------------------------
Michael R. McVoy, Vice President
Attest: /s/ Gail M. Zess
---------------------
Gail M. Zess
AMQUEST ADVISERS, INC.
By: /s/ Richard D. Brace
---------------------------
Richard D. Brace, President
Attest: /s/ Donald A. Taylor, Jr.
--------------------------------
Donald A. Taylor, Jr., Secretary
SUN CONSOLIDATED SECURITIES, INC.
By: /s/ Richard D. Brace
----------------------------
Richard D. Brace, President
Attest: /s/ Donald A. Taylor, Jr.
-----------------------------------------
Donald A. Taylor, Jr., Secretary
and Vice President of Financial Operations
AMQUEST MATRIX FUNDS, INC.
By: /s/ Richard D. Brace
----------------------------
Richard D. Brace, President
Attest: /s/ Donald A. Taylor, Jr.
---------------------------------
Donald A. Taylor, Jr., Secretary
Schedule A
SEPARATE SERIES OF AMQUEST MATRIX FUNDS, INC.
Name of Series Date Added
AMquest Matrix Income Fund September 27, 1996
AMquest Matrix Total Return Fund September 27, 1996
AMquest Matrix Growth Fund September 27, 1996
Schedule B
FULFILLMENT SERVICES PROPOSAL FOR
AMquest Matrix Funds
SCOPE: This estimate details the initial setup and
ongoing costs to provide full service
fulfillment services.
Voice Response Unit directs fulfillment
calls to Firstar's Fulfillment Services
Department.
The Fulfillment Services Department will be
staffed from 8:00 a.m. to 7:00 p.m. (Central
Time) Monday-Friday. Calls received during
non-business hours will be directed to the
voice response unit, which provides the
option to record a prospects's fulfillment
request.
Each weekday morning, a fulfillment
representative transcribes voice mail
requests into the KATOE Fulfillment system.
The system will generate a report listing all
leads received from the previous day. This
report will be used to mail literature to
prospective shareholders.
Each morning personalized cover letters are
generated by the fulfillment system. The
items requested are printed at the bottom of
the letter to assist in the mailing of your
Funds' Literature.
Inventory is maintained at Firstar. The
Fulfillment Services Manager will be in close
contact with either a representative of the
Funds, or the Relationship Manager assigned
to the Funds, in order to replenish supplies.
Basic Fund Setup Package:
Single Fund Database Setup/Entry
Single Blue Sky Database Setup/Entry
Up to 10 Separate Literature Database Entries
Kit Package Linking
Report Programming
Fund Help Screen Setup
8 hours at $60* $480
4 hours at $30** $120
Basic Report Setup Package:
Customization of Fulfillment Report
Includes: Date/Time of Request, Name,Address,
Telephone Number, Marketing Source, etc.
4 hours at $60* $240
Voice Response Unit Modifications:
Coding change to direct calls to Literature Fulfillment
No Charge $ 0
=====
$840
*=Developmental costs are factored at $60 per hour
which includes programming, personnel, equipment, and
system upgrade costs. **=Administrative costs are
factored at $30 per hour which includes personnel
costs.
FULFILLMENT SERVICES PROPOSAL FOR Schedule B
AMquest Matrix Funds
Ongoing
Costs: Front Office Service Fee Includes:
Answering of all Fulfillment calls from 8:00
a.m. - 7:00 p.m. (Central Time) Monday -
Friday
Recording of all Fulfillment requests left
during non-business hours
Transcript of all voice mail requests
$.99/minute
$100/month minimum
NOTE: On the average, most literature
fulfillment calls average 1.8 minutes in
length. This would calculate to $1.78 per
average call. The $100 minimum monthly fee
would account for approximately 55 calls per
month.
Back Office Service Fee Includes:
Envelope inserting of up to 4 items per
customer $.45
Additional inserts $.15
Customer letter (included)
Inventory tracking (included)
Inventory storage (included)
Periodic activity reports showing
prospects by:
state of residence, literature items
requested,
market source (included)
Out-of-pocket expenses include but are not
limited to:
Postage
GODFREY & KAHN, S.C.
Attorneys at Law
780 North Water Street
Milwaukee, WI 53202
telephone: (414) 273-3500; fax: (414) 273-5198
February 3, 1997
AMquest Matrix Funds, Inc.
901 NW 17th Way, Suite 407
Fort Lauderdale, Florida 33309
Ladies and Gentlemen:
We have acted as your counsel in connection with
the preparation of a Registration Statement on Form N-
1A (Registration Nos. 333-11023 and 811-7791) (the
"Registration Statement") relating to the sale by you
of an indefinite number of shares of AMquest Matrix
Funds, Inc. (the "Company") common stock, $0.01 par
value (the "Shares"), in the manner set forth in the
Registration Statement (and the Prospectus included
therein).
We have examined: (a) the Registration Statement
(and the Prospectus included therein), (b) the
Company's Articles of Incorporation and Bylaws, (c)
certain resolutions of the Company's Board of
Directors, and (d) such other proceedings, documents
and records as we have deemed necessary to enable us to
render this opinion.
Based upon the foregoing, we are of the opinion
that the Shares, when sold as contemplated in the
Registration Statement, will be duly authorized and
validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an
exhibit to the Registration Statement. In giving this
consent, however, we do not admit that we are "experts"
within the meaning of Section 11 of the Securities Act
of 1933, as amended, or within the category of persons
whose consent is required by Section 7 of said Act.
Very truly yours,
/s/ Godfrey & Kahn, S.C.
GODFREY & KAHN, S.C.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of
Additional Information constituting part of this
registration statement on Form N-1A (the "Registration
Statement") of our report dated January 24, 1997,
relating to the statement of assets and liabilities of
AMquest Matrix Income Fund, AMquest Matrix Total Return
Fund, and AMquest Matrix Growth Fund, comprising
AMquest Matrix Funds, Inc., which appears in such
Statement of Additional Information, and to the
incorporation by reference of our report into the
Prospectus which constitutes part of this Registration
Statement. We also consent to the reference to us
under the heading "Independent Accountants" in such
Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Milwaukee, Wisconsin
January 30, 1997
AMQUEST MATRIX FUNDS, INC.
SUBSCRIPTION AGREEMENT
To the Board of Directors of AMquest Matrix Funds,
Inc.:
The undersigned purchaser (the "Purchaser") hereby
subscribes to the number of shares (the "Shares") of
common stock of AMquest Matrix Funds, Inc. (the
"Company") as follows:
Aggregate
Purchase
Series Number of Shares Price
AMquest Matrix Growth Fund 3,334 $ 33,340
AMquest Matrix Total Return Fund 3,333 $ 33,330
AMquest Matrix Income Fund 3,333 $ 33,330
==========
$100,000
It is understood that a certificate representing
the Shares shall not be issued to the undersigned, but
such ownership shall be recorded on the books and
records of the Company's transfer agent.
Notwithstanding the fact that a certificate
representing ownership will not be issued, the Shares
will be deemed fully paid and nonassessable.
The Purchaser agrees that the Shares are being
purchased for investment with no present intention to
resell or redeem the Shares.
The Purchaser acknowledges that costs incurred by
the Company in connection with its organization,
registration and initial public offering of Shares of
the Company have been deferred and are being amortized
over a period of five years from the date upon which
the Company commences its investment activities.
The Purchaser agrees that in the event any of the
Shares purchased under this Subscription Agreement are
redeemed during this five year period, the Company is
authorized to reduce the redemption proceeds to cover
any unamortized organizational expenses in the same
proportion as the number of Shares being redeemed bears
to the number of Shares outstanding at the time of the
redemption. If, for any reason, the reduction of
redemption proceeds is not in fact made by the Company
in the event of such a redemption, the Purchaser agrees
to reimburse the Company immediately for any
unamortized organizational expenses in the proportion
stated above.
Dated and effective as of the 13th day of
December, 1996.
Purchaser: AMquest International Ltd.
By: /s/ David Morgenstern
Its: President
ACCEPTANCE
The foregoing subscription is hereby accepted.
Dated and effective as of the 13th day of
December, 1996.
AMQUEST MATRIX FUNDS, INC.
/s/ Richard Brace
--------------------------
By: Richard Brace
/s/ Donald Taylor
--------------------------
Attest: By: Donald Taylor, Secretary
INDIVIDUAL RETIREMENT ACCOUNT
DISCLOSURE STATEMENT
Please read the following information together
with the Individual Retirement Account Custodial
Agreement and the Prospectus(es) for the fund(s) you
select for investment of your IRA contributions.
You may revoke this account any time within seven
calendar days after it is established by mailing or
delivering a written request for revocation to:
____________________, c/o Firstar Trust Company, 615
East Michigan Street, 3rd Floor, Milwaukee, Wisconsin
53202, Attention: Mutual Fund Department. If your
revocation is mailed, the date of the postmark (or the
date of certification if sent by certified or
registered mail) will be considered your revocation
date. Upon proper revocation, you will receive a full
refund of your initial contribution, without any adjust
ments for items such as administrative fees or
fluctuations in market value.
1. General. Your IRA is a custodial account
created for your exclusive benefit, and Firstar Trust
Company serves as custodian. Your interest in the
account is nonforfeitable.
2. Investments. Contributions made to your IRA
will be invested in one or more of the regulated
investment companies for which ______________________
serves as investment advisor or any other regulated
investment company designated by _________________. No
part of your account may be invested in life insurance
contracts; further, the assets of your account may not
be commingled with other property.
3. Eligibility. Employees and self-employed
individuals are eligible to contribute to an IRA.
Employers may also contribute to employer-sponsored
IRAs established for the benefit of their employees.
You may also establish an IRA to receive rollover
contributions and transfers from another IRA custodian
or trustee or from certain other retirement plans.
4. Time of Contribution. You may make regular
contributions to your IRA any time up to and including
the due date for filing your tax return for the year,
not including extensions. You may continue to make
regular contributions to your IRA up to (but not
including) the calendar year in which you reach 70-1/2.
Employer contributions to a SEP - IRA plan may be
continued after you attain age 70-1/2. Rollover
contributions and transfers may be made at any time,
including after you reach age 70-1/2.
5. Amount of Contribution. You may make annual
regular contributions to an IRA in any amount up to
100% of your compensation for the year or $2,000,
whichever is less. Qualifying rollover contributions
and transfers are not subject to this limitation.
6. Spousal IRA. If you are married and your
spouse is not employed (or if your employed spouse
elects to be treated as having no compensation), you
may make contributions to a spousal IRA in addition to
your own IRA. The maximum amount contributed to both
your own and to your spouse's IRA may not exceed 100%
of your compensation or $2,250, whichever is less. In
no event, however, may the annual contribution to
either your account or your spouse's account exceed
$2,000.
7. Rollovers and Transfers. You are allowed to
"roll over" a distribution or transfer your assets from
one individual retirement account to another without
any tax liability. Rollovers between IRAs may be made
once per year and must be accomplished within 60 days
after the distribution. Also, under certain
conditions, you may roll over (tax free) all or a
portion of a distribution received from a qualified
plan or tax-sheltered annuity in which you participate
or in which your deceased spouse participated.
However, strict limitations apply to such rollovers,
and you should seek competent advice in order to comply
with all of the rules governing rollovers.
Most distributions from qualified retirement plans
will be subject to a 20% withholding requirement. The
20% withholding can be avoided by directly transferring
the amount of the distribution to an individual
retirement account or to certain other types of
retirement plans. You should receive more information
regarding these new withholding rules and whether your
distribution can be transferred to an IRA from the plan
administrator prior to receiving your distribution.
8. Tax Deductibility of Annual Contributions.
Although you may make an IRA contribution within the
limitations described above, all or a portion of your
contribution may be nondeductible. No deduction is
allowed for a rollover contribution or transfer. If you
are not married and are not an "active participant" in
an employer-sponsored retirement plan, you may make a
fully deductible IRA contribution in any amount up to
$2,000 or 100% of your compensation for the year,
whichever is less. The same limits apply if you are
married and file a joint return with your spouse and
neither you nor your spouse is an "active participant"
in an employer-sponsored retirement plan.
An employer-sponsored retirement plan includes any
of the following types of retirement plans:
-- a qualified pension, profit-sharing, or stock
bonus plan
established in accordance with IRC
401(a) or 401(k),
-- a Simplified Employee Pension Plan (SEP) (IRC
408(k)),
-- a deferred compensation plan maintained by a
governmental
unit or agency,
-- tax-sheltered annuities and custodial
accounts (IRC 403(b)
and 403(b)(7)),
-- a qualified annuity plan under IRC Section
403(a).
Distributions from the types of plans listed above
are eligible to be rolled over or transferred to your
IRA.
Generally, you are considered an "active
participant" in a defined contribution plan if an
employer contribution or forfeiture was credited to
your account during the year. You are considered an
"active participant" in a defined benefit plan if you
are eligible to participate in a plan, even though you
elect not to participate. You are also treated as an
"active participant" if you make a voluntary or
mandatory contribution to any type of plan, even if
your employer makes no contribution to the plan.
If you (or your spouse, if filing a joint tax
return) are covered by an employer-sponsored retirement
plan, your IRA contribution is fully deductible if your
adjusted gross income (or combined income if you file a
joint tax return) does not exceed certain limits. For
this purpose adjusted gross income is not modified to
take into account any deduction for IRA contributions,
but does take into account the passive loss limitations
under Code Section 86 and any taxable benefits under
the Social Security Act and the Railroad Retirement
Act.
If you (or your spouse, if filing a joint tax
return) are covered by an employer-sponsored retirement
plan, the deduction for your IRA contribution is
reduced proportionately for adjusted gross income which
exceeds the applicable dollar amount. The applicable
dollar amount for an individual is $25,000 and $40,000
for married couples filing a joint tax return. The
applicable dollar limit for married individuals filing
separate returns is $0. If your adjusted gross income
exceeds the applicable dollar amount by $10,000 or
less, you may make a deductible IRA contribution. The
deductible amount, however, will be less than $2,000.
To determine the amount of your deductible
contribution, use the following calculations:
1) Subtract the applicable dollar amount from
your adjusted gross income. If the result is
$10,000 or more, you can only make a
nondeductible contribution to your IRA.
2) Divide the above figure by $10,000, and
multiply that percentage by $2,000.
3) Subtract the dollar amount (result from #2
above) from $2,000 to determine the amount
which is deductible.
If the deduction limit is not a multiple of $10,
then it should be rounded up to the next $10. There is
a $200 minimum floor on the deduction limit if your
adjusted gross income does not exceed $35,000 (for a
single taxpayer), $50,000 (for married taxpayers filing
jointly) or $10,000 (for a married taxpayer filing
separately).
Even if your income exceeds the limits described
above, you may make a contribution to your IRA up to
the contribution limitations described in Section 5
above. To the extent that your contribution exceeds
the deductible limits, it will be nondeductible.
However, earnings on all IRA contributions are tax
deferred until distribution.
9. Excess Contributions. Contributions which
exceed the allowable maximum for federal income tax
purposes are treated as excess contributions. A
nondeductible penalty tax of 6% of the excess amount
contributed will be added to your income tax for each
year in which the excess contribution remains in your
account.
10. Correction of Excess Contribution. If you
make a contribution in excess of your allowable
maximum, you may correct the excess contribution and
avoid the 6% penalty tax for that year by withdrawing
the excess contribution and its earnings on or before
the date, including extensions, for filing your tax
return. Any earnings on the withdrawn excess
contribution will be taxable in the year the excess
contribution was made and may be subject to a 10%
penalty tax if you are under age 59 1/2. In addition,
in certain cases an excess contribution may be
withdrawn after the time for filing your tax return.
Finally, excess contributions for one year may be
carried forward and applied against the contribution
limitation in succeeding years.
11. Simplified Employee Pension Plan. Your IRA
may be used as part of a Simplified Employee Pension
Plan established by your employer. Your employer may
contribute to your IRA/SEP up to a maximum of 15% of
your compensation or $30,000, whichever is less. If
your SEP Plan permits, you may also elect to have your
employer make salary reduction contributions of up to
$9,500 for 1996 (adjusted periodically for cost of
living increases) per year to your IRA. However, the
combination of the employer's contributions and your
salary reduction contributions may not exceed the
lesser of 15% of your compensation or $30,000. It is
your responsibility and that of your employer to see
that contributions in excess of normal IRA limits are
made under a valid Simplified Employee Pension Plan and
are, therefore, proper.
12. Form of Distributions. Distributions may be
made in any one of three methods:
(a) a lump-sum distribution,
(b) installments over a period not extending
beyond your life expectancy (as
determined by actuarial tables), or
(c) installments over a period not extending
beyond the joint life expectancy
of you and your designated beneficiary (as
determined by actuarial tables).
You may also use your account balance to purchase
an annuity contract, in which case your custodial
account will terminate.
13. Latest Time to Withdraw. You must begin
receiving the assets in your account no later than
April 1 following the calendar year in which you reach
age 70-1/2 (your "required beginning date"). In
general, the minimum amount that must be distributed
each year is equal to the amount obtained by dividing
the balance in your IRA on the last day of the prior
year (or the last day of the year prior to the year in
which you attain age 70-1/2) by your life expectancy,
the joint life expectancy of you and your beneficiary,
or the specified payment term, whichever is applicable.
A federal tax penalty may be imposed against you if the
required minimum distribution is not made for the year
you reach age 70-1/2 and for each year thereafter. The
penalty is equal to 50% of the amount by which the
actual distribution is less than the required minimum.
Unless you or your spouse elect otherwise, your
life expectancy and/or the life expectancy of your
spouse will be recalculated annually. An election not
to recalculate life expectancy(ies) is irrevocable and
will apply to all subsequent years. The life
expectancy of a nonspouse beneficiary may not be
recalculated.
If you have two or more IRAs, you may satisfy the
minimum distribution requirements by receiving a
distribution from one of your IRAs in an amount
sufficient to satisfy the minimum distribution
requirements for your other IRAs. You must still
calculate the required minimum distribution separately
for each IRA, but then such amounts may be totaled and
the total distribution taken from one or more of your
individual IRAs.
Distribution from your IRA must satisfy the
special "incidental death benefit" rules of the
Internal Revenue Code. These provisions set forth
certain limitations on the joint life expectancy of you
and your beneficiary. If your beneficiary is not your
spouse, your beneficiary will be generally considered
to be no more than 10 years younger than you for the
purpose of calculating the minimum amount that must be
distributed.
14. Distribution of Account Assets After Death.
If you die before receiving the balance of your
account, distribution of your remaining account balance
is subject to several special rules. If you die on or
after your required beginning date, distribution must
continue in a method at least as rapid as under the
method of distribution in effect at your death. If you
die before your required beginning date, your remaining
interest will, at the election of your beneficiary or
beneficiaries, (i) be distributed by December 31 of the
year in which occurs the fifth anniversary of your
death, or (ii) commence to be distributed by December
31 of the year following your death over a period not
exceeding the life or life expectancy of your
designated beneficiary or beneficiaries.
Two additional distribution options are available
if your spouse is the beneficiary: (i) payments to
your spouse may commence as late as December 31 of the
year you would have attained age 70-1/2 and be
distributed over a period not exceeding the life or
life expectancy of your spouse, or (ii) your spouse can
simply elect to treat your IRA as his or her own, in
which case distributions will be required to commence
by April 1 following the calendar year in which your
spouse attains age 70-1/2.
15. Tax Treatment of Distributions. Amounts
distributed to you are generally includable in your
gross income in the taxable year you receive them and
are taxable as ordinary income. To the extent,
however, that any part of a distribution constitutes a
return of your nondeductible contributions, it will not
be included in your income. The amount of any
distribution excludable from income is the portion that
bears the same ratio as your aggregate nondeductible
contributions bear to the balance of your IRA at the
end of the year (calculated after adding back
distributions during the year). For this purpose, all
of your IRAs are treated as a single IRA. Furthermore,
all distributions from an IRA during a taxable year are
to be treated as one distribution. The aggregate
amount of distributions excludable from income for all
years cannot exceed the aggregate nondeductible
contributions for all calendar years.
No distribution to you or anyone else from your
account can qualify for capital gains treatment under
the federal income tax laws. Similarly, you are not
entitled to the special five- or ten-year averaging
rule for lump-sum distributions available to persons
receiving distributions from certain other types of
retirement plans. All distributions are taxed to the
recipient as ordinary income except the portion of a
distribution which represents a return of nondeductible
contributions.
Any distribution which is properly rolled over
will not be includable in your gross income.
16. Early Distributions. Distributions from your
IRA made before age 59-1/2 will be subject to a 10%
nondeductible penalty tax unless the distribution is a
return of nondeductible contributions or is made
because of your death, disability, as part of a series
of substantially equal periodic payments over your life
expectancy or the joint life expectancy of you and your
beneficiary, or the distribution is an exempt
withdrawal of an excess contribution. The penalty tax
may also be avoided if the distribution is rolled over
to another individual retirement account.
17. Qualification of Plan. Your Individual
Retirement Account Plan has been approved as to form by
the Internal Revenue Service. The Internal Revenue
Service approval is a determination only as to the form
of the Plan and does not represent a determination of
the merits of the Plan as adopted by you. You may
obtain further information with respect to your
Individual Retirement Account from any district office
of the Internal Revenue Service.
18. Prohibited Transactions. If you engage in a
"prohibited transaction," as defined in Section 4975 of
the Internal Revenue Code, your account will be
disqualified, and the entire balance in your account
will be treated as if distributed to you and will be
taxable to you as ordinary income. Examples of
prohibited transactions are:
(a) the sale, exchange, or leasing of any
property between you and your
account,
(b) the lending of money or other extensions
of credit between you and your
account,
(c) the furnishing of goods, services, or
facilities between you and your
account.
If you are under age 59-1/2, you may also be subject to
the 10% penalty tax on early distributions.
19. Penalty for Pledging Account. If you use
(pledge) all or part of your IRA as security for a
loan, then the portion so pledged will be treated as if
distributed to you and will be taxable to you as
ordinary income during the year in which you make such
pledge. The 10% penalty tax on early distributions may
also apply.
20. Reporting for Tax Purposes. Deductible
contributions to your IRA may be claimed as a deduction
on your IRS Form 1040 for the taxable year contributed.
If any nondeductible contributions are made by you
during a tax year, such amounts must be reported on
Form 8606 and attached to your Federal Income Tax
Return for the year contributed. If you report a
nondeductible contribution to your IRA and do not make
the contribution, you will be subject to a $100 penalty
for each overstatement unless a reasonable cause is
shown for not contributing. Other reporting will be
required by you in the event that special taxes or
penalties described herein are due. You must also file
Treasury Form 5329 with the IRS for each taxable year
in which the contribution limits are exceeded, a
premature distribution takes place, or less than the
required minimum amount is distributed from your IRA.
21. Allocation of Earnings. The method of
computing and allocating annual earnings is set forth
in Article VIII, Section 1 of the Individual Retirement
Account Custodial Agreement. The growth in value of
your IRA is neither guaranteed or projected.
22. Income Tax Withholding. You must indicate on
distribution requests whether or not federal income
taxes should be withheld. Redemption requests not
indicating an election not to have federal income tax
withheld will be subject to withholding.
23. Other Information. Information about the
shares of each mutual fund available for investment by
your IRA must be furnished to you in the form of a
prospectus governed by rules of the Securities and
Exchange Commission. Please refer to the prospectus
for detailed information concerning your mutual fund.
You may obtain further information concerning IRAs from
any District Office of the Internal Revenue Service.
Fees and other expenses of maintaining your
account may be charged to you or your account. The
Custodian's fee schedule as of the date you establish
the IRA is included below:
Annual maintenance fee per account:
$12.50
Transfer to successor trustee:
$15.00
Distribution to a participant:
$15.00
(exclusive of systematic withdrawal plans)
Refund of excess contribution:
$15.00
MW1-50691-2 MW1-63489-1
INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
The following constitutes an agreement
establishing an Individual Retirement Account (under
Section 408(a) of the Internal Revenue Code) between
the Depositor and the Custodian.
ARTICLE I
The Custodian may accept additional cash
contributions on behalf of the Depositor for a tax year
of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the
contribution is a rollover contribution described in
Section 402(c) (but only after December 31, 1992),
403(a)(4), 403(b)(8), 408(d)(3), or an employer
contribution to a simplified employee pension plan as
described in Section 408(k). Rollover contributions
before January 1, 1993, include rollovers described in
Section 402(a)(5), 402(a)(6), 402(a)(7), 403(a)(4),
403(b)(8), 408(d)(3), or an employer contribution to a
simplified employee pension plan as described in
Section 408(k).
ARTICLE II
The Depositor's interest in the balance in the
custodial account is nonforfeitable.
ARTICLE III
1. No part of the custodial funds may be invested
in life insurance contracts, nor may the assets of the
custodial account be commingled with other property
except in a common trust fund or common investment fund
(within the meaning of Section 408(a)(5)).
2. No part of the custodial funds may be invested
in collectibles (within the meaning of Section 408(m))
except as otherwise permitted by Section 408(m)(3)
which provides an exception for certain gold and silver
coins and coins issued under the laws of any state.
ARTICLE IV
1. Notwithstanding any provision of this
agreement to the contrary, the distribution of the
Depositor's interest in the custodial account shall be
made in accordance with the following requirements and
shall otherwise comply with Section 408(a)(6) and
Proposed Regulations Section 1.408-8, including the
incidental death benefit provisions of Proposed
Regulations Section 1.401(a)(9)-2, the provisions of
which are herein incorporated by reference.
2. Unless otherwise elected by the time
distributions are required to begin to the Depositor
under Paragraph 3, or to the surviving spouse under
Paragraph 4, other than in the case of a life annuity,
life expectancies shall be recalculated annually. Such
election shall be irrevocable as to the Depositor and
the surviving spouse and shall apply to all subsequent
years. The life expectancy of a nonspouse beneficiary
may not be recalculated.
3. The Depositor's entire interest in the
custodial account must be, or begin to be, distributed
by the Depositor's required beginning date, April 1
following the calendar year end in which the Depositor
reaches age 70 1/2. By that date, the Depositor may
elect, in a manner acceptable to the Custodian, to have
the balance in the custodial account distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal
or substantially equal monthly, quarterly, or
annual payments over the life of the Depositor.
(c) An annuity contract that provides equal
or substantially equal monthly, quarterly, or
annual payments over the joint and last survivor
lives of the Depositor and his or her designated
beneficiary.
(d) Equal or substantially equal annual
payments over a specified period that may not be
longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual
payments over a specified period that may not be
longer than the joint life and last survivor
expectancy of the Depositor and his or her
designated beneficiary.
4. If the Depositor dies before his or her entire
interest is distributed to him or her, the entire
remaining interest will be distributed as follows:
(a) If the Depositor dies on or after
distribution of his or her interest has begun,
distribution must continue to be made in
accordance with Paragraph 3.
(b) If the Depositor dies before
distribution of his or her interest has begun, the
entire remaining interest will, at the election of
the Depositor or, if the Depositor has not so
elected, at the election of the beneficiary or
beneficiaries, either:
(i) Be distributed by the December 31
of the year containing the fifth anniversary
of the Depositor's death, or
(ii) Be distributed in equal or
substantially equal payments over the life or
life expectancy of the designated beneficiary
or beneficiaries starting by December 31 of
the year following the year of the
Depositor's death. If, however, the
beneficiary is the Depositor's surviving
spouse, then this distribution is not
required to begin before December 31 of the
year in which the Depositor would have turned
age 70 1/2.
(c) Except where distribution in the form of
an annuity meeting the requirements of Section
408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated
as having begun on the Depositor's required
beginning date, even though payments may actually
have been made before that date.
(d) If the Depositor dies before his or her
entire interest has been distributed and if the
beneficiary is other than the surviving spouse, no
additional cash contributions or rollover
contributions may be accepted in the account.
5. In the case of a distribution over life
expectancy in equal or substantially equal annual
payments, to determine the minimum annual payment for
each year, divide the Depositor's entire interest in
the custodial account as of the close of business on
December 31 of the preceding year by the life
expectancy of the Depositor (or the joint life and last
survivor expectancy of the Depositor and the
Depositor's designated beneficiary, or the life
expectancy of the designated beneficiary, whichever
applies). In the case of distributions under Paragraph
3, determine the initial life expectancy (or joint life
and last survivor expectancy) using the attained ages
of the Depositor and designed beneficiary as of their
birthdays in the year the Depositor reaches age 70 1/2.
In the case of a distribution in accordance with
Paragraph 4(b)(ii), determine life expectancy using the
attained age of the designated beneficiary as of the
beneficiary's birthday in the year distributions are
required to commence.
6. The owner of two or more individual retirement
accounts may use the "alternative method" described in
Notice 88-38, 1988-1 C.B. 524, to satisfy the minimum
distribution requirements described above. This method
permits an individual to satisfy these requirements by
taking from one individual retirement account the
amount required to satisfy the requirement for another.
ARTICLE V
1. The Depositor agrees to provide the Custodian
with information necessary for the Custodian to prepare
any reports required under Section 408(i) and
Regulations Section 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the
Internal Revenue Service and the Depositor prescribed
by the Internal Revenue Service.
ARTICLE VI
Notwithstanding any other articles which may be
added or incorporated, the provisions of Articles I
through III and this sentence will be controlling. Any
additional articles that are not consistent with
Section 408(a) and related regulations will be invalid.
ARTICLE VII
This agreement will be amended from time to time
to comply with the provisions of the Code and related
regulations. Other amendments may be made with the
consent of the persons whose signatures appear below.
ARTICLE VIII
1. Investment of Account Assets.
(a) All contributions to the custodial
account shall be invested in shares of the
_______________________________ or, if available,
any other series of ________________________ or
other regulated investment companies for which
____________________________ serves as investment
advisor or designates as being eligible for
investment ("Investment Company"). Shares of
stock of an Investment Company shall be referred
to as "Investment Company Shares." To the extent
that two or more funds are available for
investment, contributions shall be invested in
accordance with the Depositor's investment
election.
(b) Each contribution to the custodial
account shall identify the Depositor's account
number and be accompanied by a signed statement
directing the investment of that contribution.
The Custodian may return to the Depositor, without
liability for interest thereon, any contribution
which is not accompanied by adequate account
identification or an appropriate signed statement
directing investment of that contribution.
(c) Contributions shall be invested in whole
and fractional Investment Company Shares at the
price and in the manner such shares are offered to
the public. All distributions received on
Investment Company Shares, including both
dividends and capital gains distributions, held in
the custodial account shall be reinvested in like
shares. If any distribution of Investment Company
Shares may be received in additional like shares
or in cash or other property, the Custodian shall
elect to receive such distribution in additional
like Investment Company Shares.
(d) All Investment Company Shares acquired
by the Custodian shall be registered in the name
of the Custodian or its nominee. The Depositor
shall be the beneficial owner of all Investment
Company Shares held in the custodial account and
the Custodian shall not vote any such shares,
except upon written direction of the Depositor,
timely received, in a form acceptable to the
Custodian. The Custodian agrees to forward to the
Depositor each prospectus, report, notice, proxy
and related proxy soliciting materials applicable
to Investment Company Shares held in the custodial
account received by the Custodian.
(e) The Depositor may, at any time, by
written notice to the Custodian, in a form
acceptable to the Custodian, redeem any number of
shares held in the custodial account and reinvest
the proceeds in the shares of any other Investment
Company upon the terms and within the limitations
imposed by the then current prospectus of such
other Investment Company in which the Depositor
elects to invest. By giving such instructions,
the Depositor will be deemed to have acknowledged
receipt of such prospectus. Such redemptions and
reinvestments shall be done at the price and in
the manner such shares are then being redeemed or
offered by the respective Investment Company.
2. Amendment and Termination.
(a) ____________________________, the
investment advisor for
___________________________, may amend the
Custodial Account (including retroactive
amendments) by delivering to the Custodian and to
the Depositor written notice of such amendment
setting forth the substance and effective date of
the amendment. The Custodian and the Depositor
shall be deemed to have consented to any such
amendment not objected to in writing by the
Custodian or Depositor, as applicable, within
thirty (30) days of receipt of the notice,
provided that no amendment shall cause or permit
any part of the assets of the custodial account to
be diverted to purposes other than for the
exclusive benefit of the Depositor or his or her
beneficiaries.
(b) The Depositor may terminate the
custodial account at any time by delivering to the
Custodian a written notice of such termination.
(c) The custodial account shall
automatically terminate upon distribution to the
Depositor or his or her beneficiaries of its
entire balance.
3. Taxes and Custodial Fees. Any income taxes or
other taxes levied or assessed upon or in respect of
the assets or income of the custodial account and any
transfer taxes incurred shall be paid from the
custodial account. All administrative expenses
incurred by the Custodian in the performance of its
duties, including fees for legal services rendered to
the Custodian in connection with the custodial account,
and the Custodian's compensation shall be paid from the
custodial account, unless otherwise paid by the
Depositor or his or her beneficiaries. Sufficient
shares shall be liquidated from the custodial account
to pay such fees and expenses.
The Custodian's fees are set forth in a schedule
provided to the Depositor. Extraordinary charges
resulting from unusual administrative responsibilities
not contemplated by the schedule will be subject to
such additional charges as will reasonably compensate
the Custodian. Fees for refund of excess
contributions, transferring to a successor trustee or
custodian, or redemption/reinvestment of Investment
Company Shares will be deducted from the refund or
redemption proceeds and the remaining balance will be
remitted to the Depositor, or reinvested or transferred
in accordance with the Depositor's instructions.
4. Reports and Notices.
(a) The Custodian shall keep adequate
records of transactions it is required to perform
hereunder. After the close of each calendar year,
the Custodian shall provide to the Depositor or
his or her legal representative a written report
or reports reflecting the transactions effected by
it during such year and the assets and liabilities
of the Custodial Account at the close of the year.
(b) All communications or notices shall be
deemed to be given upon receipt by the Custodian
at Firstar Trust Company, Post Office Box 701,
Milwaukee, Wisconsin 53201-0701 or the Depositor
at his most recent address shown in the
Custodian's records. The Depositor agrees to
advise the Custodian promptly, in writing, of any
change of address.
5. Designation of Beneficiary. The Depositor may
designate a beneficiary or beneficiaries to receive
benefits from the custodial account in the event of the
Depositor's death. In the event the Depositor has not
designated a beneficiary, or if all beneficiaries shall
predecease the Depositor, the following persons shall
take in the order named:
(a) The spouse of the Depositor;
(b) If the spouse shall predecease the
Depositor or if the Depositor does not have a
spouse, then to the Depositor's estate.
The Depositor may also change or revoke any
previously made designation of beneficiary. Any
designation or change or revocation of a designation
shall be made by written notice in a form acceptable to
and filed with the Custodian, prior to the complete
distribution of the balance in the custodial account.
The last such designation on file at the time of the
Depositor's death shall govern. If a beneficiary dies
after the Depositor, but prior to receiving his or her
entire interest in the custodial account, the remaining
interest in the custodial account shall be paid to the
beneficiary's estate.
6. Multiple Individual Retirement Accounts. In
the event the Depositor maintains more than one
individual retirement account (as defined in Section
408(a)) and elects to satisfy his or her minimum
distribution requirements described in Article IV above
by making a distribution for another individual
retirement account in accordance with Paragraph 6
thereof, the Depositor shall be deemed to have elected
to calculate the amount of his or her minimum
distribution under this custodial account in the same
manner as under the individual retirement account from
which the distribution is made.
7. Inalienability of Benefits. Neither the
benefits provided under this custodial account nor the
assets held therein shall be subject to alienation,
assignment, garnishment, attachment, execution or levy
of any kind and any attempt to cause such benefits or
assets to be so subjected shall not be recognized
except to the extent as may be required by law.
8. Rollover Contributions and Transfers. The
Custodian shall have the right to receive rollover
contributions and to receive direct transfers from
other custodians or trustees. All contributions must
be made in cash or check.
9. Conflict in Provisions. To the extent that
any provisions of this Article VIII shall conflict with
the provisions of Articles IV, V and/or VII, the
provisions of this Article VIII shall govern.
10. Applicable State Law. This custodial account
shall be construed, administered and enforced according
to the laws of the State of Wisconsin.
11. Resignation or Removal of Custodian. The
Custodian may resign at any time upon thirty (30) days
notice in writing to the Investment Company. Upon such
resignation, the Investment Company shall notify the
Depositor, and shall appoint a successor custodian
under this Agreement. The Depositor or the Investment
Company at any time may remove the Custodian upon 30
days written notice to that effect in a form acceptable
to and filed with the Custodian. Such notice must
include designation of a successor custodian. The
successor custodian shall satisfy the requirements of
Section 408(h) of the Code. Upon receipt by the
Custodian of written acceptance of such appointment by
the successor custodian, the Custodian shall transfer
and pay over to such successor the assets of and
records relating to the Custodial Account. The
Custodian is authorized, however, to reserve such sum
of money as it may deem advisable for payment of all
its fees, compensation, costs and expenses, or for
payment of any other liability constituting a charge on
or against the assets of the Custodial Account or on or
against the Custodian, and where necessary may
liquidate shares in the Custodial Account for such
payments. Any balance of such reserve remaining after
the payment of all such items shall be paid over to the
successor Custodian. The Custodian shall not be liable
for the acts or omissions of any predecessor or
successor custodian or trustee.
12. Limitation on Custodian Responsibility. The
Custodian will not under any circumstances be
responsible for the timing, purpose or propriety of any
contribution or of any distribution made hereunder, nor
shall the Custodian incur any liability or
responsibility for any tax imposed on account of any
such contribution or distribution. Further, the
Custodian shall not incur any liability or
responsibility in taking or omitting to take any action
based on any notice, election, or instruction or any
written instrument believed by the Custodian to be
genuine and to have been properly executed. The
Custodian shall be under no duty of inquiry with
respect to any such notice, election, instruction, or
written instrument, but in its discretion may request
any tax waivers, proof of signatures or other evidence
which it reasonably deems necessary for its protection.
The Depositor and the successors of the Depositor
including any executor or administrator of the
Depositor shall, to the extent permitted by law,
indemnify the Custodian and its successors and assigns
against any and all claims, actions or liabilities of
the Custodian to the Depositor or the successors or
beneficiaries of the Depositor whatsoever (including
without limitation all reasonable expenses incurred in
defending against or settlement of such claims, actions
or liabilities) which may arise in connection with this
Agreement or the Custodial Account, except those due to
the Custodian's own bad faith, gross negligence or
willful misconduct. The Custodian shall not be under
any duty to take any action not specified in this
Agreement, unless the Depositor shall furnish it with
instructions in proper form and such instructions shall
have been specifically agreed to by the Custodian, or
to defend or engage in any suit with respect hereto
unless it shall have first agreed in writing to do so
and shall have been fully indemnified to its
satisfaction.
AMQUEST MATRIX FUNDS, INC.
RULE 12b-1 DISTRIBUTION PLAN
The following Distribution Plan (the "Plan") has
been adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "Act"),
by AMquest Matrix Funds, Inc. (the "Corporation"), a
Maryland corporation, on behalf of the AMquest Matrix
Income Fund, the AMquest Matrix Total Return Fund and
the AMquest Matrix Growth Fund (individually referred
to herein as a "Fund" and collectively as the "Funds").
The Plan has been approved by a majority of the
Corporation's Board of Directors, including a majority
of the directors who are not interested persons of the
Corporation and who have no direct or indirect
financial interest in the operation of the Plan or in
any Rule 12b-1 related agreement (as defined below)
(the "Disinterested Directors"), cast in person at a
meeting called for the purpose of voting on such plan.
In approving the Plan, the Board of Directors
determined that adoption of the Plan would be prudent
and in the best interests of each of the Funds and
their respective shareholders. Such approval by the
Board of Directors included a determination, in the
exercise of its reasonable business judgment and in
light of its fiduciary duties, that there is a
reasonable likelihood that the Plan will benefit each
of the Funds and their respective shareholders.
The provisions of the Plan are as follows:
1. PAYMENTS BY THE CORPORATION TO PROMOTE THE SALE OF
THE FUNDS' SHARES
(a) The Corporation, on behalf of the Funds,
will pay Sun Consolidated Securities, Inc. (the
"Distributor"), as principal distributor of the
Funds' shares, a distribution fee of up to 0.25%
per annum of each Fund's average daily net assets.
The Distributor may pay all or a portion of this
fee to any registered and qualified dealer,
financial institution or any other person (the
"Recipient") who renders assistance in
distributing or promoting the sale of shares of a
Fund or Funds pursuant to a written agreement (the
"Rule 12b-1 Related Agreement"), a form of which
is attached hereto as Appendix A. To the extent
such fee is not paid to such persons, the
Distributor may use the fee for its distribution
expenses incurred in connection with the sale of
shares of a Fund or Funds. Payment of the
distribution fee shall be made quarterly, within
30 days after the close of the quarter for which
the fee is payable, upon the Distributor
forwarding to the Corporation's Board of Directors
the written report required by Section 2 of this
Plan; provided that the aggregate payments by any
Fund under the Plan to the Distributor and all
Recipients shall not exceed 0.25% (on an
annualized basis) of the Fund's average net assets
for that quarter; and provided further that no fee
shall be paid in excess of the distribution
expenses verified in a written report and
submitted by the Distributor to the Corporation's
Board of Directors as required under Section 2 of
this Plan.
(b) From time to time, the Distributor may
engage in activities which jointly promote the
sale of shares of one or more of the Funds, the
costs of which are not readily identifiable as
related to any one Fund. The expenses
attributable to such joint distribution activities
shall be allocated by the Board of Directors among
each Fund on the basis of its respective net
assets, although the Board of Directors may
allocate expenses in any other manner it deems
fair and equitable.
(c) No Rule 12b-1 Related Agreement shall be
entered into with respect to any Fund, and no
payments shall be made pursuant to any Rule 12b-1
Related Agreement, unless such Rule 12b-1 Related
Agreement is in writing and has first been
delivered to and approved by a vote of a majority
of the Corporation's Board of Directors, and of
the Disinterested Directors, cast in person at a
meeting called for the purpose of voting on such
Rule 12b-1 Related Agreement. The form of the
Rule 12b-1 Related Agreement attached hereto as
Appendix A has been approved by the Corporation's
Board of Directors as specified above.
(d) Any Rule 12b-1 Related Agreement shall
describe the services to be performed by the
Recipient and shall specify the amount of, or the
method for determining, the compensation to the
Recipient.
(e) No Rule 12b-1 Related Agreement may be
entered into unless it provides (i) that it may be
terminated with respect to any Fund at any time,
without the payment of any penalty, by vote of a
majority of the outstanding voting securities of
such Fund, or by vote of a majority of the
Disinterested Directors, on not more than 60 days'
written notice to the other party to the Rule
12b-1 Related Agreement, and (ii) that it shall
automatically terminate in the event of its
assignment.
(f) Any Rule 12b-1 Related Agreement shall
continue in effect for a period of more than one
year from the date of its execution only if such
continuance is specifically approved at least
annually by a vote of a majority of the Board of
Directors, and of the Disinterested Directors,
cast in person at a meeting called for the purpose
of voting on such Rule 12b-1 Related Agreement.
2. QUARTERLY REPORTS
The Distributor shall provide to the Board of
Directors, and the Directors shall review, at
least quarterly, a written report of all amounts
expended pursuant to the Plan. This report shall
include the identity of the Recipient of each
payment and the purpose for which the amounts were
expended and such other information as the Board
of Directors may reasonably request.
3. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective with respect to
each Fund immediately upon approval by the vote of
a majority of the Board of Directors, and of the
Disinterested Directors, cast in person at a
meeting called for the purpose of voting on the
approval of the Plan. The Plan shall continue in
effect for a period of one year from its effective
date unless terminated pursuant to its terms.
Thereafter, the Plan shall continue with respect
to each Fund from year to year, provided that such
continuance is approved at least annually by a
vote of a majority of the Board of Directors, and
of the Disinterested Directors, cast in person at
a meeting called for the purpose of voting on such
continuance. The Plan may be terminated with
respect to any Fund at any time by the vote of a
majority of the outstanding voting securities of
such Fund, or by vote of a majority of the
Disinterested Directors.
4. SELECTION OF DISINTERESTED DIRECTORS
During the period in which the Plan is effective,
the selection and nomination of those Directors
who are Disinterested Directors of the Corporation
shall be committed to the discretion of the
Disinterested Directors.
5. AMENDMENTS
All material amendments of the Plan shall be in
writing and shall be approved by a vote of a
majority of the Board of Directors, and of the
Disinterested Directors, cast in person at a
meeting called for the purpose of voting on such
amendment. In addition, the Plan may not be
amended to increase materially the amount to be
expended by any Fund hereunder without the
approval of a majority of the outstanding voting
securities of such Fund.
Rule 12b-1 Related Agreement
Sun Consolidated Securities, Inc.
4901 NW 17th Way, Suite 405
Fort Lauderdale, Florida 33309
____________, 1996
[Recipient's Name and Address]
Ladies and Gentlemen:
This letter will confirm our understanding and
agreement with respect to payments to be made to you
pursuant to a plan of distribution (the "Plan") adopted
by AMquest Matrix Funds, Inc. (the "Corporation"), on
behalf of the AMquest Matrix Income Fund, the AMquest
Matrix Total Return Fund and the AMquest Matrix Growth
Fund (individually referred to herein as a "Fund" and
collectively as the "Funds"), pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended
(the "Act"). The Plan and this related agreement (the
"Rule 12b-1 Related Agreement") have been approved by a
majority of the Board of Directors of the Corporation,
including a majority of the Board of Directors who are
not "interested persons" of the Corporation, as defined
in the Act, and who have no direct or indirect
financial interest in the operation of the Plan or in
this or any other Rule 12b-1 Related Agreement (the
"Disinterested Directors"), cast in person at a meeting
called for the purpose of voting thereon. Such
approval included a determination by the Board of
Directors that, in the exercise of its reasonable
business judgment and in light of its fiduciary duties,
there is a reasonable likelihood that the Plan will
benefit each of the Funds and their respective
shareholders.
1. To the extent you provide distribution and
marketing services in the promotion of shares of the
Funds, including furnishing services and assistance to
your customers who invest in and own shares of a Fund
or Funds, including, but not limited to, answering
routine inquiries regarding the Funds and assisting in
changing account designations and addresses, we shall
pay you a fee of up to 0.25% per annum of the net asset
value of each Fund's shares which are owned of record
by your firm as nominee for your customers or which are
owned by those customers of your firm whose records, as
maintained by the Corporation or its agent, designate
your firm as the customer's dealer or service provider
of record. We reserve the right to increase, decrease
or discontinue the fee at any time in our sole
discretion upon written notice to you.
We shall make the determination of the net asset
value of each Fund's shares, which determination shall
be made in the manner specified in the Funds' current
Prospectus, and pay to you quarterly, on the basis of
such determination, the fee specified above, to the
extent permitted under the Plan. No such quarterly fee
will be paid to you with respect to shares purchased by
you and redeemed or repurchased by the Corporation, its
agent or us within seven (7) business days after the
date of our confirmation of such purchase. In
addition, no such quarterly fee will be paid to you
with respect to any of your customers if the amount of
such fee based upon the value of such customer's shares
in one or more Funds will be less than $1.00. Payment
of such quarterly fee shall be made within 45 days
after the close of each quarter for which such fee is
payable.
2. You shall furnish us with such information as
shall reasonably be requested by the Board of
Directors, on behalf of the Funds, with respect to the
fees paid to you pursuant to this Rule 12b-1 Related
Agreement.
3. We shall furnish to the Board of Directors,
for its review, on a quarterly basis, a written report
of the amounts expended under the Plan by us and the
purposes for which such expenditures were made.
4. This Rule 12b-1 Related Agreement may be
terminated with respect to any Fund by the vote of (a)
a majority of the outstanding shares of such Fund, or
(b) a majority of the Disinterested Directors, on sixty
(60) days' written notice, without payment of any
penalty. In addition, this Rule 12b-1 Related
Agreement will be terminated by any act which
terminates the Distribution Agreement between the
Corporation and us and shall terminate immediately in
the event of its assignment. This Rule 12b-1 Related
Agreement may be amended by us upon written notice to
you, and you shall be deemed to have consented to such
amendment upon effecting any purchases of shares for
your own account or on behalf of any of your customer's
accounts following your receipt of such notice.
5. The provisions of the Distribution Agreement
between the Corporation and us are incorporated herein
by reference. This Rule 12b-1 Related Agreement shall
become effective on the date accepted by you and shall
continue in full force and effect so long as the
continuance of the Distribution Agreement, the Plan and
this Rule 12b-1 Related Agreement are approved at least
annually by a vote of the Board of Directors of the
Corporation and of the Disinterested Directors, cast in
person at a meeting called for the purpose of voting
thereon. All communications to us should be sent to
the above address. Any notice to you shall be duly
given if mailed or telegraphed to you at the address
specified by you below. This Rule 12b-1 Related
Agreement shall be construed under the laws of the
State of Florida.
SUN CONSOLIDATED SECURITIES, INC.
By: _____________________________
Richard D. Brace, President
Accepted:
____________________________
(Dealer or Service Provider Name)
____________________________
(Street Address)
____________________________
(City) (State) (ZIP)
____________________________
(Telephone No.)
____________________________
(Facsimile No.)
By: _____________________________
(Name and Title)
